Chapter 11: What Should You Charge?
Chapter 11: What Should You Charge?
Determining how much you should charge for your personal chef services can be a challenging exercise, particularly if you are just starting out in the business. However, taking the time to determine appropriate pricing is critical to the success of your personal chef venture. This chapter will help you choose the pricing structure that will allow you to make a sufficient profit from your services, while making sure that potential and current clients can afford to start or continue using your services.
Unfortunately, there is no easy to determine how much you should charge for your personal chef services. If there was an easy answer, every personal chef would charge the exact same prices, leaving limited room for true competition. You will need to spend some time analyzing your business to arrive at your own pricing structure.
According to the U.S. Personal Chef Association, the average price for personal chef services in the U.S. is $15 to $18 per meal. Of course, this amount varies according the area of the U.S., the demand for personal chef services in a particular area, and the number of chefs serving a particular area. It is fine to use this as a basis for developing your pricing, but you might be missing opportunities in the personal chef market if you simply adopt an average pricing structure based on these numbers.
To determine the correct prices you should charge for your personal chef services, you will need to consider a number of factors that will affect how much you will need to make a profit, and how much the market in your area is willing to pay for your services. Arriving at an appropriate fee structure is a balancing act that takes into account your needs and the needs of your customers.
There are five primary elements to an appropriate pricing structure:
Each of these elements must be thoroughly analyzed and weighed against the others to determine the prices you should charge for your personal chef services.
Overhead and Other Expenses
The first element you should consider when developing your pricing structure is the amount of money you will spend for overhead and other expenses while operating your business. If you have completed your business plan as described in Chapter 3, you should already have a good projection of how much you will spend to promote and run your business.
It is important to understand that in the first years of your business, you might not be operating at a profit – that is, you will be using some of your saved and borrowed money to get the business off the ground, attract your first customers, and establish a client base that will become the core of your business. Many business owners tend to overprice their services based on initial overhead and other expenses, assuming that they will be able to show a profit during their first year in business. The unfortunate result is that these business owners are unable to attract enough clients who are willing to pay high prices for services provided by a novice business owner.
Instead, you should factor expenses into your pricing by dividing your expenses into two broad categories – those required to start and build your business and those that will be incurred on a day-to-day basis.
Expenses Required to Start and Build Your Business
Expenses incurred while starting and building your business include equipment purchases, vehicle loans or leases, and initial advertising, promotions, and discounts. These expenses will be high when you begin your personal chef venture, but will decrease significantly as your business gains momentum and you attract more and more long term clients.
For example, at the onset, you will have to purchase a great deal of equipment – pots, pans, cooking ovens, kitchen appliances, and so on. As you begin to attract clients, you will probably find that additional equipment is needed to cater to your clients’ individual tastes and needs. However, as you build your client base, you will find that equipment purchases become more infrequent. You will need to replace some of your equipment from time to time, but your overall costs will decrease dramatically after you have been in business for a year or two.
Likewise, advertising and promotional costs will be high during the first year of your personal chef business because you will want to quickly attract quality clients. As you become well known in your service area, you can decrease your expenditures for marketing materials, radio and television advertisements, and promotional activities.
Recurring Expenses
Recurring expenses include the cost of purchasing ingredients and containers for the meals you prepare, the salaries of you and your employees, the rent or lease of your cooking or food storage space (if you prepare your meals or store ingredients somewhere other than the clients’ homes), fuel costs for delivering meals to clients, and maintenance expenses for your delivery vehicles and large kitchen appliances.
These expenses will typically increase as you take on more clients and build your business, so there is a direct correlation between the size of your business and your recurring expenses.
When calculating the overall expenses for the purpose of determining pricing, you should determine the total “business building” expenses over a certain period of time (usually three to five years) and divide that amount over the number of units you anticipate selling during the same time period. For example, if your total equipment, vehicle purchase, and advertising costs over the first three years of your business will be $30,000, and you project selling 15,000 meals over those three years, you would want to factor $2 for equipment costs into the price of each meal.
Because recurring expenses are directly related to the number of meals you sell, they are much easier to calculate when determining your pricing. If you have determined that you will spend $90,000 on ingredients, salaries, packaging, fuel, and maintenance costs to produce and deliver 15,000 meals over a three-year period, you will want to factor $6 into the price of each meal you prepare and deliver to a client.
Using the above examples, your total costs for producing 15,000 meals would be $120,000, or $8 per meal.
Of course, if you offer certain types of meals that require expensive ingredients or significant preparation time, you will want to price those meals accordingly. For example, some types of regional and ethnic cuisines call for ingredients that are expensive and difficult to find – you might have to travel across town to a specialty store to purchase garam masala for Indian dishes, or to buy saffron for Exotic French meals. Since these ingredients are typically only available through specialty retailers, you may have to pay premium prices for these items. Thus, you may find that you need to consider $10 or $12 in recurring expenses for these types of meals.
Credentials, Level of Expertise, and Experience
The second factor you should consider when determining the prices you will charge for your services is your professional credentials. If you are able to demonstrate that you have professional credentials, a high level of expertise in the personal chef field, and significant experience serving clients, you will be able to command higher prices than if you are starting your business with no significant training or experience.
For example, if you have obtained a professional diploma through the Culinary Business Academy and are an accredited member of the U.S. Personal Chef Association, your potential clients will see you as a person with a high level of expertise in the personal chef business and will feel comfortable paying higher prices for your services. These credentials let your clients know that you are dedicated to the personal chef profession, and that you are able to provide top quality service to meet their individual needs. Likewise, any degrees or certifications you have received through a traditional culinary academy or business school will allow you to charge higher fees for your personal chef services.
Specialty Services
If you offer specialty services to your clients that are not available through other personal chefs in your area, you might be able to command premium prices for your personal chef services.
For example, suppose there is a large community of vegetarians in your service area, but there are no personal chefs that offer vegetarian cuisine. If you are a vegetarian, or take the time to develop expertise in creating fine vegetarian dishes, you could specialize in this type of cuisine and set your prices as high as the market will bear. Your clients will appreciate that you understand the nuances of vegetarian cuisine, and will be willing to pay premium prices for the meals you provide.
You will not have to worry about having your prices undercut by your competition, because the other personal chefs in your area will not be able to provide the same specialty services that you offer your clients.
This holds true for any other specialty service that is in demand in your area, such as kosher meals, regional and ethnic cuisines, and meals created with medical dietary restrictions in mind. Providing specialty services gives you the ability to set yourself apart from your competition and allows you to command higher prices by focusing on a specific niche market within your local customer base.
Competition in Your Area
You should also consider the overall level of competition in your service area when determining your pricing. Unless you are exclusively offering specialty services, such as cuisines not offered by other personal chefs in your area, you will have to align your pricing with the other chefs serving your geographic market. Even if you do exclusively provide specialty services, you will need to be aware of what other personal chefs in your area are charging because this will give you an idea of what the market in your area will bear.
If there is intense competition among personal chefs in your area, the overall prices that you will be able to charge for your personal chef services will be lower than in an area where there are few personal chefs competing for the same business.
Demand in Your Area
The final factor you will need to consider when developing a pricing structure for your personal chef services is the level of demand for personal chefs in your area. Do not assume that because there are few other personal chefs operating in an area, you will be able to charge high prices for your services. You might find that the lack of personal chefs is due to a low demand for personal chef services.
Take the time to analyze the demographic factors of your service area when you are considering demand. How many households in the area are comprised of two working adults? What is the average household income in your area? How busy are the other personal chefs that service the same area? Finding the answers to these questions will help you determine whether you have found a relatively untapped market that will bear premium prices for personal chef services, or whether you will be working in an area where demand is low, and you will have to set your prices accordingly.
Developing Fees for Your Personal Chef Services
Once you have arrived at an optimal cost per meal, you will need to consider how you will package your services in a way that clients can afford your services, and that you can build a profitable business without constantly having to search for new customers.
Most personal chefs price their services in weekly or monthly packages, rather than by the individual meal. This helps reduce the time and expenses involved in constantly finding new clients. Imagine how much of your time would be spent finding and attracting new business if each client only purchased one meal from you.
If you have determined that the optimal price for each meal is $15, you could set up several plans for your clients to choose from:
There are other types of packages you can offer, depending on the types of personal chef services needed by people in your area. You can find out from existing and prospective clients what types of packages they would like to see offered, and then price these packages accordingly.
Now, let us move on to the next chapter, where we will explore some of the challenges you will encounter when transitioning from a full-time job to a full-time personal chef business.