University:
Stanford University
Course:
ECON 1 | Principles of Economics
Academic year:

2023
Views:

332

Pages:

2
Author:

WSubuh

Price Setting Methods How much markup is proper? This, like rental equipment, varies from caterer to caterer, but is invariably less than markups applied to food costs. Markups in the range of 10 to 25 percent are fairly common. Sometimes, in an extremely competitive situation, caterers may simply provide these services at cost in order to gain a pricing edge. Where the clients deal directly with the accessory service providers, is it ethical for off-premise caterers to receive commissions from those suppliers they recommend? This is a touchy subject which will spark debates from coast-to-coast. The main point is that commissions received from accessory service suppliers must be reported as income. Pricing Beverage Services Off-premise caterers frequently provide beverage mixers, ice, and other bar ser-vices, and certainly must pass these costs on to clients. Again, the amount varies from one caterer to the next, with an average between $ 1 and $2 per guest. Also, in this example, we will estimate that the cost of mixers and ice is $100. To summarize the costs involved in this sample event we have estimated the following costs: Food costs $1,110 Labor costs 1,640 Equipment rental costs 1,800 Beverage mixers and ice 100 Total cost $4,650 With the estimated costs computed, the next step is to determine the various markups and food cost percentages. There are various formulas which will bring the same results. With the goal of a food cost in the range of somewhere between 20 and 50 percent, let's examine two ways to obtain this with our sample menu with a $1,110 food cost. The first way is to divide the food cost by the desired food cost percentage. For example: FOOD COST DIVIDE FOOD BY SELL PRICE MARGIN COST PERCENTAGE $1,110 25% 4,440 3,330 $1,110 35% 3,171 2,061 $1,110 40% 2,775 1,665 $1,110 45% 2,467 1,357 $1,110 50%%, 2,220 1,110 By subtracting the actual food cost from the selling price, one can determine the amount of gross margin produced from the food sales.