Most catering businesses track what they spent on food. Far fewer track what they should have spent based on their own recipes — and that gap is usually where profit quietly disappears.
If you run a catering company anywhere in Frederick County or central Maryland, the single biggest lever on your profitability isn't your pricing — it's whether your books actually show you where food cost is leaking out before it becomes a problem you can't ignore.
The most common mistake in food cost tracking is dividing total food purchases by total food sales and calling that your food cost percentage. This "purchases method" ignores something important: the food sitting in your walk-in and dry storage at the end of the period that hasn't been used yet.
If you stock up heavily before a big month of events, this method makes that month look artificially expensive. If you draw down inventory to cover a busy stretch without buying much, the opposite happens — your numbers look great for reasons that have nothing to do with how efficiently you're actually running the kitchen. The accurate version, true cost of goods sold, requires an actual physical inventory count and accounts for what was on hand at the start of the period, what was purchased, and what's left at the end.
| Method | What It Measures | Risk |
|---|---|---|
| Purchases method | Total food bought ÷ total food sales | Distorted by stocking up or drawing down inventory |
| True COGS | (Beginning inventory + purchases − ending inventory) ÷ sales | Requires a physical count, but reflects real usage |
Beyond tracking your actual food cost percentage, the more powerful comparison is actual cost against theoretical cost — what your menu and recipes say each dish should cost if every portion is made exactly to spec. The gap between theoretical and actual is where over-portioning, spoilage, recipe pricing errors, and outright shrinkage hide.
For a catering business specifically, this matters even more than for a typical restaurant, because catering menus are often customized per event, recipes get adjusted on the fly, and portion control is harder to police across multiple events happening on the same weekend. A caterer who builds a standard recipe cost sheet for their core menu items — and checks actual results against it after each event cycle — catches problems within weeks instead of discovering a slow profit leak months later.
Industry benchmarks generally put healthy food cost in the 28% to 35% range, with labor adding another 25% to 35% on top. When food and labor together start consistently pushing past 65% of revenue, that's usually the signal something specific has changed — a supplier price increase, portion drift, or a pricing error — and it's worth tracing down before it becomes a pattern.
Prime cost combines your food cost and labor cost as a percentage of revenue, and it's often the clearest single indicator of whether a catering business is healthy. If your prime cost creeps from a stable 58% to 65% over a few months, that's frequently the entire difference between a profitable quarter and a loss, even if every individual event seemed to go fine on its own.
Tracking prime cost separately for catering versus any other revenue stream — a retail counter, a restaurant dining room, wholesale accounts — matters too. Catering often carries a different cost structure than other parts of a food business, and blending the numbers together can hide exactly which part of the business is actually driving your profit.
Many small catering operations start on cash-basis accounting, recording revenue when payment arrives and expenses when bills are paid. This works fine at a small scale, but as catering volume grows — particularly with corporate accounts that pay 30 days after an event, or vendor terms that create a lag between receiving food and paying for it — cash accounting can distort what a given month actually looked like. Accrual accounting, which matches revenue to the event date and expenses to when inventory is used, generally gives a more accurate and more credible picture once a catering program reaches meaningful size, and it's often expected by lenders if you're seeking financing to grow.
A mandatory service charge added to a catering invoice — common for staffing larger events — is taxed differently than a voluntary tip left by a satisfied client. Service charges are treated as regular business revenue and are subject to sales tax in most cases, while genuinely voluntary tips are not. If your catering contracts bundle a service charge into the total price without distinguishing it clearly, you may be under- or over-collecting sales tax without realizing it. This is worth reviewing in your standard event contract template, not just figuring out invoice by invoice.
If you're running catering out of a leased commissary kitchen rather than your own dedicated space, the accounting between the commissary and your catering operation needs a clear, consistent method — typically either treating intercompany transfers as a straightforward invoice that reduces specific cost categories, or running it as a pass-through arrangement designed to break even. Getting this structure right from the start avoids a tangle of unclear numbers later, especially if the commissary also serves other customers or sales channels beyond your catering business.
At Mercer Flanagan, we work with catering companies throughout Frederick County and central Maryland to build accurate food cost tracking, monitor prime cost trends before they become a problem, and structure service charges and sales tax correctly.
Book a free consultation and we'll walk through your specific numbers — no pressure, no obligation.
Book a Free ConsultationGenerally 28% to 35% of revenue, though this varies by menu type and event style. The benchmark is a useful starting point, not an absolute target — what matters more is whether your actual cost matches what your recipes say it should be.
No. A mandatory service charge is generally treated as taxable business revenue, while a voluntary tip is not. These need to be tracked and taxed differently on your invoices and your books.
Not always immediately, but many growing catering operations benefit from accrual accounting once they have significant corporate accounts with payment delays or vendor terms, since it gives a more accurate month-to-month picture and is often expected by lenders.
By Roy Cogliandolo, CPA · Mercer Flanagan · February 23, 2026
This article is for general informational purposes and reflects practices current as of 2026. Sales tax treatment of service charges and tips can vary — confirm current requirements with your CPA before relying on this information.