The bottom-up pricing method is a more tedious process than the top-down method, but it is important nevertheless. Only by carefully measuring your costs will you be able to check that your prices are correct and measure your profit. Every caterer will have a different cost structure based on individual factors such as overhead, labor force, marketing expenses, and location. If you lease your own kitchen and employ a dozen people, you'll have a different cost structure than if you rent space in a commercial kitchen and work on your own.

It's very important for you to cost everything from the price you pay to secure supplies, ingredients, and labor. First determine the total cost of every dish that you offer on your menu. Once you know what your total costs are, add the necessary amount of profit to arrive at your final price. Only by doing careful cost analyses will you be able to know how much ingredient and labor cost increases will affect your profit margin.

The amount of profit you'll make on each item will vary. Try to sell as many higher-profit items as possible, and only offer the lower-profit items to satisfy client demands. As long as you hit the average annual profit number, you're doing fine.

Ingredient Costs

Start by making a list of ingredient items, preferably on a spreadsheet on your computer. Create headings like “Dairy Items,” “Meat, Poultry, Fish,” “Vegetables and Fruits,” and “Pantry Items.” Continue until you have all the headings that you need to cover all of your ingredients. Under the appropriate heading, list every item that you'll use regularly in your menus.

Vendor Costs

Fill in the cost for each item, and in a separate column list the portion size in ounces. Your list will be long. Make sure to list the size and grade of the item. For example, list a dozen organic large grade A eggs and sixteen ounces of full-fat sour cream. If the fish you use is farmed, make a note. If the beef is grass-fed, record it. Prices rise over time, so date your spreadsheet.

Make sure that you fill in total prices you will pay, and don't use a price for a higher quantity than you'll typically buy or a price paid by a higher-volume caterer.

Cost Every Dish

You'll have to cost every dish. Start with your recipe and fill in the costs from your ingredient cost sheet. Calculate the cost per serving. Include your best estimate for prep time and multiply that by your labor cost. If you have an assistant prep that dish, calculate the labor cost based on her wage. If it's a dish you do yourself, you must factor in your labor. To determine your hourly labor cost, compare yourself to the salary of a local chef with a similar amount of experience.

Use these components to cost each dish:

• Food cost

• Food production labor

• Overhead

• Soft costs

Soft costs are variable costs and generally include supervision, profit, freight, software, and other intangible items.