Understanding Catering Economics

Catering is straightforward math: per-person cost + labor + markup = per-person price. The key is understanding costs and protecting your margin.

Example Economics:

• Food cost per person: $8-12 (depends on menu complexity)
• Labor cost per person: $2-4 (setup, service, cleanup)
• Total cost per person: $10-16
• Retail price per person: $22-28
• Gross margin: 35-55%

An 80-person reception with 60% margin = $22 × 80 × 0.60 = $1,056 gross profit from food alone. Over 70 annual receptions, that's $73,920 annual gross profit. After labor overhead, you net $40,000-60,000.

The question: Do you manage catering in-house, partner with an external caterer, or use approved vendors? Each model has tradeoffs.

Catering Models and Selection

Model 1: In-House Catering

What It Is: Your funeral home employs a chef/kitchen manager and kitchen staff. You prepare and serve all food on-site.

Pros:

• Maximum margin control (70-80%)
• Complete quality control
• Consistent brand experience
• Flexibility to customize menus
• Staff work for you (direct loyalty and training)

Cons:

• Highest operational complexity
• Fixed labor costs (even during slow periods)
• Food safety and compliance burden
• Kitchen equipment capital investment
• Requires strong management oversight

Best For: Funeral homes with 80+ cases per year, dedicated facilities, and operational sophistication. Most funeral homes cannot sustain in-house catering profitably due to labor costs during low-volume periods.

Model 2: Partnership with Contract Caterer

What It Is: Contract with an external caterer who operates from your kitchen or brings equipment. You provide venue and handle customer communication; caterer provides food and labor.

Pros:

• Moderate margin (60-70% to funeral home)
• Lower operational burden (caterer manages kitchen and labor)
• Lower fixed costs
• Flexibility to change caterers if relationship sours
• Caterer assumes food safety compliance burden

Cons:

• Less control over quality and consistency
• Shared revenue means lower absolute profit
• Depends on caterer availability and responsiveness
• Potential for customer service issues if caterer underperforms

Best For: Most funeral homes. This model balances profitability, operational simplicity, and risk management. You maintain customer relationship and capture 60-70% of margin while caterer manages the operational complexity.

Model 3: Approved Vendor List (No Direct Catering Revenue)

What It Is: Families source catering from approved external vendors. Funeral home receives no catering revenue directly but may receive referral fees or markup-on-service fees.

Pros:

• Zero operational burden
• Maximum flexibility for families
• No liability for food quality
• Simplest model to execute

Cons:

• Zero direct catering revenue (you lose $40,000-60,000 annually)
• Families may choose external vendors instead of your recommended partners
• Reduced customer control over quality

Best For: Funeral homes without kitchen facilities, in high-volume urban markets, or with limited operational capacity. Not recommended if you want to maximize specialty services revenue.

Selecting and Contracting with a Catering Partner

Catering Partner Selection Criteria

• Food Quality: Taste test their standard menus and custom options
• Health Compliance: Verify food handler certifications and successful health inspections
• Reliability: Reference checks with other funeral homes they service
• Flexibility: Can they accommodate custom menus, dietary restrictions, cultural preferences?
• Equipment: Do they have equipment needed or can they work within your kitchen?
• Staff: Professional, courteous service team (families interact with caterer's staff)
• Pricing: Competitive per-person rates that allow you to price competitively and maintain margin
• Communication: Responsive to booking inquiries, dietary requirements, last-minute changes

Contract Essentials

Never operate without a written catering contract. Key elements:

• Revenue Split: Clearly state funeral home % and caterer % (e.g., 65-35 split)
• Menu and Pricing: Define standard menus and per-person prices for each tier
• Minimum Requirements: Minimum headcount for events, setup time, staffing requirements
• Payment Terms: Who collects payment? When does caterer get paid? (Recommend: Funeral home collects, pays caterer after event)
• Cancellation Policy: What if customer cancels? Who bears the cost?
• Liability and Insurance: Caterer must carry liability insurance covering food service
• Quality Standards: Service standards, staff appearance, professionalism requirements
• Term and Termination: Contract duration, termination conditions, notice period

Menu Development and Pricing

Three-Tier Menu Strategy

Offer three menu tiers to accommodate different budgets and preferences:

Basic Tier: $16-18 per person

• Coffee, tea, juices, water
• Assorted pastries, muffins, donuts
• Sandwich platters (turkey, ham, roast beef)
• Fresh fruit and cheese platters
• Cookies and brownies
• Ideal for afternoon receptions, smaller gatherings

Standard Tier: $22-25 per person

• All Basic Tier items
• Hot entrée (chicken, meatballs, or pasta)
• Two vegetable sides
• Salad with dressings
• Rolls or bread
• Most popular tier; works for most receptions

Premium Tier: $30-35 per person

• All Standard Tier items
• Two hot entrée options
• Carved meat station (prime rib, ham)
• Premium dessert display
• Beverage bar with wine/beer (if applicable)
• For large, premium events

Pricing Strategy: Price tiers so that your margin is consistent across all levels. A 65% funeral home share means:

• Basic: $16 per person × 65% = $10.40 funeral home profit per person
• Standard: $22 × 65% = $14.30 per person
• Premium: $30 × 65% = $19.50 per person

Specialized Menus

Offer custom menus for specific needs:

• Kosher/Halal: Prepared per dietary law requirements; 15-25% price premium
• Vegetarian/Vegan: Plant-based alternatives; same price as standard tier
• Gluten-Free: Special prep to avoid cross-contamination; 10% premium
• Cultural Menus: Italian, Irish, Latin American, Asian options; market-dependent pricing

Customer Communication and Quality Control

Pre-Event Communication

Families should have positive catering experiences. Set expectations clearly:

1. At Arrangement Meeting: Explain catering options, menus, pricing, and booking process
2. Initial Booking: Send catering quote and menu options within 24 hours
3. Confirmation (60 days prior): Request final headcount and menu selection
4. Reminder (7 days prior): Confirm catering details, service time, special requests, any dietary restrictions
5. Final Walkthrough (24 hours prior): Confirm headcount, setup time, any last-minute changes

Quality Control During Service

• Director or event coordinator present during setup and beginning of service
• Verify food quality, presentation, and temperature
• Monitor staff professionalism and customer service
• Address any issues immediately (cold food, missing items, unprofessional staff)
• Collect feedback from family representatives post-event

Revenue Tracking and Profit Optimization

Track catering metrics monthly:

• # of Catered Events: Track by month and trend
• Average Headcount: Important for revenue forecasting
• Revenue per Event: Track by tier and trend
• Margin %: Actual margin realized vs. contract terms
• Customer Satisfaction: Collect feedback; track complaints
• Repeat Rate: % of families that use catering services (target: 80%+)

Food Safety and Compliance

Your Obligations

Even with a contract caterer, you share liability for food safety. Ensure:

• Caterer carries food service liability insurance
• Kitchen meets health department standards
• Regular health inspections (target: zero violations)
• Temperature monitoring and logging for hot/cold foods
• Allergen awareness and proper labeling
• Proper food storage, handling, and disposal

Common Mistakes to Avoid

Mistake 1: Partnering With Unvetted Caterers

A poor catering experience damages your reputation forever. Vet thoroughly before signing contracts.

Mistake 2: Unclear Revenue Splits and Payment Terms

Revenue disputes destroy partnerships. Get everything in writing with explicit terms.

Mistake 3: Assuming Caterer Will Manage Quality

You must actively monitor quality. Poor food or unprofessional staff reflects on your funeral home.

Mistake 4: Not Training Staff on Catering Coordination

Your staff must smoothly coordinate receptions with catering. Poor coordination creates chaos.

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