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Chapter 10

Chapter 10. Pricing Off Premise Events. Pricing . The “Science” of Pricing – determining the actual costs of goods and labor The “Art” of Pricing – how much mark up can be successfully negociated. Market Variables. Determine how much can be charged Supply of Caterers in Market

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Chapter 10

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  1. Chapter 10 Pricing Off Premise Events

  2. Pricing • The “Science” of Pricing – determining the actual costs of goods and labor • The “Art” of Pricing – how much mark up can be successfully negociated

  3. Market Variables • Determine how much can be charged • Supply of Caterers in Market • Demand for Services • Types of caterers Market research is key – Analyze clients and their needs

  4. Pricing • Many caterers can use pricing as an effective sales tool • Good pricing is not a “win – lose” but rather a “win – win” • Pricing should take a long term view

  5. 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 prices • As a rule – 50 – 75 % of proposals should be accepted • When negotiating, try not to lower a price without reducing something in the event

  6. Common Cost RangesOf Gross Sales • Food Cost 20 to 40 % • Payroll and Benefits 15 to 30 % • All other expenses 10 to 30% • Includes “fixed” costs • Net profit before Taxes 10 -40 %

  7. Prime Cost Prime cost is the sum of the company’s food cost and it’s direct labor costs Should be no more than 60% of Gross Sales

  8. How Much will it Cost? • Quoting a price without asking qualifying questions is asking for trouble • If pressed – quote a broad range based on your previous experience – then proceed to ask for details • Prices that change can create suspicion and animosity

  9. Costing • Develop Cost Basis lines for • Food Cost • Commissary Labor Costs • All costs to deliver, set up, serve and clean up • Equipment Costs • Other costs (Flowers, décor, music)

  10. Computing Food Costs • Accurately estimate the actual cost of the food necessary to produce the event • Costs are volatile – especially meat and seafood – the so - called “Center of the Plate” • Maintain recipe cards – update with current prices • Use a spread sheet • To price event multiply by number of guests expected (don’t forget planned overages)

  11. Labor Costs • Labor Costs • Commissary • Set up and service • Tear down and clean up • Office overhead – sales commissions Remember to figure in all Benefits and taxes

  12. Equipment Costs • Equipment costs can be structured differently • Owned equipment can be marked up as if it were rental • Can use to secure an event • Price for profit or discount to underbid competition • Rentals and Mark Ups • Rental Companies will offer discounts off retail • Mark ups cover losses and damage

  13. Accessory Services • Add mark up if directly serving as an intermediary • 10 to 25 % is common • Commission for a referral? Ethical or Not?

  14. Calculating Markups • Two Methods to calculate • Divide the food cost by desired cost percentage Cost/% = Selling Price Food Cost Food Cost % Selling Price Margin $1,590 25% $6,360 $4,770

  15. Calculating Markup • Multiply by Markup Factor Food Cost X Markup Factor = Selling Price Food Cost Markup Factor Selling Price Margin $1,590 4 $6,360 $4,770

  16. Pricing Labor • Some caterers mark up labor by adding it to the food cost then applying a markup factor • Others markup food and at labor at cost or slightly marked up

  17. Determining the Markup • Market Factors • Competitor Prices • Previous Prices Charged to clients • How many Guests are expected • How badly is the business needed • Other bidders • Client’s perceived value of event • Do Clients expect to negotiate • Clients expecting a discount

  18. Common Pricing Techniques • Mark up more for smaller parties • Mark up more for lower cost parties • Mark up more for fewer guests • Special Events, or Holidays • Probability of negotiations or discounts • Inexpensive parties lead to more inexpensive parties • Value of time • Looking beyond the price

  19. Service Charges, Gratuities, Sales Taxes • Each State has laws regarding service charges, gratuities and sales taxes • Surveys indicate many caterers do not charge Service Fees and build it into the cost of the event • In Florida, gratuities are not taxed if all monies are given to service personnel

  20. Charitable Events • Keep Records • Be Aware of tax implications • Do not compromise quality – guests will notice • Make sure you have proper sales tax exemption forms

  21. Other Pricing Methods • Budget Pricing • Client sets the price • Cost Plus Method • Calculate costs and add profit • Range Pricing • Typically for future events • Package Pricing • Can add value

  22. Next Week • Quiz Chapter 10 • Project Due

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