How Much Should a Caterer Spend on Labor?
One of the most common questions we get from caterers around the country relates to labor cost. For most full service caterers, this is the single largest category of expense. Therefore, keeping labor within an acceptable range is key to maintaining profitability.
Labor costs falls into two categories – fixed labor and variable labor. Generally fixed labor is all full time, year round staff, such as chefs, warehouse managers, sales and administrative staff, or managers. Variable labor will generally include all front of house and event labor, part time and seasonal kitchen and warehouse staff, and any contract labor.
(Note that all percentages quoted in this article are based on total revenue. Benefits, either voluntary or mandated, are not included in the percentages.)
Within fixed and variable categories, there are more detailed and important sub-categories that can be used for benchmarking. For example, we are often asked about the appropriate labor cost percentage for the sales department (generally 8% or less of total revenue), though this varies by type of caterer. A corporate delivery caterer, or an on premise caterer, will generally have lower sales staff cost than a full service off premise caterer.
Another sub-category is variable or hourly kitchen labor. Again this benchmark varies by type and size of caterer; for example many small caterers will only have one full time kitchen person doing most of the work, which would mean a lower variable cost but higher fixed cost kitchen labor percentage. But averaged out among all types of caterers, a typical variable kitchen labor is in the 7 – 9% range.
Warehouse labor, which also includes drivers, may add another 3 – 5% labor cost, depending on the type of caterer. For example, caterers that handle their own rentals, and those with extensive delivery/logistics requirements will typically have higher warehouse labor costs than those who use an outside rental company and don’t do daily deliveries.
Front of house staff labor cost varies widely, from low single digits for corporate delivery caterers, to the low teens to low twenties for high end caterers doing primarily full service. For a typical full service caterer, the average party staff cost percentage is in the low teens.
This leaves the other labor categories typically referred to as fixed or below the line costs – management, sales, and administrative.
- Management would typically include general, operations, and culinary management.
- Sales includes sales and sales support staff, as well as sales managers or directors.
- Administrative would include positions such as controller, HR director, marketing director, staffing coordinator, etc.
These fixed cost labor categories might add up to 10% of revenue, though sometimes they would be less.
Anyone adding up these percentages, particularly on the upper end of the quoted ranges, might wonder how a company could possibly show a profit with that labor burden. However, very few caterers operate with labor costs at the high end of all of these ranges, most frequently it is a mix of high, middle and low.
Stepping back and taking the broadest view of the cost of labor for the industry as whole is possible, using the resource of the US Economic Census. This census survey is done twice per decade. Based on the 2012 results the ratio of total catering industry payroll to catering industry revenue is just short of 31%. So, if your company is paying out more than 30% of revenue in labor costs then this is above the industry standard.