Whether you’re starting a brand new catering business or you’ve been at it for decades, figuring out how to set catering prices is a critical task that typically follows a fairly predictable sequence of steps.
It begins with deciding (or reevaluating) what kind of catering business you want to provide. You need to have a clear idea of exactly what’s on your catering menu. You need to know what kinds of events and clients you are targeting. You need to know whether there is a fit between those ideas and the needs of the community you are planning to serve. And you need to know who else is already out there doing it, how they’re doing it, and (pretty critical) how much they are charging.
Of course, this is all homework you have to do anyway when putting your catering marketing plan and catering sales strategies in place. Once you understand these basics, you are ready to get laser-focused and assemble your catering pricing sheet.
Start With the Menu. What’s for Dinner?
Or breakfast. Or lunch. Or high tea. Whatever your targeted sweet spot, pricing always begins with the menu. The mystery of how to set catering prices is not much of a mystery, as food costs will make up a significant portion of your regular operating expenses and dictate how much you will need to charge to make a profit.
Food is both a critical asset and investment for your catering business. You need to know exactly what you will be serving and in what quantities. Rough estimates are dangerous. If you’re making beef bourguignon and you price it based on needing to buy some “beef” and some “red wine” and some “other stuff,” you’re already in trouble. You don’t cook it that way, so you can’t price it that way.
Your recipe calls for a specific cut of meat (brisket, chuck steak, sirloin) and a specific variety (let’s go with burgundy) if not vintage of wine. And all that “other stuff?” We are probably talking about dozens of ingredients here. What kind of butter do you use? What kind of bacon? Mushrooms? To get your menu pricing right, you are going to have to know and account for the entire cookbook that backs it up, whether your fare is down-home country cooking, organic Asian vegan, or postmodern burgers.
And food costs go beyond pricing the individual ingredients. Those costs will look very different if you’re typically doing weddings and corporate events with hundreds of guests versus focusing only on smaller, intimate gatherings.
The question of how to price a catering menu is tied not just to the dishes you serve, but the quantity of those dishes. If you typically buy food in large quantities, unit costs will be lower. If you buy in smaller quantities, the unit costs go up. Ultimately, your catering pricing sheet will have to reflect this reality.
The Devil in the Details: Overhead and Pricing
The size of your typical engagement is one of many factors contributing to your overall positioning as a catering business. For that reason, it is one of many considerations that impacts how to calculate prices for catering. Are you a high-end gourmet caterer servicing elite, gala-style events or a local provider who gets lunch to the masses and tends to attract catering leads from local businesses?
Sit-down meals require more labor costs than setting up a buffet. The same is true for fine china and silverware versus a stack of paper plates and a basket of plastic cutlery. Are you supplying and setting up tables and chairs, or do you outsource? (Or do you leave it up to the client?) All these details have to find their way onto your catering pricing sheet.
When determining how to set catering prices, more comes into play than you might think. Labor we have already mentioned, but it’s worth mentioning again. If you have full-time staff, you’re looking not just at wages and benefits but also items like training and possibly uniforms. Then there’s your lease, utility bills, fuel and maintenance for your van (or fleet of vans), regular cleaning and servicing for your kitchen’s hood and ductwork — along with a thousand and one other checklist items that you have to attend to when keeping your grill(s), oven(s), refrigerator(s), dishwasher and other equipment working right. And don’t forget to add in all your sales and marketing expenses. All of these have to factor in to that final $89 per person or Peppered Tofu Skewers: $200 / 40 guests as detailed on your catering pricing sheet.
A key tip here is to follow what many other service-based businesses do, and that is to come up with a monthly overhead calculation for fixed costs (that is, lease, cleaning/maintenance, salaries, etc.) and then divide that by the number of catering jobs or even meals you serve each month and then either recoup that with a per-job “service fee” or add it into the costs for each meal you prepare.
Size Up the Competition
When figuring out how to set catering prices it’s important to remember that, as much as you might like for it to be, the final decision is not just yours. What the customers need and what they are willing to pay for it has at least as much to do with the equation as your own inclinations.
And then there’s the competition. They aren’t going to give you a catering pricing template or tell what to put on your catering pricing sheet — not directly, anyway — but chances are they will play a major role in how you set your pricing. (Hint: A great way to get their pricing is to have a friend mystery shop your competitors for you, collect their catering menu pricing sheets and details, and then pass them along to you.)
In the earliest days, before launching your catering business, it’s important to see who the other local players are before you finalize your own business plan. Is there anyone filling roughly the niche you are going for? Are there several (possibly too many) catering businesses competing for the same business? What the other players are charging will give you some idea of what the market expects and is willing to pay.
This doesn’t tell you what your prices have to be. But it does give you an idea, if you plan to charge more, what level of quality and service you have to surpass to justify the higher prices. And the same is true if you plan to charge less. To compete on price, you want to provide as high quality an experience as the competition while charging less.
Of course, price is not the only way to compete, but it will almost always be a factor. So finding out what the competition charges will not be a one-time task: rather, it is something you have to track regularly. Over time, you will no longer be the new kid in town, meaning that you will not only need to keep tabs on your existing competitors, but also on the upstarts who are looking to differentiate themselves from you either through service or price.
Bring It All Together: The Catering Pricing Sheet
Whether you are trying to work out how to price catering services overall or simply how to price a catering job for one customer, your catering pricing strategy has to account for the big picture. All of the food, labor and overhead costs listed above will factor into the budget you put together for your catering business.
The details of setting up your budget are beyond the scope of this article, but there are many great resources available for creating a catering business budget. You can find anything from broad catering pricing guidelines — such as keeping food expenditures around 30% of your total budget and labor around 20% — to detailed, step-by-step training courses outlining full pricing strategies for caterers, complete with sample catering pricing templates. In the end, you should have a good estimate of your operating expenses and a good estimated forecast of the level of business you can do.
From there, you only have to figure out how much profit you are looking to make (keeping in mind everything we just covered about what the competition is doing), and at that point filling out your catering pricing sheet becomes a fairly straightforward exercise. Whether you are charging for full meals per head, a la carte dishes or some other variation, it’s a simple formula:
P*BV=E+M
Or in other words, price times business volume equals expenses plus markup (or profit.) Now you have all the pieces you need to determine how to calculate prices for catering. With your budget and forecast in place, along with a goal for how much you want to make, the only missing piece of the puzzle is P, price. This formula works both for setting fixed prices that you may want to put on a published menu, or for pricing individual catering jobs.
For pricing individual jobs, a good catering pricing sheet will collect all the specifics for the proposed engagement: what food will be served, how many guests, labor and set-up costs, etc. Once you have these details, and you already know what markup you are targeting, the price for the job becomes clear. There is very little to it if you have done your homework and put together a detailed catering pricing sheet that correctly reflects your expenses and is aligned with your budget and forecast.
The good news is you don’t have to start from scratch. As with aids for catering budgeting overall, there are many general sample catering pricing templates available online as well as for specific venue types (like catering pricing for restaurants).
Start with one or two that follow the same basic pricing structure you are looking to put in place and see what works. You may have to experiment with more than one catering pricing template and mix and match a little, but — as with your catering business overall — you will eventually find a catering pricing strategy that is the perfect fit for your catering business.
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