Pricing strategy is a tough nut to crack for any business owner. However, it can be especially challenging for caterers who must balance the cost of goods with labor—all while maintaining profitability. You can’t run a catering business without food, but you also can’t run it without people to prepare the food.
When you factor in ongoing expenses for kitchen supplies, appliance upgrades, maintenance, and other overhead, it can add up to some pretty tight profit margins.
While some costs are non-negotiable, like utility bills and insurance premiums, there are strategic ways to cut back on expenses on food and labor. By refining your menu pricing, you can increase efficiency, reduce waste, and save money without sacrificing the top-quality service your customers expect. Here’s how you can do just that.
Pricing for labor
With food, all you have to do is look at your recent purchase orders to get an idea of your breakeven point. If you spend more on ingredients than you earn in return, it’s easy to see how that would put you in the red. It isn’t quite as clear-cut when it comes to labor. Between full-time, part-time, and temporary workers, caterers must account for different pay rates, hours, and benefits to ensure fair compensation without eating into profits.
This is where dynamic menu pricing comes into play. Many factors influence the profitability of an event, including seasonal demand, guest count, and individual customer needs. Preparing 50 lunches for a corporate retreat requires a different approach than serving a 200-person wedding, so pricing should naturally look different.
The key to accurately pricing for labor is to find a happy medium between fair pay and efficient scheduling. While overstaffing can blow up your bottom line, understaffing will lead to poor results and employee burnout (as can under-compensation).
Consider your typical labor needs, given the type of event. Weddings, bar mitzvahs, retirement parties, corporate meetings—what do you need to fulfill the demands of each? Compare each employee’s pay rate to their schedule, looking for places to save. For instance, can you have lower-paid employees put in more hours to free up time for your higher-paid employees? Is there a way to reduce the number of servers by promoting interactive food stations and elaborate self-serve displays?
Once you’ve discovered the most cost-effective schedule and pay structure for your team, revisit your pricing strategy to ensure your profit margins are sound. In addition to food expenses, make sure to account for the pay (and benefits) of each employee involved in an event—even if someone spends only 15 minutes helping with clean-up!
Pricing for food
Catering professionals should always be aware of how much they spend on ingredients, as they need to ensure those costs are covered by their menu pricing. But if you aim to grow your bottom line without raising rates, there are plenty of creative ways to do so.
For example, planning menus around batch preparation is a strategic way to cut costs for both food and labor. Likewise, reducing food waste by reinventing kitchen scraps means you get more bang for your buck with every purchase order.
Caterers can also practice negotiating with food providers to garner better rates within their supply network. Establishing mutually beneficial relationships with local farms, butchers, markets, and artisans will broaden access to new inventory and potential discounts, both of which can benefit a company’s profitability.
For those who don’t have the time or patience to cultivate relationships and negotiate with food vendors, joining a group purchasing organization (GPO) is an effective solution. GPOs negotiate with large-scale distributors on behalf of thousands of members, securing bulk discounts for caterers regardless of how much they order.
Adopting a strategic approach to menu pricing that considers both food and labor costs is essential for catering businesses aiming to maintain profitability. By optimizing staff scheduling and pay structures, caterers can achieve an efficient balance that keeps employees happy without eating into their bottom line.
