This guest post comes to us from Jeff Ware. Jeff is Director of Operations at Catering by Michaels in Chicago. He is also a Senior Consultant at Certified Catering Consultants.
If you’re new to catering, you might think that all you need to succeed is a delicious menu, beautiful event design, and strong planning skills. If you’ve got those, the rest will take care of itself, right?
The reality is that catering is a business like any other. No matter how good your food tastes, your success or failure is going to come down to numbers. And not just revenue and profit either. By the time you’re calculating those, it’s too late — the events are over, the money is in the bank, and there is nothing you can do to make up for executing an unprofitable event.
But there are other numbers you can track in real time that show you the health of your business and reveal the improvements you can make to increase your bottom line. In this post, I’m going to outline twelve metrics every caterer needs to track across three distinct business categories, with some advice sprinkled in on how to get them trending in the right direction.
Metric #1: Food costs
It goes without saying that you’ll be buying a lot of food as a caterer — enough that it’ll be one of the two biggest expenses on your balance sheet. As a rule of thumb, your food costs should be about 20-40% of your total revenue. If you’re a small caterer doing just a few events a month, that number will be closer to 40%. But as your business (and with it, your other expenses) grows, you’ll buy food in greater bulk and should see that number go down toward 20%.
I have two pieces of advice for keeping food costs down:
- Look at the top fifty food items you buy the most of, and do everything you can to spend less on them. Consider buying them in greater bulk or working with suppliers to get a special deal on the products you buy often.
- Recognize that waste and theft are the two biggest drivers of food costs within your direct control. While you won’t always be able to get a better price on your food orders, you can work with your employees to prioritize solving these two issues.
With so many dollars going toward food, even a small percentage decrease is going to do wonders for your bottom line.
Metric #2: Labor costs
Along with food, labor will be either the biggest or second-biggest expense for your catering business. According to the U.S. Economic Census, the catering industry as a whole paid out about 31% of its total sales in wages, so you can use that as a yardstick for how much you should be paying out.
My colleague Carl Sacks at Certified Catering Consultants goes a bit deeper on labor costs here. He recommends that you keep your fixed labor costs — as in, what you pay to permanent staff like chefs, managers, and, if you’re a bigger caterer, salespeople — to about 10% of total revenue. Your variable labor costs, which go to part-time staff like servers and other event workers, will ebb and flow throughout the year to make up the rest of that ~20%.
So, how do you actually keep those variable labor costs in check? It starts with budgeting. You need to periodically project how much you’ll need to spend on staffing for upcoming events, then track the actual costs against that budget. Your projections won’t always be accurate. For instance, your bartender may be scheduled to work four hours at your client’s Christmas party, but end up working closer to six. Those discrepancies can add up over time and push you over budget, so you should always be comparing your projected vs. actual labor costs to improve your budgeting accuracy and find ways to save. Nowsta’s time and attendance tracker makes this easy by letting you export a CSV of both numbers for individual events and groups of events in a given time frame, broken down by staff position.
Metric #3: Overhead costs
Overhead refers to all the other miscellaneous business expenses you’ll encounter. Whether you’re a small caterer doing $1 million a year in sales or a massive operation doing multiples of that, your facility costs will likely be your biggest overhead. In either case, you need to make sure you can afford the payments on your facilities year round — as in, not just during the busy season, but also the slow months when money is tight.
As your business grows, you’ll take on more overhead costs, such as a vehicle fleet, catering software, or staffing software like Nowsta. When you evaluate any of these new sources of overhead, you need to make sure the opportunities they unlock — whether it’s deliveries, a menu database or faster scheduling — make you enough money to justify the costs.
Metric #4: Deal win rate
This is pretty self-explanatory: What percentage of customers who you speak with end up signing a catering contract with you? Deal win rate is the clearest and simplest metric for determining your overall sales effectiveness. In catering, do not get discouraged with this number. You will write a lot of proposals that don’t make it any farther than a proposal. The important thing is to collect the data, track why you lost a given event, and use that information to improve your closing ratio.
Metric #5: Cost of sales department
You need to make sure you’re compensating your sales team efficiently. Pay them too much, and you’ll eat up your margins. Pay them too little, and you won’t be able to hire or keep your most talented salespeople. As a general rule of thumb, your sales team’s compensation should make up no more than 8-10% of your total revenue. Every company has a different compensation structure for their sales team. We definitely have peak seasons where we offer additional incentives for our Event Coordinators both as a team and individually when they close events before a certain date, sell a particular food or beverage item, and when there are no sales errors made. These incentives can vary from an extra day of PTO to bonus opportunities on top of their usual compensation.
Metric #6: Time to close
How long does it take you to close a deal? Simple arithmetic shows that this number has a huge effect on your revenue — the fewer hours your sales team has to spend securing each new contract, the more business they can bring in. The life of a sale will greatly vary based on what type of event it is. For our Delivered team, our Event Coordinators are typically working only a few days ahead of when the event is happening. Our full service Event Coordinators can be working with a client for more than a year before their event comes around. It is important to have different payment schedules for all the areas of your business so you are always covering your bottom line and day to day operating expenses. Examine your sales process, break it down into its individual steps, and look for ways to speed it up.
Metric #7: Average deposit size
You need to make sure you’re getting enough money up front for each new event you take on, or else you’ll face serious cash flow problems. But while 50% of the total event cost is standard for most caterers, I would recommend going lower if you can still cover your operating costs. There’s no real benefit to collecting more than that, and you can make your customers happier if you’re asking for a smaller deposit than your competitors.
Metric #8: Number of revenue streams
You’ll likely specialize in one type of catering job when you first start out, but as you grow, you’ll want to diversify those revenue streams. For instance, if all you do is weddings and social events, you’re bound to have some lean months in the off-season. Corporate contracts are a great way to bring some stability to your business, as those customers’ needs won’t fluctuate as much throughout the year. But on the other hand, if all you do is corporate, then you could be in trouble if there’s a recession — catered lunches are one of the first things a business will cut if times are tough.
The point is, you need balance. We try to have a healthy balance between our delivered, social and corporate business so we have multiple revenue streams coming in throughout the year.
Metric #9: Market pricing
Nothing will play a bigger role in both your deal win rate and your overall revenue than your pricing. But how much can you reasonably charge? The answer depends on the standard for your market, which is in turn driven by the biggest operators in your market. If the most popular caterer in your city charges $10,000 for a wedding for 100 guests, then you’ll need to charge something very close to that. Your other options are to charge less and position yourself as the budget option, or charge more and position yourself as the high-end boutique option. Obviously, if you choose the latter option, you’ll need to provide something to justify that higher cost, like premium ingredients, spectacular presentation, or a prestigious venue.
You can learn your competitors’ prices by checking out their websites, posing as an interested customer to get a proposal, or just asking! Keep in mind also that if your deal win rate on certain types of events is lower than others, it may be a clue that you’re charging too much for those events.
Metric #10: Customer satisfaction rate
Very few caterers track customer satisfaction, as it’s hard to pull off for social events. Take a wedding for example. If you’ve spent weeks with a bride and groom helping them plan one of the most important, emotional days of their lives, it would feel tacky to hit them with a customer satisfaction survey the next day. And it’s not like the couple is going to have another wedding in a month (hopefully), so you can’t rely on their repeat business as a proxy indicator of your performance. The “survey” of a social event will typically be much more personal and done through email or phone with their Event Coordinator.
But there are other instances where it is acceptable to systematically collect customer feedback, such as for corporate delivery jobs. We send out a customer survey through Survey Monkey to all of our delivered clients. This gives us timely and actionable feedback on our clients’ experience through the entire sales process and delivery. We then send out a monthly recap of all of the survey responses to our entire team and respond to any action items on any surveys that included contact information. We use the data from the surveys to better meet the needs of our clients and incorporate that client feedback into future training.
Metric #11: Captain’s report
Regardless of the type of event — social, corporate, or otherwise — you can always rely on your trusted managers to let you know how the team performed. After each event we do at Catering by Michael’s, we have the function director (FD) write up a report of everything that went well and what went wrong. That report report gives us an immediate snapshot of how each event went and where we need to improve. It is shared with the management team and any issues are handled promptly. It also gives us the opportunity to give kudos to people after a job well done and gives us a lifeline to timely feedback on every event.
Metric #12: Internal problem report
The internal problem report builds on the insights of the Captain’s report by aggregating and attributing problems over time. We take each mistake our FDs note and put them into a spreadsheet, along with the department responsible. Each month, we review what our most common mistakes are, which departments are making the most mistakes, and track our progress across both the entire company and individual departments. We’ve found that our most common mistake is staff forgetting food or decorations when they leave for the venue, which means someone has to drive back to headquarters to retrieve them. But thanks to the internal problem report, we always know who to hold accountable, and we’re generally making the mistake less and less often each month.
Improvement starts with measurement
We’ve summarized these 12 all-important metrics in the infographic below. Click to enlarge, save it to your computer, or print it out so you never forget what you need to be measuring.
You can’t improve your business’ performance if you don’t have a definitive view of how you’re making money, how you’re losing money, and how you’re performing for your customers. These metrics let you isolate the numbers behind each side of your business and see where to take action. So don’t wait — start tracking now and become a better caterer.