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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 scale?
In this post, we will do an in-depth analysis of those factors, as well as give some tips on how you can improve that margin..
Why Consider Coffee Shop Profit Margin, not Cafe Revenue?
In our blog post about coffee owner’s salary, we did a deep dive into a coffee shop’s revenue in comparison to its profit (which we called the coffee owner’s salary). But, in our opinion, the profit deserves to be looked at more in-depth.
The reason is, the profit percentage lets you reflect on your performance by each hour, each week, each month, and each year. And with that information at hand, you can study your cafe growth categorically and make better decisions. Consequently, you can decide on adopting profit-generating strategies — which will be easier to target and analyse the results of.
The right way to grow in the coffee shop business is to be specific about your cafe profit margins.
What is Coffee Shop Profit Margin? Let’s Understand First.
The cafes’ profit margin is the exact idea of how much a coffee shop should make as the percentage of its total sales after covering all the expenses.
Let’s Debunk Popular Beliefs about the Coffee Shop Profit Margin.
Searching for “what is a good profit margin for a cafe in Australia?” often catches your eyes on the figures like 60-75%.
Do you think it’s attainable? If yes, then you’re wrong at the first palace but also right at the second. How?
The Australian Tax Office describes the average income of cafes as 10%-17% of their sales. If that’s the case, by selling 250 cups of coffee, you’ll be generating $1,000 a day, $5,000 a week, and $260,000 a year.
Let’s be more simple.
260000 X 10/100 = 260,00
260000 X 17/100 = 44200
If you want to dig deep with the ATO-provided ratios, have a look — get more disappointed.
|Average Sales a Day||Profit %||Daily Net Profit||Yearly Profit for Operating 5 Days a Week||Yearly Profit for Operating 6 Days a Week||Yearly Profit for Operating 7 Days a Week|
Would you like to be a cafe owner with this revenue? Perhaps never. And it is even more daunting to know that 50-74% of cafes will fail in their first year.
Then, why are coffee shops opening and selling each day? Why are new owners hunting for “on-sale” cafes?
I bet iv’e got you scratching your had right now? And you should!
These ATO statistics are not the ultimate tool. They calculate for business as average: stand-alone cafes, big franchises, and small cafes. Along with this, cafes cheat ATO, as reported by a cafe owner in Sydney, Peter Baskerville.
What is Coffee Shop Profit Margin? Let’s calculate ours.
If you survive in your cafe start-up years, you can easily make a 35% profit by selling the coffee cups alone.
We’ll be making everything as clear as day. Let’s begin with how much a coffee cup costs you.
It’s about 65% of the total price of $4. Thus, you save $1.2 for each cup sold out of targeted sales of 250 cups a day.
Hence, according to our research, you can earn a profit margin of 35% by selling 250 cups only. Here is how it’ll let you calculate your cafe profit margin for 250 cups sold at a $4 price with a 35% profit.
250 X 35% X 4 = $350
|Yearly Profit for operating five days a week||Yearly Profit for operating six days a week||Yearly Profit for operating seven days a week|
|350 X 5 X 52 = 91,000||350 X 6 X 52 = 109, 200||350 X 7 X 52 = 127,400|
Most of the drastic calculations result from considering the average stats. For instance, you merely monitor the business size, given models, or simply ignore the core calculations and hidden profits just like hidden costs.
Let’s Hit the Opt Coffee Shop Profit Margin.
By now, you’re pretty sure about the genuine calculator of the coffee shop’s profit. Congrats, your cafes’ success story begins now!!!
Just forget about the 17% of cafes/restaurants that fail the first year. What!!!
Had you learnt about 50-74% or even 90%? That was a myth — generalised estimate only.
The misleading figure conditions your brain to believe in failure. Be happy now; you have got a higher chance of survival.
So, now you can start your venture with your new cafe, being headstrong to reach 30% – 35% of profit. Your daily expenses for running the coffee shop are 65% of all sales out of 250 cups.
What does it mean? By hitting your 150 cups a day, you can cover all the costs. The remaining 100 will earn you the profit as mentioned above.
The more you boost the sales, the more your profit will increase towards the higher number, with nearly 10% of costs. Let’s have our math again.
You have done with your 35% profit through 250 cups a day sales.
If you have a takeaway focused venue, you can easily reach those targets. Of course, iw will demmand careful planning and HARD WORK.
However, achieving the 250 cups daily sales can be hard at the begging. So, you can add more food items and items that will increase the profitability of your menu even further, by allowing the possibility to upsell with coffee.
How to Get a Higher Coffee Shop Profit Margin?
Avoid Starting a Cafe from Scratch.
By now, I believe you are convinced that you can achieve a reasonably good profit margin with your cafe. But if you are planning to start one, please understand this:
Would you begin it from scratch? As a cafe Industry expert for over a decade, we’ll advise you to get an already established coffee shop.
If you think the ones that are for sale won’t do you any good, you might be very wrong.
Not all cafes on sales are a failure. Most of the time, the cafe owners sell them for personal reasons like broken relationships, health problems or other financial issues.
Getting an existing cafe comes with a lot of benefits:
- You can pay more attention to branding the cafe and standardising your operations.
- You can flip it, make it busier, and if you were smart when purchasing the business, sell it for a good profit.
Boost your Cafe Sales.
To hit the highest profit margin, your only target is to chase coffee sales. In the beginning, with no exaggeration, it can be difficult. But by adopting more helpful strategies, you can make your way. Some of these strategies, according to our experts, are:
- Training our cafe staff;
- Educating yourself about coffee business;
- Expanding our cafe menus. It’ll help you sell more than what your customer had been intending;
- Marketing your business via social media and business websites;
- Introducing customer loyalty offers;
- Branding your cafe business to be a market authority.
In this way, you can be an authority business at your location .
Cut your costs.
Your next step can be to save more costs. It’ll help you add every signal per cent from the cost percentage to your profit margin. You can do it by:
- Getting your coffee supplies from the supportive distributor.
- Making the best use of your inventory and staff.
- Being an active worker/chef/manager at your cafe.
By adopting these methods, you’ll leave no stone unturned to help you with your coffee business.
The cafe business is indeed profitable if started and operated the right way. Your coffee shop can earn you up to 70% of your sales as your coffee shop profit margin.
For this purpose, you only need to be consistent and choose the right strategies. The result can be your dream revenue in the end.