The ChefGail Memoir contains 30 recipes but it also includes business insights drawn from ChefGails remarkable success in two different companies. Here is another one. You can read all of them in the book available at local bookstores and retailers.
INSIGHT #12 A cynic knows the price of everything but the value of nothing. – Oscar Wilde
Everyone in business is in sales. No matter what you do you have to sell your product, your service, or your idea. Setting the price is a tricky balance. If the price is too high you may not sell any product, if too low you may not achieve any profit.
In a manufacturing process you know the purchase price of each of the individual ingredients, you add the cost of labour and a profit margin, and consider the overhead costs of running the business; you have a price point. In a situation where you are selling services, you still have to cover expenses but the price may well be determined by the perceived value or how much the market can bear.
In her catering company Gail, generally estimated that ingredients, labour, and overhead were each about 30% of the total cost. The remaining 10% was profit or margin. In reality her margin was often just 2 to 5%. Food service is not a way to get cash rich. You have to harvest the riches of delighting customers. A competitor once confessed that he was having trouble making a profit. Gail’s response was that her pricing was carefully calculated and yielded a margin of just 4%. Her competitor’s practice was to take her price list and discount it 10%. He was losing money even before he started.
Later in her career, Gail was often invited to do a cooking demonstration, give a speech, or participate in an event. The price for her services was often negotiable although she had a base rate that increased throughout her career. In a negotiation, you should try to get the buyer to outline their budget. So, after getting an idea of what the client wanted to spend Gail would name a price. After a slight pause she would add “per day”, or “per hour”, or “plus expenses”. If the client was still interested she might ask for a travel or accommodation allowance as well. Of course taxes were always assumed and added on at the end in any case.
Sometimes the offer could not be immediately accepted and the client would have to go back to check budget or get approval for the expenditure. If the client had assumed a lower price, they had to consider the drawing power of Gail’s presentation and how it would affect event attendance and revenues. However, if Gail really wanted to make the presentation or was feeling generous about the cause or host, she might offer to take a smaller fee. You cannot ask for more but you can always ask for less.
Only you can determine what you are going to charge. But be bold, ensure you cover your direct and indirect costs, and don’t underestimate your perceived value.