If you specialize in catering appetizers only, a "fixed price" method can be used to allocate costs.
Food and a happy palate bring people together during special events. As a caterer, to plan effectively you need to know the costs to allocate to the event's budget so that you can appeal to the senses both visually and in taste within budget. An event serving 500 at a wedding during the month of June when weddings are in full bloom would have different costs allocated than a buffet lunch with no servers. If you enjoy variety, you may offer services from top to bottom and allocate costs for each event, or you may prefer to cater to only one size of event and use a standard cost allocation.
Calculating a Percentage of Revenues
According to Jo Herde, Director, Food and Beverage Operations with New York City's premier caterer, "Great Performances," the industry standard of allocating costs for an experienced catering company is a percentage of revenues. Twenty-seven to 29 percent of revenues are allocated to food costs, 9 percent to overhead costs, such as rent and equipment, and 16 to 17 percent to labor. This could generate a gross profit margin of 8 to 12 percent for a catering company.
Including One-time Expenses
In your first year, you may have one-time costs of initial inventory to allocate to your budget as well as one-time equipment purchases, such as a convection oven, a vehicle and a walk-in refrigerator. Because of the one-time costs, do not be alarmed if you find that your costs exceed revenues in your first year even though you allocated percentages of revenues for costs as per industry standards.
Preparing for the Unexpected
In the catering industry, supplier prices could rise, expected booking during a holiday season may decline or a new competitor may surface. You will need to allocate costs for the unexpected. When preparing your projections for the first two years, decrease your projected revenues by 40 percent, and increase your costs by 50 percent.
Costs by Size
In allocating costs, there are two methods you can take: fixed pricing and tiered pricing. Caterers who use fixed pricing specialize in a particular size crowd. Costs allocated are standard for the size. Caterers who use tiered pricing specialize in catering to a variety of events and sizes. Costs are allocated based on the varied size. Both should have costs allocated for food preparation. Some caterers allocate markup as "food costs x 3" as a general rule.
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