Guest Article by Carl Sacks: The Five Secrets of Highly Profitable Caterers

NOTE FROM MIKE: Below is my blog's very first guest article written by my very good friend Carl Sacks.  Carl is Catersource's Director of Consulting and is the smartest person I know about teaching caterers how to operate a better business. I've learned so much from Carl over the last thirty years of our friendship. From a trivia point of view, Carl attended the very first educational seminar that I presented in Lexington, KY some thirty years ago. We became fast friends and as some of you will remember, Carl and I traveled the country two years ago doing a "ton" of seminars! Thanks Carl for being my first blog guest writer! Here's Carl!

My Friend Carl Sacks

What is a Highly Profitable Caterer? Any medium to large caterer that sends 10% or more to the bottom line year in and year out fits this category. We have worked with many of these companies, and have noted some characteristics in common among them:

1. Highly Profitable Caterers have superbly trained, supported, and well-compensated sales teams.

There are a few large market caterers with sales teams averaging over $2.5M in revenue per year per salesperson. Even in medium markets, there are caterers with average revenue per salesperson of over $1M. In general these are among the largest full service caterers when calculated by revenue, and nearer the top end than the middle in pricing.

If you are a well established caterer in the full service market, and your sales team is averaging well below these numbers, then it may be time for a sales review. When we work with caterers with underperforming sales staff, we find that sometimes the problem is in the way the sales responsibilities are structured, or inadequate sales training has been provided to the team.

 2. Highly Profitable Caterers have the tools in place to financially analyze quickly and effectively all components of their business.

As a business, every catering company is the sum of a hundred or a thousand or ten thousand transactions. What most Highly Profitable Caterers have in common is the ability to analyze the one or a set of these transactions, to determine their profitability. One company that we work with that does about $10M per year in revenue started to analyze for profitability every single full service event they cater – and as a result of this was able to raise their profit percentage greatly.

Nearly every catering software program has this functionality built in to the system, but only the minority of the companies that we visit use these tools. Whether it is necessary or possible to analyze every single event is subject to debate, but there is no question that at least some events should be reviewed for profitability standards on a regular basis.

 3. Highly Profitable Caterers know their market position, and have developed pricing strategies based on this understanding; and also are focused much more on gross profit margin than on food cost.

Market based pricing is much more effective than the multiple of cost pricing that most of us learned when we started out. As Mike Roman says, the appropriate price is the most that a client is willing and able to pay, which is much more appropriate than basing your prices on an arbitrary cost multiple.

Gross profit margin is the most effective indicator of how well a company is run, because it takes into account all of the different facets of pricing and cost of goods. A caterer can manage to run an excellent food cost but still not be sufficiently profitable, because they spend to much on labor, or don’t adequately markup the other services offered. Solely focusing on food cost is like swimming with only arm.

 4. Highly Profitable Caterers are scalable, and have the ability to adjust to current conditions rapidly and effectively.

Since the beginning of the most recent downturn, it has become ever more apparent that the ability to respond quickly to the twists and turns of the economy is hugely important. Some caterers have done mass layoffs, but are now struggling to get back on track in time for what looks to be a reasonably busy season. It is possible to overshoot with cutbacks, which can be devastating when the market starts to improve.

The key to this point is to have a well-managed and efficient operation when times are good, which will enable you to survive and even thrive during difficult times. It is said that well run companies gain market share during a downturn, and from what we have observed recently, this has been the case during our current difficulties.

 5. Highly Profitable Caterers know their limits, and do not try to be all things to all buyers.

It is usually a good thing for a catering company to be reasonably diverse, but the key word is reasonably. 

SECOND NOTE FROM MIKE: I invite anyone who has something to say or teach to professional caterers to contact me about publishing their thoughts in my blog. No pay, but hopefully great fame and a good feeling in the pit of your stomach.