The profitability of any catering business is an aggregate of the profit and loss of each of its individual events. It is very important that every caterer possess the tools to efficiently analyze individual events. Some of the catering software systems in the market today have this functionality built into the system, though some caterers use a basic spreadsheet system to do this.
Based on industry survey of restaurants, the best menu price point to maximize profits for restaurants is in the middle of the market. It simply means a price point above fast casual and quick serve restaurants, but below very high – end restaurants.
What is the Average Service Charge in the Catering Industry?
In the industry, there has never been a similar price point versus profitability survey done of the catering industry. Nonetheless, based on an informal review of caterer profitability by price point, it is believed that midrange caterers are generally more profitable than either boutique caterers or budget caterers.
This may sound counterintuitive, especially since boutique caterers often attract the very high – end events, which rake in higher income per guest revenue. However, boutique caterers generally have a smaller base of revenue over which to spread their fixed costs, while at the same time are required to buy the most expensive products and employ the most skilled staff. Note that most of the highly profitable single market caterers are mid – market businesses.
In any industry, prices and brand image are entwined. Catering is no different. If you properly promote your business as an economical way to feed a group, mark up at the lowest end of the spectrum is necessary. If you find it’s not achievable to do this and still price the same or slightly lower than the competition, you should be marketing yourself around quality rather than price.
Note that if you promote your business as a purveyor of fine dining – calibre catering, high prices are expected, and low prices even prompt skepticism among discerning clientele. Mark – up at or a bit above 200 percent of fixed costs is reasonable. But it is advisable you take a good look at what you provide the customer and the story your product and marketing buttresses, and make sure your catering menu prices align with the image.
You also don’t have to be cheaper than the competition in the industry. In fact, you do need to know what the competition charges for similar food items and how your food and service compare. Have it in mind there is nothing wrong with being more expensive than competitors, as long as your clients get value of their money from you.
A catering business, just like a restaurant, can fail, survive, or thrive on word – of – mouth. If you offer your clients ethical value for their money, people will somehow find out. Similarly, if your business is not a great bargain or too expensive for what you provide, expect the same word to spread. Note that in any community, people make these determinations based largely on how your business compares to the competition.
The Estimated Profit Potential of a Catering Business
Pricing in the catering industry can be a bit more complicated than pricing in the restaurant business. There are more variables, such as party size, transportation costs, and having to overestimate food quantities. Hence, there’s more flexibility in catering pricing methods.
In this business, you can assign fixed fees, structure tiered prices based on number of guests, or create custom prices on a case-by-case basis. Additionally, catering service fees encompasses certain costs without excessive mark up on food.
Even if you won’t necessarily offer fixed prices on your catering menu, it’s advisable you establish them anyway as a point of reference. In the food industry, it is standard practice to set an item’s menu price at 150 to 200 percent higher than its fixed cost. Fixed cost is the cost of an item’s ingredients and the time and labour involved in its preparation.
Although the profits might sound exorbitant to outsiders, caterers and restaurateurs know how much of this money goes to covering the many other operational expenses and surprises that go along with the food service industry. There are a number of considerations affecting where on the mark up spectrum you set your catering menu prices.
Nonetheless, according to reliable reports, the average salary for caterers in the US is $48,000. These experts are known to enjoy a salary that is in the top 25% of all careers in the food industry. As a new entrant in the catering business, you can expect to garner about $30,000, while top caterers at high – end or established businesses often pull in upwards of $80,000.
Note that this is a seasonal business; the first quarter of the year tends to be fairly light, summer has a spike in weddings. The 4th quarter always comes with a bunch of holiday parties. While on the other end, your overhead in terms of kitchen, equipment, and any core employees are fixed. So profits margins tend vary quite a bit based on which portions of the season you do best in selling.
However, in summary, in the high end, there are caterers that have consistently shown pre – tax profit of over 25%, an impressive percentage in any industry. There are also caterers that have barely been able to generate any profit in the entire life of their companies.
But the average pre – tax profit of all of the caterers in the united states over the years has been 7% to 8%. For purposes of comparison, the average pre – tax profit in the full service restaurant industry is 3% to 4%.
How to Make your Catering Business More Profitable
A Catering business is not just exciting but also profitable, as long as you know how to manage it wisely. This sort of business can be scaled easily, meaning, you can start it anytime, even with little capital; and you can grow it as much as you want or just let it stay as a small – time, home – based sideline business. Read on and find below few tips on how you can raise your catering profit margins.
- Choose a precise niche
Irrespective of how small or big your business seems to be, don’t forget that the key to a successful business is finding out your niche market and setting your eyes on it. By choosing a specific specialty, you will have a clear idea of what you really want. You will need to be realistic with your goals, so you can keep your expectations achievable. So, if you are a new entrant in this business, take gradual precise steps and grow your business from there.
- Good planning and organizing
Whether it’s on – site or off – premise catering that you’re offering, do not forget that no catering business will be lucrative if it fails to implement a doable plan and organize things properly. Have it in mind that smart planning also means a more efficient and organized group, which could mean a smooth – functioning job well done and clear cut for your part.
If you are catering at an off – premise site, this is where planning is best put to use. So, before hitting the road, make sure to plan out how to keep everything orderly, so you won’t have to fret out.
- Leverage a Catering Software
Never underestimate the importance and relevance of catering software. Aside from streamlining the work, it also stores every detail of your business’ operations, so it’s really a great value for money.
Note that catering software providers, like Better Cater, always see to it that the best is offered to their clients, so you can expect to get only the most useful, most user – friendly tool to ensure that your business operates in a smooth – flowing manner, helping you not only boost your business’ revenue but also raise your catering profit margins.
- Cooking and food presentation
When compared with eating at a restaurant, catering is more event specific, so you really have to understand that both the cooking and food presentation are centered on special occasions, like wedding, birthday, anniversary, holiday or corporate gathering. In this business, expect your clients to expect more and demand more from you. You need to ensure that not only is the food is unique, but as well as the presentation.
There are venues, as well as clients, who will always remind you that presentation is a big factor, but don’t forget that no matter how artistic the food presentation may be, if the food does not sit well on your guests’ palate, everything boils down to nothing.
Having a clear understanding of how your catering company is performing financially on a timely and ongoing basis is very necessary. Leverage the various tips mentioned above and make them part of your financial management system.