HOW TO RUN A CAFE WITH BUSINESS PARTNER Running a cafe is not an easy task. There are several ways to run a cafe, via franchise, single owner operating, under a management or finding yourself a business pattern that can either operate the cafe with you or run as what...
How to price a cup of coffee in Australia?
Profit is one of the primary motives for starting a business of your own. Of course, you’ll also have the privilege of setting your schedule and being your boss, especially in the coffee shop industry; but the money-making potential will make or break you. So the big...
Would you like to run a coffee shop? In this post, we will show you the average coffee shop running cost in Australia for 2021! Australia has a coffee culture that is second to none. Coffee shops are a social hub, as many people meet their partners or friends over a...
Are you looking for an answer to what is a good coffee shop profit margin? According to our experience, a coffee business's profit can range from 5% all the way up to 30%. So you might be asking yourself: what makes me go further to the left or right in that...
Looking for tips to increase your cafe sales? To increase cafe sales, you can: hire friendly staff, train your barista, expand your menu, introduce loyalty offers, offer free sampling, do social media marketing, set up an engaging website, upselling, loyalty programs,...
If you are looking to know how to price a cup of coffee, is your intention really just to know what is your cost? Of course, you want to calculate the revenue that a cafe business will bring you.
To efficiently price a cup of coffee here in Australia, these are the most important factors you need to consider: The volume of your daily coffee sales, as well as your fixed and variable costs. Most of the time the wrong or under-evaluated expenses amaze you when you’re a start-up cafe. In contrast, a less pleasant but correct estimate helps you draft the right plan and implement valuable strategies.
Now, let’s suppose some fellows tell that you can make up to 70% as revenue out of each cup. What if a cup costs you $2-3? Will you price it higher at $7, contrary to regular charges in each cafe in Australia? Who will buy from your newbie cafe at such an inflated price?
Is this making sense? Then “how to price a cup of coffee?” — this is the ultimate question.
Read this guide. You’ll figure out the exact way towards your desired annual earnings.
How to Price a Cup of coffee
Your coffee pricing is a direct tool to count on your gross profit. On average, the daily sold cups of coffee at your cafe can range from 200 to 300 cups for a small cafe.
Speciality beans, water, cup and lid don’t make the entire cost of your coffee. They are merely 5%. What a great deal of pleasure for your business mind!
Again, not realistic! Instead, to price your coffee, you need to consider several factors.
To make the proper pricing for the coffee cup, we’ll consider the model of a small cafe with a staff of three: barista, accountant, security. In the same way, the espresso coffee cup is our major item on which the whole cafe will depend.
If you add more products to your menu, they will simply earn you more profit with minor charges. So, for any coffee shop business, the following factors will contribute to coffee shop costs. Keeping them in view, we’ll calculate the price of each cup you make at your cafe.
- The Volume of your Daily Coffee Sales
The number of coffee cups that you sell a day is the primary determiner. Many times, you come across a pretty straight ratio to compute your coffee cup costs.
However, while using the coffee cup cost to aim at a profit, you’ve to consider your daily sales first. At a highly occupied cafe, it will be up to 400 or even more.
Who’ll make more? Of course, the one with higher sales. Yet, 250 sales can be practical for a startup cafe business, though you have a long road to go.
- Fixed Costs
These costs don’t change every day. But they add into every cup of coffee that you sell. These are the costs you’ve to pay to keep your cafe running.
The costs include labour, power consumption, rent and maintenance. For instance, you sell 250 cups a day, making you $1000 minimum.
For brewing the specialty coffee, trained baristas are inevitable. So, considering you pay for 1 barista and other 1 or 2 FOH staff. It makes 48% of each cup you sell. We’ve calculated all these expenditures in our previous blog post.
The cafe rent is another high cost you have to pay. Per day it makes nearly $109, which is about 10-11% of the average cup cost.
The rest of the expenses like energy, advertisement, internet and softwares water will hardly add 2%. Thus, the fixed costs take 60% out of your coffee price.
- Variable Costs
These costs purely depend on the material you use, from the preparation of coffee to its serving. These are specialty coffee beans, water, cup, lid, straw, napkins and other additives according to your customers’ demand. So, here we’ll consider espresso cup pricing.
For the specialty beans, you’ll pay $25-30 per Kilo. While, from one Kilo of specialty coffee beans, you make 45 cups of double espresso. Thus, for each cup of $4.2, it’ll cost you only 1%.
The similar will be the water: 1%. On the other hand, the cup, lid and other necessities will add 1% to the coffee cup price. Hence, our calculation goes this way:
|Cost per Cup of Specialty Coffee of $4.2|
|Labour and other costs (diluting with the coffee only is $1)*** |
note that the labour cost shall be further diluted among
food and other types of revenue in the business.
If your business coffee sales represents 60% of the overall revenue than the labour is
|Cup and lid||$ 0.14|
|Maintenance and others||$ 0.04|
Thus, for each cup, you earn $2.03 for each cup, which can add up to $500 a day for a choffeeshop that sells 250 coffees a day.
Our Bonus Tips to Make Magic happen out of Coffee Pricing at Cafe
In Australia, the annual revenue of cafes is about 5 billion dollars. In comparison, 10000 cafes share this profit in Australia.
What does it mean? On average, a cafe can make $300,000 to $500,000.
Where will all this income come from? From the coffee beverage and other essentials, of course.
- To make more, you need to focus on sales-boosting strategies. Once you reach 150 sales a day, you’ll cover all the expenses.
Thus, every additional sale will directly add up to 90% profit. For example, 100 cups will add up to $350. You’ll only need to add more barista.
- Similarly, in the beginning, you need not hire an additional barista or chef. With a bit of training, you can play the role of chef or barista and save up to 16% against each sale.
- Besides all these, by extending your cafe menu, other than coffees, you’ll only spend on the chef and recipe. Hence, you’ll save up to 80% on these additions.
The coffee shop business is one of the promising careers in Australia. It allows you to make an impressive income in the end. One of the primary reasons for the failure of any start-up cafe is wrong expectations. However, having the correct coffee shop costs keeps you engaged in executing functional plans instead of worrying about surprises.