Cost-Plus vs. Markup: How Food Distributors Price Your Orders
Understand the difference between cost-plus and markup distributor pricing, how to negotiate better terms, and what hidden fees to watch for on food invoices.
Cost-Plus vs. Markup: How Food Distributors Price Your Orders
Food distributor pricing directly affects your food cost — and most restaurant operators don't fully understand how distributors set their prices. The difference between cost-plus and markup pricing can mean thousands of dollars per year on the same products. Understanding how your distributor prices your orders gives you real negotiating leverage.
Two Ways Distributors Price Products
Cost-Plus Pricing
In a cost-plus agreement, the distributor charges their actual cost plus a fixed percentage:
Your price = Distributor's cost + agreed % markup
Example:
- Distributor's cost for chicken breast: $2.20/lb
- Agreed markup: 12%
- Your price: $2.20 × 1.12 = $2.46/lb
When commodity prices drop, your price drops automatically — you're directly connected to the market.
Markup Pricing
In standard markup, distributors don't disclose their cost. They quote you a price per unit. The margin they make is invisible.
The margin on standard markup pricing varies widely: 8% on commodity items to 35%+ on specialty products.
How to Tell Which Model You're On
Ask your rep directly: "Are we on cost-plus or standard pricing?" If they're vague, you're likely on standard markup.
Signs you may be on standard markup:
- Prices don't track commodity markets (chicken stays the same when market drops)
- You can't verify what your distributor pays for items
- Different customers have noticeably different prices for identical products
Negotiating a Cost-Plus Agreement
Cost-plus pricing is typically available to restaurants that:
- Purchase above $1,500–$3,000/week consistently
- Have predictable ordering patterns
- Have a positive payment history
How to negotiate:
- Request a meeting with your rep and their sales manager
- Bring 3 months of purchase data showing your volume
- Ask specifically for cost-plus at 12–15%
- If declined, ask for a printed price matrix and compare to market rates
Benchmarking Your Distributor's Prices
Even on standard pricing, you can benchmark intelligently:
- Commodity items: Compare to USDA market reports. You should be within 10–15% of spot price.
- Proteins: Check Urner Barry or Provision Exchange for current market prices.
- Specialty items: 25–35% markup is typical; harder to benchmark.
Cost-Plus vs. Markup Comparison
| Factor | Cost-Plus | Standard Markup |
|---|---|---|
| Transparency | High — you see their cost | Low |
| Price when market drops | Drops automatically | May not drop |
| Requires minimum volume | Usually yes | No |
| Best for | High-volume, consistent buyers | Default for all buyers |
FAQ
What is cost-plus pricing with a food distributor?
Your distributor charges their actual cost plus a fixed percentage (e.g., 12%). Transparent — when commodity prices drop, your prices drop too.
How much markup do food distributors typically charge?
8–15% on commodity products, 15–25% on proteins, 25–35% on specialty items. Cost-plus is typically negotiated at 10–15% across the board.
Can any restaurant negotiate cost-plus pricing?
Distributors typically offer cost-plus to accounts spending $1,500+/week consistently. Smaller operators can negotiate by consolidating orders with fewer distributors.
How do I know if my distributor is overcharging me?
Compare invoice prices to USDA market reports and get competitive bids from 2–3 distributors annually. If one distributor is consistently 10–15% above competitors, you have leverage to renegotiate or switch.
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