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Expert Guides

How to achieve a nil-subsidy contract

nil subsidy contract

Nil subsidy contracts are not always easily achieved and are only successful where there is a high volume of customers to generate the required sales.

A nil-subsidy solution can have a lower percentage uptake of site population than a subsidised service because tariffs will typically be higher. To achieve nil-subsidy, the relationship between tariff, gross profit, operating expenses, labour costs and catererā€™s income need to be carefully balanced. Our guide describes each of these elements and what clients need to consider in choosing a nil subsidy approach.

Tariff / sales volume

A lower subsidy typically means a higher tariff. This can be a barrier for employees using an in-house facility as opposed to the external competition. In order to establish the correct tariff, typical questions that are asked include;

Effective marketing and merchandising will help drive sales, but unlike a retailer or commercial venue, the potential customer base is capped and it is, in the main, repeat business. Similarly, discounting or special offers will only have a limited impact on driving sales. So, itā€™s vital to get the tariff right.

Food cost & gross profit (GP)


Operating expenses

The client typically still pays the costs towards running a nil subsidy contract. Additional operating costs often sit outside the catererā€™s budget i.e. hospitality services and free issue costs.

A nil subsidy budget can be tight – only the direct cost of sales should be included. All costs for new equipment, repair work, rentals or leases need to be considered separately.

Management fee

The management fee is for providing the knowledge, expertise and payment for managing the service. It will also include the catererā€™s profit. The fee covers all legislative requirements, as well as HR and training, payroll, management support and food development. Nil subsidy contracts pose a higher risk for the caterer and therefore the management fee will reflect this and is often a higher management fee than a cost plus contract.

Glossary A-Z

Gross profit (GP)

The difference between the food cost and revenue that normally offsets part or all of the operating costs.

Labour costs

All the costs related to the employment of the team.

Management fee

Revenue received directly for operating the service to cover costs for employing and managing the people and services needed to deliver the service.

Operating expenses

Costs other than food, disposables (cups, napkins etc.), cleaning, consumables, uniform, laundry, postage, stationery, computer costs, equipment maintenance, kitchen deep clean, cash collections, equipment hire, quality assurance audits, light equipment replacements, travel costs, recruitment and advertising, marketing and promotion.


Recommended retail price.

Sales mix

The range and quantity of products sold.

Service level agreement (SLA)

Part of a service contract where the level of service is formally defined. The caterers income (however earned i.e. management fee) can be incentivised either on sales and/or SLA.


The bottom line cost to the client for a caterer to provide the catering service where the sales income is less than the costs of operation.


Selling price