Let’s begin. It’s called “cost plus” in the same manner that contractors tell their clients that they charge “time plus materials”. So, a cement manufacturer might tell a customer “I’ll need to charge you for the cement you use, plus the labor I need to put it in place”.
In other words, in some catering situations, it is possible to tell a potential buyer “I could charge you a flat fee for my skills, as long as you reimburse me for the food and staff that I need to make your event happen successfully.”
Here’s the foundation of the cost plus pricing system for catering:
1. The buyer pays a predetermined flat fee based on a per person charge.
2. The fee is based on your need to capture your normal profits and gross margin. So, if you normally have a margin of 40% of sales, this is the formula you would use in deciding on what your fee, or plus, will be. As an example, let’s say you normally would charge $10 per person for a particular menu. In the cost plus pricing method, if your margin was supposed to be 40% of sales, you would charge the client $4 per person.
3. Now comes the cost. The client is told that in addition to the fee, or plus, they will need to reimburse you for all of your base expenses pertaining to the event. These costs are not marked-up and are based on the invoices that you receive from your purveyors.
So, if you purchased products that cost $365 from your poultry purveyor the client owes you $365. If you spent $265 with the produce purveyor, they now owe you another $265. If you used three bartenders and seven servers who normally get $100 per job, the client owes you $1,000. One caterer I know simply takes the customer shopping at a large price club, or at the market, and lets the client pay for all of the stuff that is purchased!
4. Finally, it is important to remember that you are simply packaging your price differently during your sales approach. In fact, the amount of margin you make is the same as you would if you used your traditional pricing systems. Now, when do you use this cost plus system? When the buyer is a friend who thinks you owe them a huge discount, or one that desperately needs to think that they are getting a “deal”. The cost plus system is ideal for any bid where you need to cater over several days, i.e a golf tournament, grand openings, training sessions, etc.
For example, say you are asked by a Fortune 500 type company to bid on a four day golf outing that would include three meals a day, full bar, snacks, and other undetermined food needs. The expected number of guests would be between 450 and 600.
Your preliminary figures tell you that the job would be billed out at between $200,000 to $300,000 when priced in your normal fashion. In fact, all of the other caterer’s bids will reflect these figures.
Why not be different? Take your 40% margin, or whatever your margin is, and offer your bid as a cost plus price. Your projected price of $300,000 times 40% margin gives you $120,000 margin.
You simply type into your bid the price in this fashion:
“ABC Catering will be pleased to professionally cater your golf outing for a one time fee of $120,000 plus the reimbursements of all our costs. These costs would be without any mark-up or increase in price. In this manner, you will be controlling all your costs for food, beverage and service. You will pay only for what you use, so you will not need to worry about paying for a guaranteed number of guests.”
Well, what do you think? Are you disappointed or glad that you read this post. Remember, in the example above, once you get your check for $120,000 dollars, why worry about how many people come. Obviously, you can put in extra safeguards dealing with minimum numbers if you wish. Give it a try.
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