Know Your Worth

For years, caterers have relied on a simple pricing formula: multiply the cost of goods sold (COGS) by three to determine the final price. This "3x rule" once covered overhead, labor, and profit. Today, it's a recipe for financial disaster.

The catering landscape has changed dramatically. Inflation has impacted every aspect of the business, from the price of ingredients to the cost of labor and larger fixed costs like rent and insurance. Simply put, a 3x markup no longer covers the true cost of doing business, leaving caterers with razor-thin margins or worse, operating at a loss.

The 4x (or even 5x) Solution

To accurately price catering services in today's market, caterers need to consider a higher markup, often 4x or even 5x the COGS. This may seem like a drastic increase, but let's break down why it's necessary:

• Skyrocketing Costs: The cost of food, packaging, and other essential supplies has increased significantly. Gas prices fluctuate wildly, impacting delivery costs. Labor shortages have driven up wages for chefs, servers, and other staff.
• Hidden Expenses: Don't forget about the "invisible" costs of running a catering business: marketing, insurance, equipment maintenance, permits, and licenses. These expenses add up quickly and must be factored into your pricing.
• Acquired Expertise: Caterers provide more than just food – they offer creativity, culinary expertise, and event management skills. The skills sets required to owning a catering business were likely acquired through expensive schooling, exhaustive research, unpaid apprenticeships, and low-paying entry positions. Expertise does not come cheap. Moreover, the time spent on menu development, presentation design, and client consultations should be factored into the pricing equation.

Use the calculator below to determine how much you should charge a client. Things to take into consideration when choosing a price point are other expenses such as labor and transportation costs as well as variables such as location, day of the week, duration of event and other such factors that can influence the price quote.

The Danger of Undervaluing Your Worth

One of the most significant pitfalls in catering pricing is undervaluing one's worth. When caterers price their services too low, it not only affects their bottom line but also influences how clients and competitors perceive their brand. Underpricing can lead to a perception of lower quality or less experienced service, potentially driving away high-value clients who associate price with quality. Furthermore, it can create a race to the bottom in the local market, harming the industry as a whole.

Caterers must remember that their pricing reflects their professional worth. By setting prices that accurately represent the value of their services, they demonstrate confidence in their abilities and the quality of their offerings. This self-assurance is often reflected in client interactions, leading to better relationships and potentially more lucrative opportunities.

To implement a more effective pricing strategy, caterers should conduct regular cost analyses, stay informed about market trends, and be willing to adjust their prices as necessary. It's also beneficial to diversify offerings, providing options at various price points to cater to different client budgets without compromising on quality or profitability.

The Bottom Line

Accurate pricing is crucial for the survival and success of any catering business. Simply put, the landscape of catering pricing has evolved beyond the simple "multiply by three" rule. Today's successful caterers understand the importance of comprehensive cost consideration and the value of their expertise. By adopting a more nuanced approach to pricing – potentially multiplying COGS by four or five – and confidently asserting their worth, caterers can navigate the challenges of the current market while building a sustainable and profitable business. Remember, in the world of catering, your price is not just a number; it's a statement of your value and professionalism.

Are you interested in determining the sweet spot in pricing your goods and services?

If you are interested in private consulting, do not hesitate to hit the button below!