Why is it important to benchmark profit share, nil cost and commercial contracts?

Contracts in these categories normally indicate that there is a trading profit that is:

• shared and/or used by the client to reduce the costs of providing the catering facilities
• retained by the contractor as his profit.

In some cases the contractor will pay a concession to the client to provide a commercial retail high street service on the client’s premises. The amount of concession will depend upon:

• the provision and maintenance of the catering facilities
• the contractor’s opportunities for other areas of profit through hospitality and other service provisions such as involved within a total facilities service package.

Why benchmark?

• To establish a benchmark percentage level in relation to general market prices for all the contractors supplies, preferably at the outset, that can be monitored throughout the contract.
• To be able to negotiate any revisions to the contract from a position of strength.
• To be in a position to evaluate the contractor’s trading account and their trading profits/losses.
• To be informed and negotiate and answer questions relating to tariffs on behalf of the client’s own staff.
• To control the costs of hospitality supplies and menu prices.

Tip

If possible establish percentage profit levels in relation to income and the percentage cost of supplies in relation to the CPI index at the commencement.