How to Build a Catering Business with Businesses and Organizations

Many startups incorporate private party and banquet facilities into the floor plan, and for good reason. The meeting marketplace (hotels, restaurants and events facilities) in the United States is estimated to be more than $100 billion.
This includes everything from sales meetings at small companies to week-long association conferences at hotels in major cities. And during the winter holidays, office parties can be a boon to your total year-end revenues.

There is money to be made in the banquet business through events, such as wedding, Bar Mitzvah, graduation and retirement parties, for example. We'll cover that in a future article; however, the purpose of this piece is to help you understand and set up your startup to capture a share of business banquet dollars from local businesses, government offices, and other places of commerce and employment. (Consider, however, that businesspeople happy with your meeting service might want to stage their personal events at your restaurant.)

The reasons to include business-to-business (B2B) or any banquet service for that matter, in your startup are seductive, indeed. Banquets have as much as a 20 percent to 30 percent return on sales whereas on-demand restaurants are in the 4 percent to 10 percent range. One of the reasons for that is the ability to know in advance exactly what kind of food and beverage are going to be served. For example, the wine will all be the same kind in most cases so you don't have to stock a bunch of different brands. You can order what the client chooses by the case for that specific party.

Also, the choices of entrees are generally limited to two or three items, which means food ordering is simpler and not as many cooks are needed in the kitchen, which reduces labor cost. Often you can charge for a room and add a service fee to the final bill. The tip is also included in the final bill and is generally at a higher percentage than normal table service. The servers generally prefer banquets because they find them easier to work and they make more money.

. . . Inside your four walls, your primary mission is to educate your customers to your banquet room offerings and use or refer you when the need arises.

Another upside to the banquet business is the opportunity to promote your restaurant to people who may return with friends and family, and tell their co-workers about your restaurant. In short, you can impress dozens of diners in one fell swoop. Unfortunately, the downside is that you can disappoint just as many covers in an evening.

All of these factors make banquets a very desirable business for restaurants, so making sure early in your startup that you have room for them is important. In fact a number of restaurants are starting to dedicate areas in their restaurants strictly for banquets and seek out this kind of business. For example, in Kansas City, Starkers Restaurant now has only a small place for its on-demand restaurant and has set aside the rest of its space for banquets only. Another restaurant in a scenic Kansas City suburb dedicated the entire operation to banquets, leveraging its magnificent view.

Whether your restaurant includes a private party room for 50 or you have plans for a larger banquet facility to accommodate 500, this source of add-on business can turn out to be a new vein of profits and help cross-promote your regular service. Right now, thousands of companies, civic groups and nonprofits plan meetings and events around breakfasts, lunches, dinners and cocktail receptions. You can get a piece of the action. Just make sure you do your homework before committing your time, energy and financial resources.

Plan to Succeed

You need to consider your banquet business a distinct and separate enterprise from your regular dining service, even though both will share management and other resources. Start by assembling your business partners, managers and key employees to create an exhaustive list of your restaurant's strengths, weaknesses, opportunities and threats as it would relate to operating a banquet facility or private party room. You'll be amazed how many important details will be pointed out from the front and back of the house.

One of the earliest objections you or your partners will raise when considering whether to integrate a B2B banquet business into your startup is, "our concept doesn't really fit business banquet service." Many of us consider corporate business meetings to be staid affairs with fine china and crystal, so we overlook our appeal to the business community based on the notion that we are not upscale enough to attract clients.

Sure, a blue-chip law firm or Fortune 500 company might want to limit its patronage to white-tablecloth restaurants that suit the image it is trying to project or protect; however, the office of a state government division, startup tech company or nonprofit organization might prefer a more casual and less extravagant venue, like your pizza place or Asian bistro, in which to engage in off-site business. More than likely, the privacy of the banquet facility, the quality of the service, pricing, and room layout are going to be more important than elaborate cuisine or décor.

Sharpen Your Pencil

Here is a rough formula for determining annual banquet revenue: Multiply the number of anticipated bookings per week by the average revenue per event. Now multiply that figure by 52 weeks -- simple. There is no such thing as a free lunch, and you will incur additional expenses. For example, your largest fixed cost will be the portion of your daily rent you allocate to each event. If you have a dedicated banquet room, that amount is the percentage of rent or mortgage that pays for that space each month. If you have to segregate part of your regular dining room during normal business hours for an event, you need to deduct the "opportunity cost" of revenue that would have been brought in by other guests.

For example, some restaurants avoid booking banquets on Friday and Saturday nights because it backs up their regular dining seating and limits the number of reservations on the most profitable and busy nights. One owner experienced what he called the "worst of all worlds" when he accepted a buffet banquet, "the least profitable [banquet arrangement for us] for a company that took up our banquet room all night. The price of the banquet was about $2,500, and we gave up 50 two-tops on a Saturday night, each worth about $120, or $60 per person. So, instead of $6,000 for that room for the night we earned $2,500" he said. "Even worse, we had overbooked, and not having those seats ran us into a one-hour delay, which made the regular customers upset."

Your additional variable costs will include extra labor brought in to handle the parties, and food cost. Create a spreadsheet for a few sample parties and come up with an average variable cost, as a percentage of sales, that you can use for your calculations. The rest of the operations already amortizes many of your other fixed costs, such as insurance and management. You might budget an extra 5 percent for all other variables such as utilities and replacement of plates and silverware.

Your rough formula for banquet room profitability is:

Total Revenue

- Fixed Costs

- Total Revenues x Variable Cost Percentage

- Advertising Expense

= Banquet Room Profitability

This will give you an estimated income stream, and help you decide if it makes financial sense to incur the extra investment of space, facilities and buildout for a private party room.

The Market

Of course, the above calculations are moot if there is not a market for your brand of banquet facility in your area. While you might be hard-pressed to find a local competitor willing to share their revenue figures, you'll have better luck calling the restaurant owner of a concept similar to yours in comparable market. Not only will you want to uncover as much financial information as possible, but also ask what marketing has and has not worked. I believe in the rule of threes. If you will make three of these calls, you can rely on the average with comfort.

There is no ideal marketplace for a successful B2B banquet business. As with every service, the variables include the number and types of businesses and organizations in the immediate market and the number and types of restaurants serving them. If you are in the heart of a major metropolitan area or commercial center, you will be surrounded by corporate and government offices, law firms, and small- to medium-sized businesses.

The actual and potential market can be enormous; nevertheless, you will be competing with many restaurants and established loyalties. Small towns may have a limited pool of potential banquet business, but may provide a stream of loyal and ready customers among civic organizations and town government officials, for example, who might feel underserved in the market.

The personal touch. The most effective marketing is leveraging personal contacts and regular guests. Do the partners of a large law firm or a group of executives frequent your place at lunch?

Do they know you offer banquet service? More importantly, do the paralegals and secretaries of these firms know about your banquet facilities? Often they are the ones who arrange and organize these events. Building relationships with your customers is vital to generating banquet business.

Four-walls marketing. Inside your four walls, your primary mission is to educate your customers to your banquet room offerings and use or refer you when the need arises. If zoning allows and it is suitable to your concept, you should put up a banner on the outside of the building letting your customers and passers-by know you have a private party room available. With the drop in cost of full-color banners, an action photograph of a group using your room will connect the dots with the words.

Keep your wording large, easy to read and to seven words, as that is the maximum number a passer-by can comprehend. If you are rotating banners throughout the year for other promotions, bring out this banner during prime booking times like the fall for holiday parties. Great marketing and advertising starts from the inside and works outside. How many customers are you serving a day? Whether it is 100 or 500, your customers know you, trust you and hopefully love what you have to offer in menu, atmosphere and overall value. This army of supporters has influence in areas that would cost you hundreds or thousands of dollars to reach. "I didn't know they did that?" is what most of your customers would say if asked about your private party room.

Break down your facility into marketing zones. Tables should have table tents promoting your private room. Your entrance or lobby area is a perfect area to hang a framed sign with the same information. Try including a call to action: "Holiday Parties Are Getting Booked Fast! Ask A Manager To Reserve Your Date." The more aggressive operator will use fliers at the hostess stand or stapled to to-go orders. The most effective, and nontraditional, four walls marketing zone is the restroom. The space above the urinals and the stall doors are perfect for hanging a small sign. As opposed to all the other zones, there is virtually no competition for your customers' attention. Do not forget your phone system. An on-hold recording should mention your room. You get no benefit from customers and prospects listening to elevator music, or even worse, a radio station that could be playing your competition's commercial.

Success leaves clues, and your calendar is fertile with niches to attack. Go through your calendar, or that of a noncompetitor, and review each type of booking. You will want to list every type of corporate training luncheon or office holiday party. Next to each type of event list the types of companies or groups that booked those events. You might find you handle educational meetings for pharmaceutical reps. This could be because of your menu, theme, amenities or physical location. Do not attempt to swim upstream; target organizations and groups that most resemble the profile of your current business.

A good mailing list broker or Web site like zapdata.com or goleads.com should be able to provide you with a list of targeted prospects. If you get a bumper crop of holiday parties from companies within five miles of your restaurant, then target the other companies in that area with a direct-mail promotion. A letter stating that you specialize in handling holiday parties for companies in the Brentwood part of town will get a better response than a generic, one-size-fits- all brochure with an overview of your banquet facilities.

Additional sources. As noted, another niche worth pursuing is the nonprofit market. This market includes true nonprofits, service clubs and membership-based organizations. From monthly luncheon meetings to annual fund-raising events, this group abounds with opportunity. Check your local Yellow Pages for an overview of the size of this market. If you want to check the viability of this niche quickly, pick 10 organizations that you feel would be a fit and call the president. Inquire about their needs and invite them and their executive committee in for a sample luncheon. The goodwill and good food should pay for itself in future bookings.

Get with your local convention center for a list of upcoming conventions. Many groups book directly with hotels. Create a referral program for hotels that do not have an in-house banquet facility. A small finder's fee is a bargain compared with the time and money it would take to track down the leads.

The list of niches you could target is endless. From pizza parties to company birthday parties to continuing education seminars for doctors sponsored by pharmaceutical companies, using targeted marketing could keep you busy and your party room packed all year long. You have up to three meal times to sell: breakfast, lunch and dinner. For the operator looking to do at least a quarter million dollars a year in private party bookings, you should look into hiring a sales director to actively sell your facility.

Size up the industry in your marketplace. Let's use the Raleigh-Durham, North Carolina, area as an example. If you were near downtown Raleigh, the state capital and seat of Wake County, you would be surrounded by banking, government and law offices. If you were closer to Research Triangle Park, you would find yourself in the midst of pharmaceutical and high-tech companies. In the Durham and Chapel Hill areas, you would be near the campuses of two major universities, with business, law and medical schools.

Direct marketing. Targeted direct marketing to local business and government offices also works. An embossed folder that includes pricing, sample menu, and amenities (e.g., A/V equipment) accompanied by a cover letter is an affordable mailing piece that can easily be customized and made to look sophisticated. When employing this type of direct marketing program, the trick is to get the promotional materials into the decision maker's hands. When mailing them, determine the proper contact by calling the office or firm and asking to speak to the person in charge of scheduling off-site luncheon and dinner meetings. Explain that you are promoting your banquet facility and ask if you could send him some information. Providing that individual with a complimentary meal or appetizer certificate could help build good faith.

Don't forget to leave a stack of these folders at the reception desk and invite regular guests to take them home. You never know who is dining at your restaurant and what influence he or she might have on business decisions.

Never make the mistake of thinking that everybody is your potential customer. You will waste ad dollars using this approach. Better to visualize what your ideal customer looks like, and wants than to try to be something you're not.

Not Too Big, Not Too Little, Just Right

How much floor space should you allocate to your banquet facility? Most often, a private party room is an afterthought or inherited with a lease. When I built my first restaurant in 1992, we had some extra space we decided to close off to create a private party room. While creating a business plan for your restaurant, your pro forma should include how many guests and table turns you conservatively plan to accommodate. Make your main seating area too large and your restaurant will appear to be empty. An empty restaurant lacks ambience and chemistry that helps create a buzz. If your dining room is too small, you will end up with long waits that could scare potential repeat customers away. At a minimum, your private party room is perfect for handling overflow crowds when not booked.

Pete Williams, owner of Old Barn Out Back in Lima, Ohio, ended up in an old barn that had a second floor ready to be converted into a large banquet facility. He has divided the area into three separate rooms with walls that retract back to make one large room for up to 500 guests seated with a dance floor.

What kind of furnishings and equipment will you need to pull off a private party room? Most restaurants just carry over the theme and décor of their main dining room. This includes floor and wall coverings, paint and wall décor. If your room is smaller, you'll want to use square or rectangle tables that can be placed together to form different configurations for parties. They will range from one long table to a U-shaped table to accommodate events that require the head of the table to be a focal point. U-shaped tables are perfect for meetings and awards ceremonies. If your banquet facility can accommodate 100 or more guests, you may opt for the standard 8-foot rectangular or 10-foot round tables. This will give you more options for events.

Audiovisual equipment needs to be budgeted in the planning process. Most rooms will at least have a wall-mount television and DVD player. If you will be accommodating business meetings or educational sessions, you might opt to install a retractable screen and computer projector. Pete Williams has an entire sound system for background music and to handle wireless microphones.

Any room that accommodates more than 50 guests should have a built-in drink station just off the main room to prevent your servers from bottlenecking the flow in your dining room. Some restaurants that accommodate large banquets even have a separate kitchen area. Your target audience and their expectations should dictate your equipment investments.

The Menu

It's a given that you'll sell food and beverages to private parties, but how you handle the menu will determine success or failure in the back of the house. Smaller parties can easily order from your standard menu. You'll want to create set or suggested menus for larger groups. By limiting appetizers, entrees and desserts to your most popular selections, the host is not forced to fret over menu choices. Mere Bulles in Brentwood, Tennessee, offers five different set menus ranging from $30 to $59 a guest. There are plenty of choices for all guests that feature their most popular items.

Your private party menu does not have to be priced the same as your dining room menu. You will be offering a package that includes amenities and service. Shop your competitors to see how they sell their banquets and what they charge. Your costs should be determined by what the market will bear, and not based on an arbitrary food cost percentage pulled out of a textbook.

Having a set menu in advance ensures proper ordering and a smooth-running kitchen that gets the food out in a timely manner. Imagine the nightmare of serving a party of 50 and not knowing whether four or 24 guests will order the filet and lobster. Restaurants with themed menus such as Italian, barbecue and Mexican are better prepared to accommodate off-the-menu ordering. Space and service go hand in hand.

If you have a large banquet room, you might consider menus served buffet style. It will allow your guests to get served quicker, with less staff and save you the investment of warming cabinets required for preplated service. Smaller rooms like the one in my restaurant dictated tableside service. Either way, make sure you allow some flexibility in your menus. You do not want to miss an opportunity to sell more expensive packages.

If you have a beer, wine or liquor license, you'll want to discuss with the host how they want it handled. Some groups will not order alcoholic beverages for their party, making each guest pay for their own libations. You will find some parties that will want to host a happy hour before the main meal or with appetizers and cover bar charges for up to an hour or two. They might be sold wine service with dinner. The most profitable events have an open bar tab from start to finish. Keep in mind the need for portable bars when handling banquets for larger functions.

If you wish to assume the role of event planner, you can increase the profit on each event with add-on sales. Pete Williams offers ice carvings, flowers, upgraded linen and rental of a chocolate fountain.

Administration

If your facility can accommodate multiple parties, both large and small, at the same time, you should consider investing in software to handle your scheduling and agreements. Start with your point-of-sale vendor to see if there is a solution to fit your current system. Some of the more popular catering software packages can be used to handle the same functions. Most restaurants begin with a simple calendar book from their office superstore. Make one person in charge of the calendar to avoid scheduling conflicts. Get with your team to set policies. How large a party will you take and how many events can you handle on a Friday night? Will you require a signed agreement to finalize a booking? Besides food, you are selling access to a room.

Like an airline, if someone cancels at the last minute, there is no market to resell that slot. Consider a nonrefundable deposit as part of your booking/cancellation policy. You should have the cancellation fee escalate as the party gets closer. Some restaurants charge a separate fee for rental of the room. Old Barn Out Back, for example, charges $500 a night on weekend and $250 on weeknights. If you are going to charge a room rental fee, you might want to be flexible and willing to negotiate, if necessary. Better to have a party of 50 on a Monday night and "comp" the fee than forgo that revenue. From the beginning, create a pricing strategy you and your managers feel good about and can all honor. If the owner "wheels and deals" with parties and the managers stick to pricing sheets, you could upset some prospects and lose bookings.

Selling

As important as space design, menu creation and kitchen operations are to the success of your private party room and banquet sales, nothing happens until you make the sale. Unfortunately, most operators focus the majority of their investment of resources on the operation. There are many advertising, marketing and selling strategies available. You will need to choose those that best align with your talents and resources.

An experienced catering or hotel salesperson will have the basic knowledge and contacts to jump-start your sales. Most will expect a base salary and a bonus or commission plan to stay motivated. You might find that it is less than you expected. A good rule of thumb is to allocate 10 percent of your private party sales to your salesperson. That includes base salary and bonus. Run the numbers. Figure out how much business a sales manager would have to generate to justify the cost; however, expect a ramping-up time, as it is not realistic for a salesperson to pay for his or her services immediately. Your second-year return should be much better as you get rebooked from satisfied customers.

Do not make the mistake of leaving a salesperson alone. You will want them to create a sales and marketing plan and review progress weekly. Not only will they feel part of your team, but accountability will improve their results. Make sure you encourage and facilitate an open line of communications between your salesperson and kitchen manager. They will need to work together to exceed your client's expectations.

Whether you inherited a private party room in your lease or are making plans to create one, you will find many opportunities to increase your profits. Each host brings with them guests that you can wow into becoming regulars. With any endeavor or expansion, proper planning on the front end ensures success in the long run. As much as restaurant owners are into the food and operations, do not underestimate the importance of sales and marketing. Nothing happens until someone sells something.