Cost-plus pricing means your distributor charges you its cost for each item plus an agreed margin, markup, or fee per case, so what you pay depends on two things you rarely see on the invoice: how the agreement defines "cost," and which percentage or fee applies to each category.
Almost every broadline distribution agreement for restaurants is cost-plus, whether it comes from Sysco, US Foods, Performance Food Group, or a regional house. Operators tend to read the percentage and stop there. The percentage matters, and so does the method, the cost basis it sits on, and whether you have any right to check it.
How does cost-plus pricing work for restaurants?
The distributor starts with a landed cost for each item, usually the manufacturer's delivered invoice price to the distributor, and adds its charge on top. That charge comes in one of three forms, and the same headline number produces three different prices. Here is one $40.00 case under each method:
| Method | Formula | Price on a $40.00 cost |
|---|---|---|
| Margin of 12% | Cost ÷ (1 − 0.12) | $45.45 |
| Markup of 12% | Cost × (1 + 0.12) | $44.80 |
| Fee of $3.00 per case | Cost + $3.00 | $43.00 |
A 12% margin and a 12% markup sound identical and differ by 65 cents a case. Across thousands of cases a month, that gap is real money, so the first question about any cost-plus quote is which formula it uses.
Is a margin or a fee per case better?
It depends on your mix. A percentage margin charges more dollars on expensive cases, so a steakhouse buying a lot of beef pays far more per case than a pizzeria buying flour and cheese at the same margin. A flat fee per case charges the same dollars on a $150 case of tenderloin and a $20 case of napkins. Fee-per-case deals tend to favor operators with heavy protein spend and hurt operators who buy many cheap, bulky cases, which is why bottled water often carries its own flat charge even in margin agreements.
The two methods also behave differently when prices rise. Under a margin, a 10% increase in manufacturer cost raises the distributor's dollars by 10% as well. Under a fee per case, the distributor's dollars stay flat. During a commodity spike, that difference compounds every week.
To compare a margin bid with a fee bid, convert the fee into an implied margin on your own items: divide the fee by the price of each item, weight it by how many cases you buy, and compare the weighted average against the margin quote. We do this on every bid where distributors answer with different methods.
What counts as "cost" in a cost-plus contract?
This is where most of the money hides. "Cost" can mean the manufacturer's delivered invoice price, that price less marketing allowances, or a figure the distributor sets internally. Some agreements let the distributor keep allowances and incentives it earns from manufacturers outside the cost basis, so the margin is applied to a number higher than what the distributor actually paid. Our article on how distributor pricing actually works explains these earned-income streams.
Your agreement should answer four questions in writing: what cost basis applies, whether manufacturer allowances are deducted before the margin, how your own direct manufacturer contracts get loaded into cost, and how often cost can change. If it is silent on any of them, the distributor's internal definition applies. The master distribution agreement checklist covers where these clauses sit.
How are cost-plus margins set by category?
Most agreements apply a schedule rather than one number. Proteins and other high-cost categories often carry lower margins, dry goods and disposables higher ones, and a short list of select items may carry a much lower margin still. The schedule is attached as an exhibit, and it is the most valuable page in the contract. If your proposal quoted one schedule and the signed agreement attaches another, or attaches none, the signed version is what you will be billed.
Ask for the schedule at the category level and confirm that every category you buy is on it. A category left off the schedule defaults to whatever the distributor decides.
How do you check that you are getting your cost-plus price?
Without audit rights, you cannot. With them, the check is straightforward. Take the distributor's usage report, divide total sales dollars by cases for each item and month to get the price you actually paid, and compare it to cost plus the agreed margin or fee for that category. Flag any item whose price moved more than 5% month over month, then look for the cause: a cost change, a pack swap, a split-case charge counted as a case price, or the wrong margin applied. Our guide to auditing a Sysco invoice line by line shows the same method on a real invoice layout.
Most operators never run this check because it takes hours a month and requires cost data the distributor only shares under a written right to audit.
Why do independents pay higher cost-plus margins than chains?
Distributors set margins by account size and the risk of losing the account. A national chain moving thousands of cases a week gets a low schedule and a clean cost definition. An independent buying $1 million to $5 million a year gets the standard schedule, often with a looser definition of cost underneath it. Negotiating alone, a single account can trim a few items. Changing the schedule, the cost basis, and the audit language takes volume.
FoodServiceIQ brings that volume. We represent more than $2 billion in buying power, so when we take a client's distribution to bid, every distributor is pricing a relationship with all the business we represent. We build a market basket from your invoices, collect cost-plus bids from each major distributor in your market, convert every bid to a comparable weighted margin, negotiate the schedule and the cost definition, and then audit your invoices every month against what was signed. Our team includes former distribution executives who wrote these schedules from the other side. Dish Society saved $413,000+ a year working with us.
Questions operators ask
What is a typical cost-plus margin for a restaurant? It varies by category, distributor, and account size, and independents usually sit well above what large groups pay. The only way to know your number is to read your margin schedule or have someone back it out of your invoices.
Is cost-plus the same as deviated pricing? No. A deviation is a manufacturer-funded price for a specific customer that lowers the cost; the cost-plus margin is then applied on top.
What does FoodServiceIQ cost? There is nothing to pay upfront. In most engagements the distributor pays our fee as an administrative fee under the agreement we negotiate, so you pay nothing out of pocket. We work with groups spending $1 million or more a year on food, and clients typically see new pricing within 90 days.
If you are not sure what margin you are paying, send us your last three months of invoices and we will back out the cost-plus terms behind them.
