Cost-Plus Contracting - Experiences, Pros and Cons
| Sep 20, 2011
Have a channel partner grilling us on component costs (to get overall costs down) and a solution we're looking at is a cost-plus supply agreement wherein we would be free (and expected) to disclose costs in detail. Then we just negotiate over overhead and profit %'s.
Anyone care to share experiences, pros and cons and/ or a template?
JW
Answers
Company:
Actually it's kind of nice. Sort of like not negotiating your car purchase: just take the price and be happy. Of course the whole thing depends on how you do on your markup negotiations. But once you're there, it's all about volume. If you can scale effectively then you have your markup times all your volume. If you can add products, you increase your pass-through, and your volume. You can see where this is going: once you have your deal, you need to pump as much volume as possible through that deal.
Try to minimize the audits they impose on you and keep clean books. It can be tricky to segregate their business from your other business. I recommend setting up bookkeeping for this customer essentially as a separate BU or subsidiary - segregate all costs and revenues religiously or you won't be able to tell how you're doing on profitability.