Coffee shop economics
Andrew Tolley
Barista Camp
2015
Riccione
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Who thinks it’s important for a coffee
shop to be profitable?
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Benefits of profitability (it is not a dirty word)
• Grow business further – create new opportunities
• Invest in people – professional development of baristas
• Buy new toys - Invest in new technology
• Pay back loans
• Pay back initial investment costs in the business
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Profit and loss model
Revenue {coffee, food}
–
Expenses {labour, rent, cost of goods sold, overheads}
=
Operating Profit
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Profit and loss model
Labour 30%
Rent/rates/taxes 20%
Cost of goods sold 30%
Overheads 5%
Expenses
Operating Profit -
%NET REVENUE
100% - 85% = 15%
Revenue 100%
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P&L from Rent
Labour 30,000 (30%)
Rent/rates/taxes 20,000 (20%)
Cost of goods sold 30,000 (30%)
Overheads 5,000 (5%)
Expenses
Operating Profit
{%NET REVENUE}
Rev - Exp = 15,000
Revenue £100,000 =
20
%
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So, what is a profitable coffee
business?
Revenue > expenses
… but also where there is alignment between
your personal and professional vision and
values
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Aligning vision and values with
profitability
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Not a : ) customer
Poor customer service
No good reviews
Poor customer experience
Doesn’t get to fully enjoy the coffee
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Revenue= coffee
Coffee is £4 a pop
Barista’s paid £8 an hour
cups of coffee to sell per hour, per
barista
6.7
revenue £27
Labour at 30%
=
profit
(£ 4.05)
Labour at 67%
=
Loss
(Labour + COGS
+rent +overheads =
14.6)
cups of coffee sold per hour, per
barista
3
revenue £12
A. B.
Not profitable
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The final piece to our story is the
customer
• Know your market
• Give them a reason to come back
• Have multiple products that they want to buy
Customer Experience
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1000
1000
MARKET
SIZE
AVERAGE
TRANSACTION
VALUE
2
REGULARITY
2
1
2
REVENUE
2000
4000
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2. BE TRUE TO YOUR VISION & VALUES
=PROFITABLE BUSINESS
1. REVENUE GREATER THAN EXPENSES
3. LOTS OF HAPPY REGULAR CUSTOMERS
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Some homework
1. Apply the profit/loss model above to your own café or a café you are thinking of opening.
What is your target revenue? How many coffees do you need to sell, if 70% of net
revenue is from coffee?
2. What is the highest number of drinks you can make in an hour, and over a day?
3. If 50% of these will be made in the first 3 hours of trading, how many baristas do you
need?
4. How many hours will you be open? What is your daily labour cost? How much revenue do
you need to make in order for labour to be 30% of net revenue?
5. What is your desired income from the café? Is this possible with the projected revenue?