A question commonly asked by new caterers out there would be “How do I set the catering price for my first event?”. Luckily, you are reading the right article! We are here to help you to come up with the right catering pricing that is not only profitable but also sustainable.
When it comes to catering business, you need to take into consideration of more than just the cost of food and service. In order to be a successful caterer, the more detailed you are, the higher the chance for you to turn a decent profit on every catering job.
Drive your attention by capturing every possible cost involved. Take into consideration your projected profit, then simplify the calculation and present it neatly as a proposal to your client. Read on and you are on you way to price right!
Cost Breakdown As A Starting Point
Similar to any other businesses out there, caterers too have a fixed amount of monthly cost (overhead) to cover. Therefore, before you start calculating your cost and profit according to per event basis, it is best to set a goal on the frequency of catering jobs that you need to meet every month.
This overhead cost would include the expenses for kitchen rental if you are renting, if not the cost of kitchen operation, transportation, utilities, tools, equipments and the list goes on. Then, add all these costs and divide them up according to the anticipated number of events.
Still unclear? Not to worry, we’ll break down these expenses one-by-one throughout the article.
Determine how many staff is needed to man the event. From your cook, sous chef, server, to the busboy, calculate their wages either per hourly rate or per day flat rate and include this as your labour cost.
Certain menu selection might require more preparation, therefore, more amount of labour in terms of the hours and number of staffs. Do count this factor in when you are calculating your labour cost as well. On top of that, put in consideration on factors such as fluctuating labour rates during public holidays, festive seasons or busy periods.
It is necessary for you to do the head count for every event. This will determine the overall food cost and food quantity calculation. Commonly done in percentage, most food services and businesses propose food costing to be between 22% to 34% of the total expenses. In which, allowing a minimum of 66% for labour and food expenses.
After you get the number of guest down, it’s time to calculate the food cost per plate. More specifically, you can determine the cost per plate by breaking down the elements of the menu item into individual cost. For instance, the cost of a whole chicken is RM20 and fills up about 4 plates. Therefore, the cost of per plate of chicken is RM5.
Other add-on fees are also chargeable to your clients which may cover things such as event decor and supplies. Especially, for sit-down events or special occasions such as weddings that would require more decorative items including flowers, table napkins, glassware, etc.
Do not forget to include the cost of transportation and travel as well. You may want to charge these expenses for event hosted outside of your usual business area.
On top of that, it is always advisable for you to prepare extra food in cases of guests turnout exceeding the initial number estimated. Prepare at least 10% more food. Generally, a good caterer is always ready to serve that few extra plates when required. This may later be included in your add-on fees.
Catering Pricing Method
The two preferable pricing methods practiced in the catering business are tiered or fixed price. Of course, both would have its own pros and cons. However, as a caterer there is no restriction per say if you would want to utilize both method in your pricing model.
Going into details, tiered pricing is more common as it is based on the guest count. The smaller the guest count, the higher the charge per plate or per person. It is perfect to create a package based on this tiered method because the higher the number of guest, the more is discounted for each price.
For example, a wedding lunch may cost RM30 per head for 500 guests, but for 1,000 guests, it may go down to RM15 per head.
Meanwhile, fixed pricing refers to offering a fixed price per menu item. Typically, it is counted per plate basis, for example per plate of mixed riced is RM10 and per plate of dessert is RM5. Hence, for each guest you would charge at RM15.
Markups and Profit Margin
Markups are essentially the same as your profit margin. It determines how much you will profit from an event after covering all the costs mentioned above. The same like how your client might save on the tiered pricing method, you too can save up on food cost when you stock up items in bulk or at warehouse pricing. Fortunately, Dropee offers just this (Click here to see more).
First thing first, to determine your markups, set guest count and then calculate the average cost of food per event size. Other way to markup is by using a standardized method that multiplies the food costs by three in order to come out with the final menu price. Otherwise, you can mark up according to percentage as mentioned earlier which is between 22% to 34%.
Market Research and Standard Rate
Needless to say, the food service industry is highly competitive. It takes great effort to ensure that your client is satisfied and would want to hire you again. Hence, if you have the resources, do spend some time to research your market, target customers, competitors and standard rate in order to quote accordingly.
Come up with an organized and clearly detailed proposal or quotation. Then, prove why it is money worth spending for your clients. Additionally, a good caterer should also develop the skills to not only negotiate and convince but also exemplifying pro-activeness and determination to provide the best service and dining experience.
Once you have gotten everything down with you cost and pricing, it is time to focus on other things such as marketing your business, food quality and customer service plus more. All in which you can refer to in our previous article here.
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