Profits and Expenses in Catering Ventures

Maximizing Profitability The main goal of all pricing strategies is to maximize the bottom line. The art of pricing is learning the amounts to charge that will produce sales. Caterers whose prices are extremely high will earn large profits on those parties they cater, but the number of parties catered may not be enough to generate sufficient income to cover overhead expenses and required profits. Underpriced caterers may successfully sell virtually every client, but fail to produce sufficient revenues to cover overhead expenses and profits. The art of pricing is to charge enough to earn an overall profit, but not so much that most proposals are lost. The middle ground is where most off-premise caterers are found. As a rule, somewhere between 50 and 75 percent of all proposals should result in contracts. Frequently, clients ask caterers to reduce quoted prices. For example, a caterer quotes a price for an event that will generate a $1,000 profit for that particular event. The client says they will work with the caterer if the price can be lowered by $250, which will mean $250 less profit for the caterer. Should the caterer take the party? This depends on the caterer's philosophy. Some say, "75 percent of the pie is better than no pie at all." Others say, "clients either do business on my terms, or we do not do business." A good philosophy is not to reduce a price without reducing something in the party. In this example, the caterer might agree to cater at the reduced price, but serve top sirloin instead of beef ten-derloin. Another might compromise, doing the party for $125 less, making one or two minor reductions in the menu. What should off-premise caterers expect to earn for their efforts and what are some common percentages? These figures vary dramatically from one caterer to another depending on pricing structure, local market conditions, and other factors; however, some common ranges follow: Food cost percentage (Before federal income tax) Payroll and benefits 20 to 40% of Gross Sales All other expenses 20 to 30% Net profit percentage 10 to 30% 10 to 40% Prime cost is a term used widely within the foodservice industry. It is the total of the food cost and the direct labor cost. Some operations may have low food costs, but high labor costs, and vice versa. For example, caterers serving steaks will more than likely have higher food costs and lower labor costs since little labor is needed to cut, season, and broil steaks. Conversely, caterers that serve upscale menu items that require significant labor to produce will have higher labor costs, and lower food costs. For caterers, prime cost will normally be less than 60 percent of sales. Therefore, caterers with high food costs of 40 percent of sales should have labor costs of no more than 20 percent of sales to stay within the range. Those with lower food costs will normally have higher labor costs.