Customers always want something for free, let's face it, a shoe store doesn't geive away free shoes. If you have exceptional coffee you should be charging for refills. I charge .50 per refill. If my customers come in the morning and save the cup, they could come in the afternoon and pay the refill price. You want them to come back for your coffee.
The cost of coffee in a 12 oz cup, which most people underfill to avoid spills and/or to add in milk/cream/sugar whatever, even for a great cup of coffee even after the increase in green prices is less than 20 cents a cup. Probably more like 15 cents.
For commercial grade coffees, the coffee cost is going to be in the 3 to 7 cent range for that same cup.
A good cup coffee program, not counting espressos, normally delivers gross margins in the 85 percent range. You certainly could afford it, but to barefoot's point, why? There is precious little in retail with an 85 percent margin.
As far as restaurants go, most porcelain cups are in the 6 to 8 oz range. The bigger diner style might run up to 10 or 12. If you think that you are going to get a lot of second cup business, just add a dime to the price. If 50 percent of customers don't, then you're at break even or ahead of the game. Deny your competitors a reason for your customers to switch. But then, you'd doing it for the relationship not the transaction.