On average, the catering profit margin falls between 7% and 15%. But this still varies depending on several factors, such as the type of service offered, business size, and operational efficiency.
On the other hand, established catering companies can get up to 20% percent.
It may seem promising, but a survey of 70 catering companies in the United States found that 68% grew in revenue in 2023. However, that’s down compared to the 92% from 2022. And a staggering 32% shrank, four times higher than the 8% recorded revenue declines.
Although these figures may result from various factors, it’s essential to note that not calculating your gains (or, worse, not maximizing them) can be one reason.
This tells you how much you are keeping from sales and helps you understand if your business is leaving money on the table.
This isn’t some number-crunching exercise; it’s about learning how to control your business and strategize how to maximize it, whether by increasing prices or leveraging restaurant ordering management technology.
In this guide, we’ll explain how to calculate your profit margins and, more importantly, how to increase them dramatically.
Understanding catering profit margin
Profit margins are the percentage of money your business keeps as a profit after paying all costs.
The average restaurant profit margin can range between 3% and 15%, depending on the type of business model, pricing, and services a business offers.
The average profit for a catering business falls between 7% and 15%. These changes are due to the food costs, labor costs, pricing strategies, overhead expenses, and the event size and frequency of services rendered.
Moreover, when dealing with this, you’ll stumble upon two common types:
Gross profit margin
This is a way to measure the business’s profit after covering the cost of its products and services.
This means determining the figures before paying all the extras, such as rent, salaries, and other overhead costs.
Here’s how you calculate:
| Gross Profit Margin (%) = [ (Total Revenue – Cost of Goods Sold) / Total Revenue] x 100 |
- Total revenue is the total money you make from selling your product or services.
- The cost of Goods Sold (COGS) is the amount spent just to make or buy products, such as ingredients.
Subtracting the COGS from the revenue gives you your gross profit — the money left over before other expenses.
Net profit margin
Net profit tells you how much money actually left after you pay for everything else — rent, salaries, marketing, taxes, utilities, and any other expenses.
Here’s how you compute:
| Net Profit Margin (%) = (Net Profit/ Total Revenue) x 100 |
Where:
- Net profit = Total Revenue – (COGS + operating expenses + taxes + interest + everything else)
- Total revenue is the total money made from sales
Both play an important role in determining whether you’re thriving or barely surviving. A high gross profit means you keep more money from each sale, while a low margin could mean your costs are too high, and you might need to raise prices, find cheaper suppliers, or adjust your menu.
In the same way, a high net profit means you’re running a tight, efficient business, while a negative margin could mean you might be spending too much on overhead or pricing your products and services too low.
Industry-standard profit margins for catering businesses
Profit margins in the catering industry depend on business model, market focus, and operational efficiency.
According to Catersource, catering businesses average a pretax margin (revenue before taxes) of 7% to 8%, with some reaching up to 25%.
However, these figures fluctuate based on business practices and marketing conditions. For example, the average gross profit for catering companies ranges from 30% to 50%, while net margins are at 5% to 15%.
Why does profit margin vary by catering type?
Catering businesses have different pricing models, operating costs, and customer expectations. Here’s a quick breakdown:
- High-end event catering
Weddings and corporate galas bring higher margins due to premium pricing for custom menus and presentations.
However, the high labor and other operating expenses can reduce your profits.
- Corporate catering
This tends to have steady, repeat business with lower per-order costs, but competitive menu pricing limits the margin.
- Buffet-style catering
It often requires more labor, which increases the expenses.
- Drop-off catering
This operates with lower staff costs and can yield higher margins, but it can often involve pricing pressure from competitors. So, some operators try to break even with their premade meals and other kit packages.
3 ways to calculate your profit margin
Now that you’re equipped with the know-how of profit margins and how much you could make, it’s time to get your figures for your catering business.
Ofcourse, you can use a profit margin calculator to make it easier, but knowing the process makes you understand where your money went and how much is left.
Here’s a step-by-step guide for you:
Step 1. Determine your total revenue
Add up everything you charge for — not just the food.
Start with the food and drinks. Then, factor in service fees for staffing, set up, and clean up. If you rent out tables, chairs, or linens, include that too.
Don’t forget the extras like specialty cocktails, desserts, or late-night snacks because they can add up.
If you’re delivering, make sure you’re charging its fees to cover your costs.
Step 2. Identify the total costs
Get a clear picture of your catering profit margin by breaking down all your total costs.
These fall into three main categories:
- Fixed costs
These stay the same no matter how many events you cater. They include rent, utilities, insurance, licenses, and online menu ordering system subscriptions.
Even if you don’t have an event, these costs still exist.
- Variable costs
The costs change based on the number of events you handle. The biggest one is allocated to the food costs — ingredients, beverages, and disposable packaging you need to operate your business.
Then, there are labor costs, including the chefs, servers, and delivery staff. And don’t forget the fuel and vehicle expenses for transportation.
- Hidden costs
These can sneak up on you. Consider the food waste, last-minute order changes, equipment wear and tear, or unexpected overtime for staff.
Even marketing expenses and changing of catering business name ideas should also be factored in.
Once you total these costs, you’ll get a clear understanding of your actual expenses.
Step 3. Apply the catering profit margin formula
Calculate your profit margin using these formulas:
- Gross profit margin
| Gross Profit Margin =[ (Total Revenue – Cost of Goods Sold) / Total Revenue] x 100 |
Say your total revenue is $10,000, and your food and labor costs are around $4,000. This means;
| Gross Profit Margin = [($10,000 – $4,000)/$10,000] x 100 =($6,000 /$10,000) x100 = 0.60 x 100 |
- Net profit margin
This reflects your true profitability after all the expenses and overhead.
| Net Profit Margin = Total Profit / Total Revenue x 100 |
For example, the total revenue you get is $10,000, and after deducting all expenses, you’re left with a net profit of $1,500. This means:
| Net Profit Margin = ($1,500 / $10 ,000) x 100 = 0.15 x 100 = 15% Net margin |
According to Investopedia, a healthy profit margin for a small business tends to range between 7% and 10%, but applying strategic methods can push it even higher.
5 a-list strategies to maximize your margins
With how much caterers earn a year and the catering service’s profit margin, maximizing to earn more is a good strategy.
Here are unconventional ways you can do to add up to your bottom line:
Run a ghost catering as a side hustle
Ghost catering is catering without a physical storefront. The food is made in a kitchen and delivered to events or customers.
It comes in handy during slow days or off-peak hours as you can offer simple, high-margin catering menu ideas for delivery-only options, like premade meals for offices or pre-set party platters.
You don’t need extra staff or a big setup, just solid packaging and a reliable delivery method. This is an easy way to generate extra revenue with minimal effort.
Sell the experience, not just the food
People are not just paying for a meal but a memorable event.
Offer interactive stations, like a build-your-own taco bar or a wine pairing experience with a bartender on-site.
If you make it exclusive and unique, clients will be happy to pay the premium.
Lock in repeat customers with pre-sales
Instead of waiting for clients to return, get them to commit upfront.
Offer a small discount or a bonus if they book multiple events with you at once.
This is one of the most effective catering marketing ideas that helps with cash flow, fills up your calendar in advance, and builds client loyalty — all while keeping your margins strong.
Make ingredients work overtime
Design your menu so that ingredients do double duty.
If you buy herbs for one dish, use them in a sauce for another. If you offer a signature protein, incorporate it across different menu items.
You can also curate various food and drink pairing ideas to help you cross-utilize what you have on the shelves.
This keeps your ingredient list tight, reduces waste, and lets you buy in bulk, which saves money.
Charge more for last-minute booking
Urgency equates to higher prices.
If a client books a week before their event, charge a premium for the extra stress and rush.
On the other hand, offer small discounts for early bookings, like a month in advance. This helps you plan better, reduce last-minute chaos, and keep your team working efficiently.
Make services smoother with restaurant menu ordering system
Cut down wait times, reduce order mistakes, and get you upsells effortlessly using this smart tech.
Instead of juggling emails and phone calls, you can place orders online with clear options for menu choices, guest counts, and add ons menu specialties.
Automated systems like this can also suggest upgrades like premium entrees, dessert platters, or bar packages, increasing sales without extra effort.
It’s an easy way to keep orders organized, make service more efficient, and boost your profit.
How to gain more with minimal effort with MENU TIGER’s restaurant menu ordering system
Maximizing your profit can be challenging, especially if you’re trying out new methods or creating an additional revenue stream.
Good thing there’s digital menu restaurant technology like MENU TIGER that can offer you various solutions and features to boost your profit without having to burn your pocket.
Here’s what it offers:
- Encourage upsells and add-ons
You can highlight premium options, bundle deals, and limited-time add-ons using the digital menu.
This makes it easier for you to sell out other stocks you have left from the previous events. You can make more out of them by pairing them in the bundle package.
- Faster ordering and payment equals more sales
This restaurant menu ordering system speeds up your services, reduces wait times, and makes adding extras easy for your customers.
In addition, they can pay directly for your catering services, eliminating the need for constant phone calls and emails.
The quicker the order and pay, the more clients you can accommodate, and the higher the revenue climbs.
- Use data to make smarter menu decisions
Here’s where it gets really powerful.
This ordering system can track customer behavior—what items people click on, what they skip, and what sells the most.
It lets you tweak your menu based on real-time data. If you notice no one’s ordering a certain dish, swap it out for something more profitable. If a certain upsell combo is killing it, push it even harder.
Smarter moves bigger margins with MENU TIGER restaurant order management
Knowing how to calculate catering profit margin is indeed an advantage.
You get your projections to help you set your goals straight, making them realistic and more achievable.
This means you can adjust which aspect of your business needs improvement. Just like adding a digital menu ordering system, tweaking menu prices, or optimizing operations.
If you think you need to upgrade your services with catering technology, simply launch MENU TIGER. You can create an account for free and see how it can maximize your profit.
