How to Start a Successful Catering Company & Keep Costs Down
Updated: Sep 27, 2020
by Maria Walda
If you’re wondering how to start a catering company, you have a lot of things to research, plan, and consider. But getting started doesn’t have to be difficult. By following these 12 essential steps to planning a catering business you’ll be well on your way to success sooner rather than later.
Overview of a catering company
Catering companies provide food and beverages for a wide variety of events. Their services help delight guests and often set the tone for the experience. Some catering companies offer customized menus while others create packages.
The size of a catering company can vary from a single chef to a full kitchen team and staff of servers. As you can probably already tell, catering companies generally have a lot of flexibility when it comes to deciding what they do and how they do it.
Catering manager vs. company owner
Catering managers are responsible for managing catering events, supervising staff, and monitoring other event logistics which include the menu. People with this job title have to be strong leaders with a passion for the culinary arts as well as business administration.
According to Glassdoor, the average catering manager salary in the United States is $47,915 a year. They’re typically an employee of the catering company they work for.
A catering company owner is quite different, despite the fact they perform many of the same duties. Instead of being an employee, they are solely responsible for the success of the business.
In addition to making all the artistic food choices, they must also create, promote, and run the entire company. Salary for a catering company owner can vary widely based on niche, location, and a number of other, more difficult to measure factors.
Is starting a catering company the right choice?
It’s important to consider the level of additional responsibility required to be a catering company owner rather than a catering manager. But even though it’s challenging, there are many opportunities for both financial and emotional rewards.
Before you make your decision either way, here are a few other key indicators that will determine whether or not this is the job for you.
What to consider before starting a catering company
It’s different every day. For some people, that’s very exciting. But for those of us who prefer stability and consistency, it can get old very fast. So consider your personality type or preferences ahead of time.
You form close relationships with clients. Most catering company owners work one on one with clients to bring their vision to life. Spending this much personal and quality time with someone allows you to bond with customers in a way other catering positions do not.
If expanding your network and possibly making new friends is appealing to you, this will be a great fit.
You might want to start small then build. Renting equipment and food prep space instead of buying everything up front is a great way to get started when you’re on a tight budget (tight meaning anything less than $10,000 in start up funds). Structuring your business so that it grows along with you will help alleviate a lot of financial responsibility up front. You should also compare catering van insurance and save money from unexpected expenses. It can really save you having that insurance, especially in van catering.
But really however you choose to get started, going with the flow is practically required if you’re interested in starting a catering business. So make sure you’re ready for that style of management.
How to start a home-based catering business
Home-based catering businesses are growing in popularity. Since it’s essentially a freelance position anyways, it makes sense why working from home is so appealing to professional chefs and caterers.
You’d have the flexibility to work whatever hours best suit you plus you’ll save on expenses like rent and utilities for a whole other building. You also have more control over your income, taking on as much or as little business as you want/need.
But starting a home-based catering business also has its drawbacks. In addition to food safety concerns you’ll also miss out on things like a professional office space to host guests in. Or clear work/life boundaries most other freelancers often miss out on.
You’ll also have to address state licensing issues for commercial food production which may or may not deem your space sufficient for starting a business. Speaking of…
Can you use your home kitchen for your catering business?
It’s definitely an option. But it might be more complicated than you think.
You’ll have to take care of all necessary licensing, permits, and the potential renovations needed to fulfill agency requirements. Your home kitchen will also be subject to both state and local government health inspections. Regulatory standards will then dictate how you run your food prep area, with detailed instructions for things like designated prep areas, refrigeration requirements, and food waste disposal, to name a few.
If this all sounds like a dream come true, you’re ready to get started on building the catering business of your dreams!
How to start a catering company: 12 essential steps
1. Create a timeline.
Starting a catering company is simple if you follow the steps in order. The catch is everything takes longer than you think it should. Especially when it comes to obtaining the necessary documents required for food handling, safety, and sales. To keep expectations in check, start by drafting a highly flexible timeline for what tasks you want to complete by when.
2. Research the catering industry.
Start locally. Who else does catering in your area? What do they offer? How will your catering company be different?
Identify your target market. Will your niche be white glove corporate affairs or jeans-clad outdoor music festivals? Once you’ve got that nailed down, figure out who hires caterers for these events and what their job titles are.
Define your sales structure. Is your network large enough to start getting booked for parties or will you need to get started by sending cold emails and making phone calls?
Determine demand. Do you have lots of potential customers just waiting to hear from you? Or is your local market oversaturated with caterers who already do what you want to do?
3. Make a catering business plan.
Much of your plan will be based on your timeline and research. In addition to these factors, be sure to include a section for each of the following:
Short term objectives
Detailed start-up costs
Tax structure and ownership
Services you plan to offer
Your target audience
An analysis of your top competitors
Even if you start by drafting a business plan that answers these areas with a sentence or two, it’ll help steer the ship as you continue to move forward with your plan. Later, when you’ve learned more and gained additional experience, you can always come back to this catering business plan and make updates as needed.
4. Establish catering business goals.
Goals should always be realistic but it’s hard to figure out what that looks like if it’s your very first time owning a catering business. Because it varies by niche, market, and experience, figuring out how to set and achieve goals in your new field might take a little time to figure out.
One thing you can do is determine what type of catering business goal you’d like to reach. There’s a big difference between aiming to make $70,000 in year and aiming to cater 100 events. No matter what goals you choose, just make sure you review them from time to time. The more experience you have, the easier it will be to decide what’s realistic for your business.
5. Review tax laws.
Depending on where you’ll be operating your business, there are certain state and local laws you’ll need to keep up with in order to start a catering company. Luckily there are lots of helpful resources out there to make the process a bit easier.
For example, if you’re starting a catering business in California, the California Department of Tax and Fee Administration offers a Tax Guide for Caterers. They also offer tips on getting started, info for mobile food vendors, and additional free resources.
6. Get started with the basics.
To begin your catering company, you’ll need each of the following:
Website. Make sure your metadata, rich snippets, and keywords all match up. Use your business name, location, and niche in everything SEO related to optimize your website even further.
Business cards. Hand these out to clients and leave them on displays during events you cater so guests who enjoy your food know all about the company who made it.
Contract template. If you don’t know how to write legal jargon that protects both you and your client, try Wonder Legal. Their catering agreement (updated as of January 2019) is customizable. It also allows you to specify what state you’re working in and will adjust details accordingly.
Tax entity. Nolo (as well as other industry related legal sources) all agree that, when starting a catering business, it’s best to go with either a corporation or LLC. Catering involves entering people’s homes, feeding them food, and having lots of employees engaging in physical activity, which is why a tax entity that offers you protection is so important.
However, choose what’s right for you and make sure to consult a tax specialist before making any decisions as these are merely suggestions and not official advice.
Insurance. Along those same lines, it never hurts to have insurance and plenty states require it for catering companies anyways. Catering General Liability Insurance is a great starting point for protecting your business.
Permits and Licenses. Specifics vary by region and catering business type, but in general you’ll need each of the following:
Food establishment license
Food service license
Food management certification
Again, your state and local governments should have plenty of step-by-step resources available for you. For example, California businesses can go to the California Business Portal to read their official Quick Start Guide for Caterers.
7. Determine your marketing budget.
Once you have your goals established it’s time to take a closer look at how you’ll spend your budget. First, get all of your catering business basics out of the way. Some certifications or regulations may require you to make unexpected upgrades. For example, certain states require catering kitchens to have official grease traps checks conducted that could cost you extra.
After you’ve got all that squared away, review your remaining start up funds. The Food News Feed says you should allocate at least 25-35% of your remaining budget towards marketing when you’re just setting up your business. Later on you’ve got a solid customer base and regularly receive referrals, you can decrease marketing spending.
Another good tip is to decide based on how much competition you have. If you have more than 10 active catering competitors, lean towards the full 35%. If you have less than 10 competitors and some seem to lack any digital marketing presence, you can easily go for the 25% end of the range.
8. Establish basic menus and pricing structure.
Do you want to specialize in a specific cuisine or offer a completely customizable meal for each and every new client? Both are great options, just make sure you save yourself some time by creating some basic menus for clients to review. Test your recipes out ahead of time with friends and family to make sure you’re confident about each item.
Next you’ll need to establish a pricing structure. Most catering companies offer a flat rate or pre-existing packages. You’ll also need to decide how you’ll deal with special requests and whether or not you’ll take a deposit. There’s really no wrong answer here – just choose what makes you the most comfortable.
9. Choose suppliers.
If you’re not going to do the shopping yourself you’ll need to choose some well vetted suppliers. Word of mouth is a tried and true way of picking the best possible suppliers. But if you don’t already have a group of people to ask, consider building your network at an industry specific event like one of these fabulous Catering & Hospitality Trade Fairs.
10. Marketing your catering business.
While word of mouth and referrals will eventually make up the majority of your catering clientele, there are lots of creative ways to market your catering business when you’re just starting out. In addition to your website, social media accounts, and online review site profiles, consider trying one or more of the following:
Partner with a local florist who does a lot of business at weddings.
Offer free samples to passerby outside your prep kitchen.
Set up a booth at your local farmer’s market with smaller versions of your signature dishes for sale.
Request to be added to your area’s banquet hall and event space preferred vendors lists.
Research the top food bloggers in your area and ask them if they would be interested in featuring your catering company. These top 7 food bloggers in Los Angeles might be a good place to start if you’re located near there.
Obviously there are lots of budget-friendly and innovative ways to market your business. Don’t be afraid to experiment and figure out what works best for your unique catering company over time.
Wondering how to keep your catering business costs down?
Here’s How to Reduce Catering Startup Costs
One of the biggest reasons that new catering companies fail is because they don’t consider their total startup costs. The cost of starting a catering business can depend on a few factors.
1. How big should you be?
Consider the size of the catering business you want to start compared to the amount of capital you have. Remember, there’s no shame in starting out small and growing your business. Starting out small means you can live up to the promises you make your clients at each stage of growth and scale intelligently.
2. What services will you offer?
Catering is more than just providing food, it’s also how it’s presented. Will your catering services be only for buffets? Will you plate the food and serve it to your guests? Depending on what you choose, can also determine the amount of staff you need. If you keep the big picture in mind during your startup phase, then you’ll be successful in the long run.
How to Reduce Catering Labor Costs
Labor costs need constant attention and balancing. It’s not easy having enough staff for a big event while keeping your costs down. Having too small of a staff on hand can hinder the guest experience, while having too much staff can hinder your overall bottom line.
Most successful catering businesses keep their labor costs within 16 to 17 percent of their gross sales. Easier said than done? Controlling your labor cost is all about balance.
1. Control your turnover.
A CAP study finds that replacing a past employee with a new hire costs more than hanging onto one. For high-turnover, low-paying jobs earning under $30,000 a year, you’ll pay an additional 16 percent of what the original employee would have made. For example, the cost to replace a $10/hour retail employee would be $3,328. And the replacement costs only go up as the salary does!
2. Be smarter about scheduling.
The days of spreadsheets and stamping timecards is over. By using project management software to keep track of your scheduling and individual events, you’ll keep the right amount of people on hand and avoid unnecessary overlap.
3. Improve training.
Better employees mean less turnover and fewer hands needed on deck. It’s on you to set your employees up for success by offering the best training possible. If you’re having trouble with your training sessions, gather feedback from some of your more senior team members on what you could improve.
4. Analyze your compensation.
Like we said, hanging onto an employee is cheaper than searching for someone new and bringing them on. So instead of the extra 16 percent you’re going to spend on recruiting, why not take 5 percent of that and offer a high-performing employee a bonus or raise?
How to Cut Catering Food Costs
Food costs should be a big percentage of your total gross sales. As a catering business, it looks bad to show up to an event without having enough food for everyone. At what point though, do you consider the amount of food you throw away? Throwing away food is basically throwing away money in your pocket. Unlike restaurants, caterers get the advantage of getting a head count before an event. However, what if your guests think your portions are too small or you get a few party crashers?
1. Use an inventory management system
Every entrée begins at the base level with its ingredients. If you eyeball everything you need for each dish, you will either go over or go under the amount you need. Start by making sure you have a clear guest count from your client before the event. If they’re unsure, then don’t place your ingredient order. (Hint: Using a catering calculator can go a long way in keeping tracks of ingredients and costs.)
2. Control your portion sizes
Multiple dishes with smaller portions are always a cost saver over having a buffet. It takes longer to serve; therefore, people get fuller faster. If you or your client is dead set on serving food buffet-style, don’t put all your food out at once. Most likely, you will either get food wasted on the buffet table or on people’s plates because their eyes were bigger than their stomach. Any food you don’t use is then stored for future use.
3. Turn leftovers into lead generation
Instead of letting your leftovers go to waste, use them to your advantage. Find prospective corporate clients in your area and offer a free lunch using whatever extra food you have from an event. It’s a great way to show them what your team can do with leftovers and let your flavors make the pitch. Or, win more clients by letting them know you’ll use donate leftovers to a local cause of their choosing. Either way, showing a commitment to reducing waste is one of the catering trends that appeal to clients and keep costs down.
Save Money on Catering Equipment Costs
You must have equipment to facilitate your services as a caterer. But from renting a commercial kitchen to the delivery vehicle and equipment repairs, those equipment costs can add up quickly.
If you’re fresh to the catering industry, you don’t need to go out and buy everything brand new.
Just like the restaurant industry, it can be a good idea to start your venture off with used equipment — especially energy-efficient equipment. The price tag will be higher for energy efficiency, but it will pay off in the long run in lower utility bills. Maintenance and repair costs are also something you’ll want to watch for, so don’t be afraid to shop around and get multiple opinions.
Reduce Spend on Catering Marketing Costs
Every good business needs great marketing to survive. Sure, you might provide the best catering services in the industry, but if no one knows who you are, then you won’t have any new clients. These days, word of mouth can only get you so far. With people spending hours of their days online and in front of various devices, you need the funds to embrace a strong digital presence. It doesn’t have to be expensive if done right.
1. Make the most of social media marketing.
Platforms like Facebook and Twitter are great for running a combination of paid ads for just a few dollars a day. By following social media best practices, you’ll boost engagement and bring in a whole new audience that you wouldn’t have reached otherwise. Plus, as you grow your following, you’ll be able to rely more on organic posts instead of spending loads on paid advertising.
2. Create a visually stimulating online presence.
You need to build an online presence that stands out and showcases how your catering business elevates events. There are plenty of ways to do it, but when you’re online, visuals are the key. So hire a photographer for a few of your biggest events to get images that satisfy a potential client’s appetite and separate you from the crowd. Then use those photos across your website, social media efforts, and even print collateral to give event planners a taste of what you can do.
Reduce Catering Technology Costs
You’re probably familiar with some of the technology you’ll need — inventory management, a catering CRM, etc. — but technology is making other elements of catering easier too. For instance, new event catering software allows you to diagram event spaces collaboratively with clients, and even lets clients include any guest management deals right in the diagram.
As you start out, you’ll want to start out with the absolute essentials. As you begin to realize your pain points, look for a software solution based on the areas where you feel you need the most help.
If you’re wondering how to start a catering business, the first thing you need to look at is your potential costs versus the amount of capital you have. By following these tips for caterers, dedicating yourself, and putting in the hard work, you’ll stretch your funds and create a flourishing catering business.
Now you’re ready to start a successful catering business
If cooking is your passion and running a business excites you, there’s no way you won’t succeed. Although there are a lot of things to do and keep track of, learning how to start a successful catering company can be fairly easy. Just remember all the amazing reasons why you wanted to start one in the first place and your business is sure to be a hit in no time!