Finding the right catering equipment and catering supplies marks the beginning of delivering a winning catering menu. Next, you need to develop a range of menu choices with calculated food costs for each item. This is not as easy as it seems, since you may not know at first what kind of events and clients you will be catering to. However, developing pricing that is both competitive and profitable is essential to running a successful catering business.
There are generally three ways to price menu items:
Fixed Pricing – Fixed pricing is aptly named as it means each menu item has a fixed cost. You can price items on a per-person basis, and charge your customer according to the number of people at the event. Or you can price items on a platter basis. For example, you could charge $16 for a platter of 15 hors d’oeuvres, or $200 for a prime rib carving station that serves 50.
Tiered Pricing – Big events typically have a lower per-person pricing. This is because it is more cost-effective for you to produce food in bulk for a big event than to produce food for a ten-person dinner party. In tiered pricing you use a fixed pricing system, but instead of one fixed price for each menu item you have three or four, and you charge according to the size of the event. For example, the per-person cost of fried chicken for an event of 50 people or less might be $20, while the cost for an event of 200 is only $17 per guest.
Custom Pricing – In a custom pricing system, you only quote customers on the cost of food for an event after they have given you all the details about the function. This allows you to customize a menu for the customer and more accurately determine the true costs of the ingredients and food preparation before you give a quote.
Choosing a Pricing System
Many customers prefer a fixed price catering menu, since they themselves can easily calculate how much they will have to pay for food. However, keep in mind that catering larger or smaller parties will incur different food and food preparation costs. Often, caterers have found that producing a menu for a smaller party will have almost the same overall costs as producing the same menu for a party twice that size. Therefore, a tiered pricing system is a good alternative to fixed pricing, since customers can still estimate how much the food will cost, but you factor in variances in expenses due to different party sizes. Here is an example of a tiered pricing menu:
|Menu Item||Less than 50 people||50-150 people||150+ people|
|Petite Filet with a mixed green salad
||$23.95 per guest||$22.45 per guest||$20.95 per guest|
|Eggplant parmesan with spaghetti
||$22.95 per guest||$21.25 per guest||$19.95 per guest|
||$27.95 per guest||$25.95 per guest||$24.25 per guest|
|Sesame-crusted chicken breast||$22.45 per guest||$21.15 per guest||$19.75 per guest|
Most caterers use a price-per-person or price-per-platter system, but unfortunately, once you print a fixed price on your menu, you can’t go back on it. By far the most financially safe way to price menu items is custom pricing. Consider using a flexible pricing system that is quote-only. That way you can gauge your customer and the difficulty of the contract before finalizing a price for the food. You can also more easily alter and customize the menu and pricing for individual clients.
Determining the Markup on Menu Items
The first thing you need to do when determining a markup on your menu items is to calculate the food costs. Determine the costs for both large and small parties. If you use fixed pricing, calculate the average cost according to your expectations of what sized parties you will be catering. For tiered pricing, calculate the cost for different sized events. No matter what pricing system you use, make sure you include the cost of labor for preparing the food when you calculate your food costs.
Most caterers have found that the following equation offers a good “rule-of-thumb” markup on menu items:
Food Costs x 3 = Final Menu Price
With this markup, you will make about a 67% margin on your food. At first glance this seems like a very high margin. However, the unpredictable nature of catering and the various costs incurred due to transport, set-up and clean-up makes it a reasonable markup. Remember: when catering buffet-style, it is always all-you-can-eat. Running out of food would be terrible for your reputation. You should always bring at least 10% more food than you expect you will need. Compensate accordingly in your pricing.
Other Factors to Consider
Other factors to consider when pricing your menu items include the following:
Client’s willingness to pay. If you use a custom pricing system, you should always consider the client’s willingness to pay when you determine the price of your food. Some clients want the most expensive food and service possible. Others may be working with a tight budget. The majority are willing to pay somewhere in between. Learning what kind of customer you are dealing with so you can alter pricing accordingly can greatly improve your profitability. You can even offer a separate high-end menu, mid-priced menu and budget menu to meet different customers’ needs.
Competition’s pricing. Many customers are price-sensitive, especially since contracting a caterer can be a pricey affair. Before you determine fixed pricing for your menu items, you should always take a look at the competition. Knowing what other catering companies are charging will allow you to price your menu items at a competitive rate.
Desired profits. No matter what kind of pricing system you use, if the return on investment you get from an event is not worth the time and money put into the event, your pricing is too low. Determine exactly how much you need to make from an event to make it worth your while, and price your menu items accordingly.
In addition to the menu pricing, most caterers tack on extra fees to the total cost of catering the event. You can charge clients for extra labor, rental fees, cake cutting fees and delivery fees. If you want to have your menu priced competitively but are not making the profits you desire, you can make up for it by tacking on these additional fees. Just keep in mind that they need to be fully explained on your catering proposal and quote, or clients might feel they are being swindled.
These pricing tips offer a good guideline for determining the cost of menu items. However, sometimes there are factors to consider that are unique to your business. For example, if you run a restaurant, make your catering pricing somewhat similar to your restaurant pricing or your customers will feel they are not receiving a good value. As another example, if you have won catering awards in your region, you can increase your pricing significantly, since clients will perceive your services as having a better value. So when pricing your menu items, make sure to consider as many factors of your business as possible to determine the optimum pricing structure.
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