Understanding Budget Pricing And Profit Calculation

Budget Allocations and Profit Margins Some off-premise caterers charge clients to cover the costs of delivering the food to the party. This is generally the case where there is no on-site preparation, and the caterer is simply preparing the food and delivering it to the party. Some clients pay the delivery charge without hesitation, while others refuse to buy from those caterers who charge for delivery. To avoid the latter situation, many off-premise caterers simply add the cost of delivery into the food cost, not showing it as a separate charge. What happens when a party continues beyond the specified stop time? How should caterers charge for this type of overtime? Normally, overtime charges are specified in the catering contract, so that there are no surprises if the party goes longer than planned. These charges are usually based on the hourly rate paid to staff, the number of staff, extra food and beverages served, and some form of markup to these costs. The majority of overtime costs are usually for labor, since by the end of the event most guests have eaten and drunk their fill. In those circumstances where offpremise caterers are providing accessory services such as music and valet parking, overtime fees must be added to the final bill. For example, let us assume that a party goes one hour overtime and there are three staff who are working the event who will stay. They are each paid $12 per hour including payroll benefits. No extra food or beverages are expected to be consumed. Three staff at $12 per hour equals $36 in extra payroll expenses. The caterer may wish to mark up the labor 2 or 3 times, to $72 or $108 to the client, thus generating an additional profit of $36 or $72. OTHER PRICING METHODS Off-premise caterers do not use one universal pricing method. Caterers have their own unique methods for pricing that fit their style and needs. However, all successful caterers have one thing in common. They charge prices that not only produce sufficient profits but generate repeat business. What are some other pricing techniques? Budget Pricing Method With this method the client gives the caterer an overall budget for the event. It may be just for food, staff, and equipment, or it may also include accessory services such as music and decor. For example, a client tells a caterer that the budget for a forthcoming event is $5,000 for 100 guests. This budget is for food, staff, and equipment only. Astute caterers first determine their desired profit for the event, and then budget for the expenses as follows. In this instance, let's assume that the offpremise caterer wishes to earn a profit of $1,500 from this event. When deducted from the total budget of $5,000 this leaves $3,500 for all expenses, which include food cost, labor, and equipment. At this point, the caterer simply computes the menu, staff, and equipment needs at cost, which should total $3,500. Please note that these are computed at cost, not at retail, since profit was budgeted first. Cost-Plus Method From time to time off-premise caterers may be requested to cater a special event where the client wishes to provide some or all of the food. An example is the grand opening of a supermarket, where the supermarket provides the food, but requires the off-premise caterer's expertise in executing the event. In this circumstance, the off-premise caterer may wish to charge a flat fee for time, exper-tise, and profit. This amount should be at least what the caterer would normally carn on an event of similar magnitude. Above the flat fee, the caterer would simply charge the client the cost of labor, equipment, and miscellaneous food expenses, and other specific costs for the event. Range-Pricing Method This method is used when off-premise caterers are quoting prices for an event in the distant future, where costs may be uncertain. For example, when quoting a price for a Florida stone crab dinner or Maine lobster dinner two years in advance, there is no sure way of knowing the cost of these fresh seafood items two years out. In these instances, caterers may wish to simply quote a price range, which would include both best-case and worse-case scenarios. Package Price This price includes all components necessary to produce an event including food, beverage setups, staffing, equipment, music, and flowers. Package prices should be designed for a minimum number of guests, since the price is per person. If there are fewer people than the minimum, there will be insufficient revenue to cover costs and produce profits. An example of a package price for 100 guests follows: 100 Dinners at $15 pp $1,500 100 Beverage mixers, ice at $2 pp 200 Staffing 750 Equipment 1,000 Band 750 Flowers 300 Total before tax and other charges $4,500 Here, the caterer may wish to price this package at $44.95 per person, for a minimum of 100 guests.