LearnInput costs
How do I protect a fixed-price quote when material costs rise?
Start with the contract. An escalation clause lets you raise your price if an agreed cost index rises, and a supplier price lock fixes what you pay for a period. For metals and fuels, futures and options through a broker can offset a price rise, but futures need cash for margin. An event contract can pay out if a published price averages above a ceiling you choose. Its upfront cost isn’t returned if prices stay low.
What are your options?
| Option | What it covers | How it pays | What you pay upfront | Main limit |
|---|---|---|---|---|
| Escalation clause | Material cost increases on the contract, measured by an agreed index or by supplier invoices. | The customer pays a higher price, using the clause’s formula. | Nothing. It costs negotiating time. | Customers may refuse it or pick a bid without one. Some clauses cap the total increase. |
| Supplier price lock | Material from one supplier, at a fixed price, for a set period or quantity. | You pay the locked price on each delivery. | Usually built into the locked price. Terms vary by supplier. | A lock may be short or limited in quantity. You pay the locked price even if prices fall. |
| Futures and options through a broker | Price moves in materials with listed contracts, such as copper, in fixed contract sizes. | Gains on the position offset higher material costs. Losses offset the savings when prices fall. | Margin deposits for futures, or a premium for options, plus broker fees. | Margin calls can strain cash. Contract sizes and the benchmark price may not match your job. |
| Event contracts set up by Crux | A rise in a widely published price, such as copper, above a ceiling you choose. | If the agreed event happens, the contract pays out under those terms. There’s no claims process. | An upfront cost you see before you approve anything. | Follows the published price, not each supplier invoice. The upfront cost isn’t returned if prices stay low. |
| Buying event contracts yourself on an exchange | Only the price levels, dates and terms an exchange already lists. | The contract pays out under the exchange’s terms if the listed outcome happens. | The contract price, plus any fees. | Listed terms may not match your job. You choose, buy and manage the contracts yourself. |
| Do nothing (absorb the cost) | Nothing. The business keeps all the risk. | There is no payout. Higher material costs come out of your margin. | Nothing. | A large price rise after you quote can turn a profitable job into a loss. |
What is an escalation clause?
An escalation clause, also called a price-adjustment clause, lets you change the contract price when an agreed cost changes. The US Bureau of Labor Statistics (BLS) says businesses often use these clauses in long-term sales and purchase contracts. BLS estimates that agreements with a lifetime worth in the trillions of dollars are adjusted using its Producer Price Index (PPI) family of indexes.
A clear clause names the base price, the index that measures the change and how often the price resets. BLS notes that some clauses set a floor, a ceiling or both to limit the total adjustment. The standard clause in federal contracts, FAR 52.216-4, caps the total increase in any unit price at 10% of the original unit price.
A clause costs nothing up front, and it moves the risk to the customer. The customer has to agree, though. In a competitive bid, a clause can make your price look less certain than a rival’s fixed price.
Can a small business use futures?
Yes, if the material has a listed futures contract and the business can handle the cash demands. Large manufacturers already do this. Mueller Industries reported that on December 27, 2025, it held open futures contracts to buy about $16.6 million of copper over the next 12 months for fixed-price sales orders.
Futures come in fixed sizes. One standard CME copper futures contract covers 25,000 pounds of copper. A Micro Copper futures contract covers 2,500 pounds. Businesses buy and sell futures and options through a futures broker.
The main strain is cash. The CFTC explains that futures margin is a performance bond, typically between 2% and 10% of the contract’s value, and that each position is marked to market every day. If prices fall far enough, you must add cash to the account, even while your material cost is falling too. Options on futures work differently: the buyer pays a premium up front.
What if the material has no futures market?
Many inputs have no futures contract of their own, such as a specific resin grade, a fabricated part or a supplier’s finished product. For these, the usual tools are an escalation clause tied to a published index, such as a PPI series, or a price lock from your supplier.
Some businesses protect a related price instead, such as copper for copper-based parts. The related price may not move with your actual cost, so a payout can be more or less than your loss.
The same applies to event contracts. With Crux, the costs that can be protected are those that follow a widely published price, such as metals, fuel, natural gas or power. Protection follows that published price, not each supplier invoice. Tell us what could raise your costs and we’ll confirm what we can protect.
How does an event contract protect a quoted price?
Set a cost ceiling your business can absorb. We set up protection around that limit. If the agreed event happens, the contract pays out under those terms. If prices fall instead, you buy at the lower market price. The contract doesn’t pay out, and the upfront cost isn’t returned.
You keep buying from your usual suppliers. Protection is arranged separately from your purchasing.
You tell us what could hurt the business. We set up the protection and show you the terms and price. You approve it through an account in your business’s name that we help you open. A payout follows the agreed event, so there’s no claims process. Crux is a broker, not an insurer.
The worked example below uses copper. It shows the payout and your all-in copper cost at three average prices.
A worked example
You’ve committed to a customer price. Copper hasn’t. Your bid assumed $5.00/lb copper. You chose an all-in ceiling of $5.50/lb, including protection.
| If copper averages | Contract payout | What it means |
|---|---|---|
| $5.25/lb | $0 | Your copper cost is $5.35/lb, including protection. That’s below your ceiling. |
| $6.00/lb | $120,000 | Your copper cost stays at $5.50/lb, including protection. |
| $6.50/lb | $220,000 | Your copper cost stays at $5.50/lb, including protection. |
Protection cost: $20,000 upfront
Assumes 200,000 lb of copper for one job. Illustrative example. Terms and pricing agreed upfront.
What are the limits?
- If the agreed event doesn’t happen, the contract doesn’t pay out, and the upfront cost isn’t returned.
- The agreed event may not match your actual loss. A contract pays on the measured outcome, not on your own costs or sales. This gap is called basis risk.
- The payout follows the contract terms and the agreed measurement source, such as a published price or a named weather station.
- Protection covers the quantity and dates in the terms. If the job grows or runs late, the extra material isn’t covered.
- If the customer cancels the job, the contract stays in place under its terms. The upfront cost isn’t returned.
When is Crux not a fit?
- Your customer accepts an escalation clause, so the customer carries the price risk.
- Your supplier will lock the price for the whole job at a cost you accept.
- You already use a futures broker and have the cash to meet margin calls.
- The material is a small share of the job, so a price rise wouldn’t threaten your margin.
Related guides
Sources
- Producer Price Index (PPI) Guide for Price Adjustment, US Bureau of Labor Statistics, December 13, 2021.
- FAR 52.216-4 Economic Price Adjustment-Labor and Material, Acquisition.gov, March 13, 2026.
- Mueller Industries, Inc. Form 10-K for the fiscal year ended December 27, 2025, Mueller Industries, February 25, 2026.
- Copper Futures Contract Specs, CME Group, October 2026.
- Micro Copper Futures Contract Specs, CME Group, October 2026.
- Economic Purpose of Futures Markets and How They Work, Commodity Futures Trading Commission, October 2026.
This guide is general education. It is not an offer, and it is not financial, legal or tax advice. Terms, prices and availability depend on the contract.