Cost-plus pricing
Setting a price by taking the cost to deliver and adding a fixed markup or margin on top. Simple, but it ignores the value the work creates for the client.
For example, if a campaign costs an agency $8,000 in time to deliver, cost-plus pricing at a 50% markup gives a $12,000 price. It guarantees a margin, but a high-impact campaign could often command far more under value-based pricing.
Why it matters to agencies: cost-plus pricing is easy and protects against losing money, which is why many agencies start there. Its weakness is that it caps your upside - tying price to your costs rather than the client's outcome - so it tends to leave money on the table for high-value work.
- Pricing off your costs and ignoring the value to the client.
- Exposing your internal margin to the client.
- Leaving no upside when you deliver more efficiently.
What is cost-plus pricing?
Setting a price by taking the cost to deliver and adding a fixed markup or margin on top. Simple, but it ignores the value the work creates for the client.
How does cost-plus pricing work?
You calculate the cost to deliver, then add a set markup or target margin to arrive at the price.
What is the difference between cost-plus and value-based pricing?
Cost-plus prices from your costs; value-based prices from the outcome's worth to the client, which is usually higher for impactful work.
What is a typical markup for cost-plus pricing?
It varies, but agencies often target a markup that lands gross margin in a healthy 50-65% range.