4 Pages Posted: 7 Jan 2019 Last revised: 27 Apr 2019
When Ben Smith's call-center job is outsourced, he and his wife, Jane, decide to open a catering company to build on Jane's cottage business selling baked goods. They have an opportunity to cater a holiday party hosted by Ben's former employer; however, the Smiths are new to the business and are unsure of the price they should put on their labor. An out-of-state friend in the catering business recommends using his rule-of-thumb, which is doubling or tripling the cost of food and alcohol. As they prepare to launch their new venture, the Smiths assess the various costs they will incur and consider the different forms of value and risk that go into determining a pricing schedule that is both fair to their clients and profitable for Crystal Catering.
Rev. Apr. 25, 2019
Jane and Ben Smith had always loved to throw parties. They loved entertaining with large dinner gatherings and throwing big backyard bashes, complete with real barbeque or a roast pig. Jane especially loved creating baked goods and pastries for these occasions, and had learned of a “cottage cooking” law in Virginia that would allow her to bake muffins and breads in her own kitchen and then sell them—without going through a lengthy and expensive health department certification process. Her “cottage” operation was within the law as long as she sold her baked goods at farmers' markets or out of her home, and did not attempt to sell her products through traditional retail channels (stores). She had made some money at this endeavor, but not enough to make the transition from hobbyist to professional baker. As much as she enjoyed baking, Jane loved throwing parties best of all. So when outsourcing caused Ben to lose his job in the local telecommunications provider's call center, the Smiths decided to explore the possibility of starting a catering company.
The Smiths did some research and discovered that Virginia state law required commercially produced food to be prepared in a certified kitchen facility separate from the home. Not ready to rent a certified facility just yet, they found they had some other options. They could serve food and drinks purchased elsewhere, such as at a bulk buyer's club, or bring purchased ingredients to a client's home and prepare the dishes there. They could also sell products at a farmers' market, which would allow them to prepare the food in their own home. As for extra hands, the Smiths had two high-school-aged children, Lucy and Sally, who would be more than happy to help out when needed—ideally for a fee, although they were willing to help out for free to get things up and running. Although the catering business, if it took off, would be a family business, “Smith Catering” somehow didn't quite have the cachet they were looking for, and so they decided on “Crystal Catering.” It sounded more elegant and professional.
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Keywords: entrepreneurship, business plan, pricing strategy, management, risk management, catering
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