Coffee Shop Financials Check

[Coffee Bistro]

I''m the owner of a Coffee shop that sells teas, coffees, bakery, soups, sandwitches, etc. We opened in October of 2005 and have built a growing clientele. We are only open 6 days a week we rest of Sundays.

I''d like help from the other coffee shop owners in comparring financials as I can''t believe that we can not make more of a profit than we have and I''m trying to figure out why.

Revenue is $315K annually with our largest expenses being;

Cost of Goods - 42.1% of sales
Payroll - 27.5% of sales
Rent - 11.5% of sales
Utilities 3.9% of sales
Customer Promotions or giveaway (Free drinks) 3.4% of sales

How does this compare to others in the business.

 

[starside8]

I would like to hear the answer to this myself from owners whom have been in the business awhile. My shop is only 3mos old and really don't have any answers at this point. It would seem on the surface your cost of goods is too high. But that is tough to say.

 

[Crazy4Coffee]

I can''t believe that we can not make more of a profit than we have and I''m trying to figure out why.

Well, for starters, you're closed on Sundays. That's four or five days a month of potential profit that you are kissing good-bye. Worst of all, you're still paying rent on those days.

 

[SunriseCoffeeLasVegas]

Wow. I think your cost of goods is pretty high and that might be one of the reasons for a low profit margin. Are you getting those margins from coffee sales or food? If it is from coffee, finding solutions to help control your costs would be a start. Are most of your profits from coffee or food?

With labor and overhead, the cost of goods should hover no more than thirty percent to produce decent profit margins.

I am this close to opening and have invested some time into controlling costs without hurting taste. Just by making drinks more efficiently saves pennies here and there which adds up.

 

[chip]

What are other people running for %s

We''re running with COG at about 38% and labor at about 37%. Both too high in my opinion. I''m hoping to get down to 35% and 33% over the next few months. I could actually make a little money then. We make all our own baked goods, soups, etc. from scratch. Seems like that should raise labor and lower COG, but it hasn''t. Good topic.

 

[John P]

COG Max should be 30-33%.
I try to keep around 23% or less overall.

41% ! Either your prices are way too low, or your product mix is wrong.... too many non-drink items.

Examine layout for efficiency. Perhaps you have too many people working at once. If you can cut a shift a day, there's some good savings there too.

 

[SunriseCoffeeLasVegas]

I think when you start to deviate far from a "coffee" atmosphere and add alot of food stuffs it does eat into costs. Foods are expensive, easily perishable, and take up space.

Then the direction of the store changes from coffee driven to food driven yet, the prices still reflect the cost of coffee not the expensive perishable foods that take up alot of space and equipment.

Instead of being a coffee house, the place turns into a "cafe". The prices should reflect accordingly then with soups, sandwiches, baked goods.

As for me, I'm just sticking to good organic coffee, fresh baked organic muffins from a local baker, usual desserts, and I might have a thai restaurant make organic taro pudding for my store.

I buy at wholesale, I don't need any special equipment to make it, I resell at a fair price, and don't need to worry about because they deliver to my store everyday.

If anything, it drives more cusotmers in, because now they have yummy things that go with their coffee. Not eat there and have coffee as an afterthought.

 

[John P]

^ ^ ^ ^ ^

well said.

 

[chip]

Coffee COG

It seems to me that our coffee just isn't as profitable as it should be, or at least as I'd assumed it was supposed to be. We're charging around 2.00 for a 16 oz cup of coffee. We use locally roasted, fair trade, coffee. 4.6 ounces of it for an airpot full. By the time you add a cup and a cozy and some half and half, there just isn't a big margin there. Any thoughts?

 

[John P]

Raise your prices.

If the product doesn't warrant it, then raise the quality of the coffee, and raise your prices an even greater amount.

 

[SunriseCoffeeLasVegas]

the margins for drip coffee isn't as high as espresso based drinks. You have to use more beans and the throw out any drip coffee after an hour because then it just isn't good for customers. (money drain one)

Also, there is a price perception cap limit on a cup of drip coffee. And with drip coffee most people use creamer. Creamer is most times TWO to THREE times the cost of milk ounce to ounce.(moeny drain two)

Whereas with espresso based drinks because of the 'Bucks customers are used to paying premiums for their lattes. I believe all latte should be made with whole milk but, that's my own thing. Which is way more cost effective than half and half.

Therefore, your COGS for espresso based drinks is lower than drip coffee.

Also, how much do you pay for cups, sleeves, and such. It really shouldn't eat into your costs that much.

 

[John P]

Another solution.

Don't do (bulk) drip.

Hand Drip, or Chemex, or Press, or Vac Pot, or Eva Solo (haven't used that one)

We've never done drip. Only Press by the cup, and now Vac Pot (siphon) by the cup. $4.25-$5.00 depending on the coffee ($6+ for CoE).

COGS also depends on the execution of your vision.

 

[Fresh Roaster]

Margin on beverage should be huge, even drip. What is your wholesale coffee cost? I can think of two things. First, the wholesale cost is too high. Second, the coffee is not as good as you think. Great coffee by the cup will lead to incremental whole bean sales. Think about roasting your own and creating a lower cost private label. That local roaster is taking 30% off of your net and then using your retail space rent free for any of those incremental sales and/or branding of their own!

Also, is that same coffee available anywhere else? What differentiates it in your shop? What makes you different and compelling to customers than any other shop serving the same coffee or a grocery store selling the same coffee at a discount to your price?

All things to think about. In the end it's all about product differentiation, quality, branding and unique selling propostition. John P may not sell a ton of coffee but I do know he's unique, has huge margins and a fast growing following as a result. 100 cups at $2 margin versus 500 cups at .40 is the big question mark and where the search for balance starts. They may be equal but consider growth, maintenance and differentiation. A few months of a price war in a commodity style market between two non-differentiated small margin shops could wipe out one of them very quickly.

 

[John P]

additionally, you must look at all factors as a whole in your business.
For example, we use the Freshroast system and we now roast 300 to 400 percent more than prior to having it, but due to efficiency, as well as a few other factors, our average electrical costs have actually stayed the same or have gone down.

It's not merely the cost of the product, but the cost efficiency at producing something that matters as well.

COGS is very important, but if you get too caught up in it, you may miss part of the bigger picture. Treat every aspect as important.

 

[John P]

The coffee I source fetches more than $1.00 to $2.00 above FT for the green I buy.... I pay above that after the importer/brokers mark-up. I don't base any of my coffee decisions on price. Only on the result in the cup... AND supporting a sustainable infrastructure for those farms that deliver an exceptional product time and time again. Margins far exceed $2.00 per cup, but for the knowledge that goes into the cup, you'd wonder why it isn't more. The only comment we've ever had on our coffee and espresso is, "You really should charge more for this."

When it's warranted, I am more than happy to raise prices!


Every business will have it's own model, but one thing I have learned is that it never pays to cut corners. Whether it is the quality in manufacturing of a roaster, or the selection of beans, or choosing an espresso machine.
Cutting corners costs money. So if you want to improve your bottom line,
use better ingredients, better equipment, better planning, better trained employees.... and reap the benefits.

Also, re-investing the majority of profits back into your business would be a smart move.

My cent and a half.