Every item on your menu needs a price. Keep track of how much every ingredient costs and how much labor each dish will require. Menu prices should also reflect associated business costs, such as overhead. Once you have established these costs, you will add a markup, which is where your profit will come from. The next chapter discusses the specifics of pricing your menu, but prices can be fixed according to a rough formula:
Food costs: 20–30 percent
Labor costs: 5–10 percent
Overhead: 15 percent
Markup: 45–60 percent
Remember, gratuity is always added on top of your price. You give your client a price and explain that a service charge is added on top to cover the gratuity. Generally, service charges range from 17 to 25 percent.
Determining costings will be a long and tedious process when you start your business, but it has to be done correctly. You can't guesstimate costings and run a profitable business. Catering software can make the tedious job of costing menu items easier. Let the software do the calculations for you.
Costings must be done based on your final recipes. If you change a recipe, the costings will no longer be accurate. You'll have to estimate costs for salt, spices, and other ingredients — even water. It doesn't matter if it's only a few cents; enter a cost for each ingredient. If it's not free for you, it shouldn't be free for the client.
Determine how many servings your recipes will yield. Try to have the same yield for all of the recipes on your menu. This will make pricing easier for you. For example, if you base your standard recipes on thirty-six servings, you can calculate the cost of buying ingredients for thirty-six portions and price each dish accordingly. Using a recipe that works for a large number of servings means you won't have to alter the recipe to cater larger jobs, but don't base your recipes on too large a number. You'll end up underestimating your per-serving cost, since you'll overestimate the discount you get by buying in bulk.
If you use nine pounds of salmon in your baked salmon dish to get thirty-six servings, you'll have to price the exact type of salmon you use for your classics and premium menus. If you use farmed salmon on your classics menu, find an average price per pound from the two or three most likely sources you'll purchase the fish from. Don't use the lowest price you find, and don't use sale prices. If you want to offer wild Pacific salmon on your premium menu as an upgrade, price that type of fish. Calculate the average premium over the farm-raised fish, and record that information on your spreadsheet.
It's better to overestimate the cost of a dish than to underestimate it. If you're too conservative with costings, you may end up losing money.
Labor, Overhead, and Up-Selling
To determine labor, you need to know how many man-hours it takes to prepare and serve each item on your menu. Calculate a weighted-average for determining a labor cost for a specific event. To know your overhead cost, list each of the fixed and variable charges you pay annually or every month. This list should include your rent, energy costs, insurance premiums, and other costs that you pay day in and day out, whether or not you have a catering gig.
Determine a price for up-selling a customer, and record it in a separate column on your spreadsheet or as a separate item in your catering software, so you'll be prepared when you meet with clients. Be prepared to offer potential clients other options to make their event even more special. If it turns out that the client has a big sweet tooth, for example, have a price ready for a complete chocolate decadence buffet, rather than just a price for a standard cake.
Since food and overhead costs tend to go up on an annual basis, you'll need to adjust your costings every year and raise menu prices as needed.