Did you know that by becoming a caterer that you’ve started a business with high costs and low margins? Yes, it’s true. And if you’ve been in the catering business long enough, you won’t find this fact surprising.
It’s for this reason that it’s so important to know the ins and outs of business finances pretty darn well as well as have a cash flow forecast when you begin. I’ve learned that it’s less expensive to make small mistakes early on in your catering venture than to risk your whole business on one job.
“Know Your Numbers!!” That’s what my first boss, a long-time experienced caterer, always preached to me when I worked as a server. And to this day, I remember his wise words.
Unfortunately, he had learnt this the hard way. His first year in business had been successful, and his turnover had increased from month to month. The problem was, his profit margins had NOT increased in line with the turnover.
Because he did not give due diligence to controlling bought stock, portion control, and ever increasing waste materials, he found himself on the brink of bankruptcy.
He decided to concentrate on his current business and re-train a member of staff to manage stock control. He priced everything down to the last cent and stuck by this formula throughout his career. Suffice to say, his business got back on track, and the profit margins began increasing again.
One of the mistakes I see my fellow caterers make in growing their businesses is becoming laser-focused, and ONLY chasing sales.
Chasing a sale means that a caterer will go above and beyond to capture a prospect’s business. Caterers suddenly take on an almost Machiavellian by-all-means-necessary approach with the only goal of gaining their business. But why is this approach not smart?
Although it has generally proven somewhat successful, this approach always dismisses cost factors, which tends to result in caterers having to make up the losses in – you guessed it – MORE sales.
Big mistake.
Using the advice passed on to me from my first boss, I learned very early on that YOU MUST know your food and labor costs and approach things from a profit-first mentality. When I ran my catering business, I would even count in the price of salt added as a seasoning! This might seem crazy to many younger caterers, but it certainly put me on the right path. Since I knew how much that pinch of salt was going to cost me, I could pretty much guarantee you that I knew precisely how much larger items would cost.
But how do you price every job to meet your profit expectations? The ONLY way to do that is to know your costs. Remember, the price of an event is equal to the costs to put on the event plus the profits you desire.
Price = costs + profits desired.
Now, if you make a decision to forego your margin on a job because doing so will keep a great client or expose you to new clients and niches then go ahead and do so. BUT still try to keep a disciplined focus on making a profit and building a profitable business from the start. This discipline has been the key to helping my fellow caterers get rich in great times and kept them busy in challenging and trying times.
As you can imagine, because your profit margins can be low, you must look at every job and review its cost factors carefully. Many of our clients use a food-costing feature we have built into our Better Cater catering software. We help automate the whole costing process for you and factor in all the variable and fixed costs so that you always know your event costs.
