How does a COST PLUS business model work

A cost-plus contractor compiles a budget, with a breakdown of line items as per specifications and drawings provided. A common misconception is that the word “cost” in cost-plus is the builder’s ACTUAL COST, but it is usually not.

Typically the “COST” has a % of profit for the business’ overhead.

Mark ups can be manipulated in several ways, depending on the contractor. Some contractors may reduce their management fee to appear a better value than a competitor.

At the end of the day, if you’re not paying the trades/supplier direct, then you’re not getting the dealer price.

Generally they do not operate with transparency
May have some in house trades and sub‐contracts independent trades.
Margins typically 35 to 40%
Change orders and extras often 40 to 70% margins.

Contractor receives payments and pays sub-trades and suppliers.

Increased exposure to Builder Liens for unpaid sub-trades or suppliers.

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