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Cost-plus pricing: how to check your distributor's markup

Under a cost-plus agreement you pay the distributor's cost for an item plus an agreed markup, either a percentage or a fixed amount per case. It sounds simple, but "cost" is defined by the distributor, and that is where most of the drift happens.

Know what your agreement says

• Get the agreement in writing: the markup (percent or per case), which categories it covers, and how "cost" is defined.
• Ask whether cost is invoice cost from the manufacturer, or a "landed" or "market" cost that can include freight, warehousing or other charges.
• Ask which items are excluded. Proprietary and house-brand items are often priced outside the agreement.
• Note how often cost is updated (weekly, on each shipment) and whether you can request a cost audit.

Checks you can do from your invoices

1. Pick 10 to 20 high-spend items. Proteins, cheese, oil and paper goods usually make up most of the bill.
2. Track the price per unit over time. Divide the case price by the pack size so pack changes don't hide increases.
3. Compare against market movement. If your price for a commodity item went up while public market reports for that commodity went down, ask your rep why.
4. Watch for items moving out of the agreement. A familiar item replaced by a house brand at a higher per-unit price may no longer be covered by cost-plus.
5. Look for new line fees. Fuel, delivery and small-order charges sit outside the markup and can grow on their own.

When the numbers don't match

Send your rep the invoice number, the item, the price you paid, and the price you expected under the agreement. Ask for a credit on the difference and a correction going forward. Keep a record of each request and its outcome.

FeeHawk's free audit lists per-item price changes, new fees and missing credits across your invoices, which gives you the list of items worth checking against your agreement.