Pricing strategies for the catering industry midterms
Published on: Mar 4, 2016
Transcripts - Pricing strategies for the catering industry midterms
Pricing Strategies for the Catering Industry
Part 2: Mechanics and Methodology
By Carl Sacks
In the previous issue of Get Fresh we discussed models for pricing in the various catering sectors, as
well as how pricing differs around the country. Today we’ll discuss the mechanics and methodology of
pricing from a management perspective.
Earlier I talked about the goal of optimal pricing from the seller side, mostly relating to using various
pricing strategies to improve a caterers’ competitive position. But the other aspect of a successful
pricing strategy is to create a pricing model that will ensure a reasonable profit for the company. This
is in many ways an ever greater challenge, albeit one that differs by type of catering company.
Off-premise full-service cost multiple pricing
Back in the early part of my own career in catering, pricing off-premise catering was easy—the cost of
the raw food was treated as the baseline cost and a multiplier (typically 3 to 5) was used to arrive at a
retail price. If there were other components of the catered event, such as labor or rentals in full-
service, or disposables and delivery in corporate catering, they were often charged as pass-through
items, sometimes with no markup whatsoever.
This was a very simple pricing method, and back before the great catering boom that began in the mid
1980s, was perfectly appropriate. But as events became more complex with more components, using
food cost multipliers as the sole determinant of prices proved to be inadequate. Full-service caterers
found that if their only profit center was in the markup on food, then the odds of making a reasonable
net profit were slim.
Full-service off-premise caterers began to look for other areas as profit centers. No other component
of a typical catered event offers the same kind of markup as food does, but all of the pieces of a full-
service event offer a profit opportunity.
The markups (or conversely, the cost percentages) of the other main components of full service
catering tend to vary drastically. For example, we have seen labor marked up 100 percent and we
have also seen labor marked up 10 percent. Outside rental markups are also all over the map. Most
full-service caterers get a minimum 10 percent discount or rebate from their rental company, but we
know of caterers that are getting as much as 30 percent back—and at the same time putting on an
There are some common pass-through components of a full-service catering package that usually are
not marked up. The most common examples are venue fees, but some caterers also do not mark up
third-party services. One relatively recent development is the administrative fee that many caterers
now add to full-service events. Since there is no offsetting cost for this particular revenue item, it can
add quite a bit to the profitability of a catering company.
Is there currently an industry standard for food cost multiple pricing? As I noted last month, the
variance in pricing for full-service catering in different markets around the country is vast, even
though the raw cost of the food products that most caterers buy is actually quite similar no matter
where in the country the caterer is located.
When reviewing financial reports from caterers around the country, the food cost percentage that we
see calculated as a percentage of gross revenue is usually 33 percent or less; for full-service caterers
in expensive markets, it’s often less than 18 percent. The lowest food cost I have ever seen was from
a boutique caterer operating in a high-end market; this company showed a food on gross revenue
percentage of considerably less than 10 percent.
When drilling down to arrive at food cost as a percentage of menu price, the variance is not nearly as
drastic. The range we see in full-service off-premise catering typically runs from a high of about 28
percent down to about 22 percent. Considering the range of prices for full-service catered functions
around the country, the fact that the cost percentages are so consistent raises an interesting question
about what the buyer gets for a dollar.
Clearly, in many of the most expensive markets around the country, a catered wedding package
includes a greater quantity of food items, more expensive food, higher service levels and more
amenities. The difference is great enough so that the percentage profit margin on a $50 wedding in a
mid-range market and the profit margin on a $150 wedding in a high-end market are almost the
On-premise full-service cost multiple pricing
In the regions of the country that have large numbers of commercial on-premise caterers (primarily
the Northeast), the market seems to drive pricing as much or more than any cost multiple calculation.
For example, in the New York/New Jersey/Long Island market, the vast majority of banquet hall
operators offer similar packages. Frequently, they will have several price points, but the overall menu
structure will be almost the same.
Despite this similarity in the product provided, the prices can vary drastically. For example, it is not at
all unusual for one banquet hall to charge $149 per person for almost the exact same package for
which another banquet hall would charge $79.
Clearly in the on-premise market, the idea of using a food cost multiplier does not apply. The
perceived value that allows one operator to charge almost twice as much as another for the same
product is based on other factors—décor, location, convenience, image, service etc. Many of these on-
premise banquet operators are profitable whether at a 15 percent food cost or at a 25 percent food
Another reason that the on-premise business is so clearly market driven is that there is much more
pricing transparency in the on-premise world. Most off-premise caterers don’t post their prices, but
many on-premise caterers do. The complexity of a typical off-premise event sometimes makes it
difficult to do an apples-to-apples price comparison, but with the on-premise world package pricing, it
is possible to compare.
As the catering industry has become much more complex, with many additional moving parts, the old
pricing models have proven inadequate. For a catering company to maintain both a competitive edge
and a reasonable profit, it must have cost/price models for all of the different components of its
On- and off-premise caterers sell similar products but because of the differences in the competitive
environment, on-premise catering pricing is primarily market driven, while off-premise pricing is most
often built from a cost multiplier formula.
The most successful (read “most profitable”) caterers are the companies that have a clear
understanding of what goes into their cost structure and how their pricing relates to their profitability.
They know their costs calculated per event as cost of goods, and in fixed expenses.