CBM Chapter 10 - Pricing

Chapter 10
Pricing Off Premise Events
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Pricing
The “Science” of Pricing – determining the actual costs of goods and laborThe “Art” of Pricing – how much mark up can be successfullynegociated
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Market Variables
Determine how much can be chargedSupply of Caterers in MarketDemand for ServicesTypes of caterersMarket research is key– Analyze clients and their needs
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Pricing
Many caterers can use pricing as an effective sales toolGood pricing is not a “win – lose” but rather a “win – win”Pricing should take a long term view
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Pricing for Profit
Main goal is to maximize the bottom line while maintaining the pricing “win win”Find the “middle ground” between good profit and reasonable pricesAs a rule – 50 – 75 % of proposals should be acceptedWhen negotiating, try not to lower a price without reducing something in the event
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Common Cost RangesOf Gross Sales
Food Cost 20 to 40 %Payroll and Benefits 15 to 30 %All other expenses 10 to 30%Includes “fixed” costsNet profit before Taxes 10 -40 %
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Prime Cost
Prime cost is the sum of the company’s food cost and it’s direct labor costsShould be no more than 60% of Gross Sales
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How Much will it Cost?
Quoting a price without asking qualifying questions is asking for troubleIf pressed – quote a broad range based on your previous experience – then proceed to ask for detailsPrices that change can create suspicion and animosity
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Costing
Develop Cost Basis lines forFood CostCommissary Labor CostsAll costs to deliver, set up, serve and clean upEquipment CostsOther costs (Flowers, décor, music)
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Computing Food Costs
Accurately estimate the actual cost of the food necessary to produce the eventCosts are volatile – especially meat and seafood – the so - called “Center of the Plate”Maintain recipe cards – update with current pricesUse a spread sheetTo price event multiply by number of guests expected (don’t forget planned overages)
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Labor Costs
Labor CostsCommissarySet up and serviceTear down and clean upOffice overhead – sales commissionsRemember to figure in all Benefits and taxes
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Equipment Costs
Equipment costs can be structured differentlyOwned equipment can be marked up as if it were rentalCan use to secure an eventPrice for profit or discount to underbid competitionRentals and Mark UpsRental Companies will offer discounts off retailMark ups cover losses and damage
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Accessory Services
Add mark up if directly serving as an intermediary10 to 25 % is commonCommission for a referral? Ethical or Not?
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Calculating Markups
Two Methods to calculateDivide the food cost by desired cost percentageCost/% = Selling PriceFood Cost Food Cost % Selling Price Margin$1,590 25% $6,360 $4,770
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Calculating Markup
Multiply by MarkupFactorFood Cost X Markup Factor = Selling PriceFood CostMarkup FactorSelling Price Margin$1,5904$6,360 $4,770
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Pricing Labor
Some caterers mark up labor by adding it to the food cost then applying a markup factorOthers markup food and at labor at cost or slightly marked up
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Determining the Markup
Market FactorsCompetitor PricesPrevious Prices Charged to clientsHow many Guests are expectedHow badly is the business neededOther biddersClient’s perceived value of eventDo Clients expect to negotiateClients expecting a discount
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Common Pricing Techniques
Mark up more for smaller partiesMark up more for lower cost partiesMark up more for fewer guestsSpecial Events, or HolidaysProbability of negotiations or discountsInexpensive parties lead to more inexpensive partiesValue of timeLooking beyond the price
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Service Charges, Gratuities, Sales Taxes
Each State has laws regarding service charges, gratuities and sales taxesSurveys indicate many caterers do not charge Service Fees and build it into the cost of the eventIn Florida, gratuities are not taxed if all monies are given to service personnel
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Charitable Events
Keep RecordsBe Aware of tax implicationsDo not compromise quality – guests will noticeMake sure you have proper sales tax exemption forms
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Other Pricing Methods
Budget PricingClient sets the priceCost Plus MethodCalculate costs and add profitRange PricingTypically for future eventsPackage PricingCan add value
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Next Week
Quiz Chapter 10Project Due
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