Cost-plus pricing. The model that hides three different arguments.

Inside the phrase cost-plus there are three independent levers. What costs are in the cost base. How those costs get allocated to the service line. What mark-up percentage gets applied on top. Each lever is set by the seller, often using methodology the seller already uses internally. Each lever is open to renegotiation, but each one needs a buyer-side analyst who can read the methodology and challenge the inputs.

The cost base argument is whether overhead, corporate allocation and unrelated cost has been swept into the service line. The allocation argument is whether the driver used to apportion cost (headcount, revenue, transaction volume) reflects the buyer's actual consumption. The mark-up argument is whether the percentage applied is at market for the service type. Industry mark-ups vary by workstream, with IT and finance running at one band and pure passthrough services running at another.

A buyer-side TSA review treats cost-plus as three pricing arguments, not one. Each is benchmarked. Each is negotiated. The total fee the buyer pays is the product of the three, so a defensible position on each is worth multiples of the negotiation effort. After signing, the buyer's leverage drops sharply. Before signing, every lever is still live.

Where the term appears

In the pricing schedule of the TSA, usually with a defined cost base methodology and a stated mark-up percentage. In monthly invoices, where the cost-plus calculation is reflected as a line by line charge. In governance committee disputes, where the cost base or allocation is challenged. In mid-TSA renegotiation memos, where the original cost-plus structure is reset to reflect actual consumption.

Related terms

Mark-Up · Pass-Through · Service Catalog · TSA Extension Fee · Transition Services Agreement