Skip to main content

Methodology

Cost Escalation Clause Planner methodology

Apply a documented cost escalation and measure unrecovered exposure.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Escalated Price Ex Tax
escalatedPriceExTax = current contract price + passed-through increase

Where

currentContractPriceExTax
Current contract price (currency units/contract unit, ex tax)Source: Business record
contractUnits
Contract units (whole contract units/comparison period)Source: User assumption
escalatedPriceExTax
Escalated Price Ex Tax (currency units, ex tax)Source: Calculated output
passedThroughIncreaseExTax
Passed Through Increase Ex Tax (currency units, ex tax)Source: Calculated output
Cost Increase Ex Tax
costIncreaseExTax = documented cost base × cost increase rate

Where

costBaseExTax
Documented cost base (currency units/contract unit, ex tax)Source: Business record
costIncreaseRate
Cost increase rate (proportional increase in documented cost base)Source: User assumption
costIncreaseExTax
Cost Increase Ex Tax (currency units, ex tax)Source: Calculated output
Passed Through Increase Ex Tax
passedThroughIncreaseExTax = cost increase × pass-through rate + fixed adjustment

Where

costIncreaseRate
Cost increase rate (proportional increase in documented cost base)Source: User assumption
passThroughRate
Pass-through rate (proportion of cost increase passed through to client)Source: User decision
fixedAdjustmentExTax
Fixed adjustment (currency units/contract unit, ex tax)Source: User decision
costIncreaseExTax
Cost Increase Ex Tax (currency units, ex tax)Source: Calculated output
passedThroughIncreaseExTax
Passed Through Increase Ex Tax (currency units, ex tax)Source: Calculated output
Escalation Rate
escalationRate = passed-through increase ÷ current contract price

Where

currentContractPriceExTax
Current contract price (currency units/contract unit, ex tax)Source: Business record
contractUnits
Contract units (whole contract units/comparison period)Source: User assumption
passedThroughIncreaseExTax
Passed Through Increase Ex Tax (currency units, ex tax)Source: Calculated output
escalationRate
Escalation Rate (decimal rate)Source: Calculated output
Period Unrecovered Cost Ex Tax
periodUnrecoveredCostExTax = (cost increase − passed-through increase) × contract units

Where

contractUnits
Contract units (whole contract units/comparison period)Source: User assumption
costIncreaseExTax
Cost Increase Ex Tax (currency units, ex tax)Source: Calculated output
passedThroughIncreaseExTax
Passed Through Increase Ex Tax (currency units, ex tax)Source: Calculated output
periodUnrecoveredCostExTax
Period Unrecovered Cost Ex Tax (currency units, ex tax)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Escalated Price Ex Tax
103.6 currency units
Cost Increase Ex Tax
4.8 currency units
Passed Through Increase Ex Tax
3.6 currency units
Escalation Rate
3.6%
Period Unrecovered Cost Ex Tax
1,200 currency units

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

The escalated price applies the documented pass-through share to the verified cost-base increase.

3. Validation and boundary checks

  • All inputs must be finite and within the visible validation boundaries.
  • Rates use decimal values below 100%; whole-unit thresholds round upward only where the engine names that rule.
  • All compared monetary inputs use one consistent ex-tax basis and planning period.

4. Assumptions and source classification

  • Every cost, price, fee and volume is supplied by the user; no market benchmark is inferred.
  • Indirect tax is excluded from retained commercial economics unless a dedicated input explicitly models it.
  • The engine retains full precision and display formatting never feeds back into calculation.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model does not forecast demand, competitor response, supplier negotiation outcomes or capacity.
  • It does not replace accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

Return to the planner