Topic: How to price a cup of coffee
Guest: Alden Hozouri
Title: Founder & Head Roaster at Crossings Coffee
Connect: www.crossingscoffee.com • @crossingscoffee
Welcome to our newest podcast offering Coffee Smarter Pro. When we spun Coffee Smarter away from our original podcast we focused the content on the coffee drinker trying to brew a better cup of coffee at home (like me).
It was a great decision for my own coffee skills growth, but we heard from a lot of listeners that we lost some of the industry insider information they were using to develop new skills or even help them develop a new business plan. More than one of our listeners has been motivated to move from coffee drinker to coffee shop or roaster owner during the duration of Roast! West Coast. It’s a great honor that we’ve been part of their journey.
So back to Coffee Smarter Pro. We’ve already been sharing a lot of industry education with our Crossings Coffee and Hacea Coffee Source columns. With Coffee Smarter Pro, we’ve rolled them into one easy-to-manage content source and have added some great recurring coffee experts. If you’re looking for coffee industry education, you’re interested in small business, or want to continue to grow in your craft coffee journey, you’ve come to the right place.
Coffee Smarter Pro is available now on Spotify, and will soon be available on all major podcasting platforms, i.e Apple Podcasts. Let’s not kid ourselves. It is Spotify and Apple fighting it out for dominance.
KEY TAKEAWAYS FROM THIS EPISODE
Key factors that will impact what your price for a cup of coffee: rent, $ of roasted coffee, labor expenses (impacted by) preparation method, market rates, business expenses, research and development costs—also know as dialing in the brewing process.
The final price is a floating target. Expenses are always changing. It is important to regularly review your cost structure.
Profit Margin=the % of money you bring in over the costs you incur. A healthy profit margin for a hospitality business may range from 6-12% (depending on the details). The margin you add to a single product has to account for all the business expenses you incur over and above the cost of the raw materials. You are accounting for all the expenses, including permits, electricity, labor, and so on.
Some simple math can help you get started. Breakdown the cost of each cup of coffee based on the amount paid divided by # of cups brewed.
For example a $12/pound roasted coffee brewed makes you 8 sellable cups of coffee, your cost per coffee sold is $1.25 each. Now add additional pennies for each of the other expenses you’re incurring as a business owner. How much does that coffee cost you before you add a profit margin to it? Did you remember to factor in the waste or research and development costs?
Consistency in your product options can help eliminate or minimize some of the factors that go into selling a cup of coffee by stabilizing the price, reducing labor hours for training and the dialing-in phase. Also, consistency with your vendors may enable you to negotiate price reductions.
The trade-off may be that you’ll limit the number of menu changes or new products you introduce or limit your vendor flexibility.The breakdown changes if you roast your own coffee. Roasting your own may enable a long-term reduction in the cost per pound of coffee. The risk is taking on more upfront costs, more learning and training without getting the desired result. Time spent roasting may detract from other important business operations. However, the benefit may be the reduction in the cost per pound of the coffee you are selling, which helps you claw back some of profit margin over the longer term.
Alden likes Elf. Who doesn’t?
R!WC INDUSTRY PARTNERS
R!WC podcasts and newsletters continue to be free because we have some amazing industry partners and supporting listeners.
A huge, on-going thank you to this show’s industry partners. Click these links!
Roastar • Zumbar Coffee & Tea • First Light Coffee Whiskey • Steady State Roasting • Mostra Coffee • Coffee Cycle • Camp Coffee Company • Ignite Coffee Company • Ascend Coffee Roasters • Marea Coffee • Cape Horn Coffee Roasters • Hacea Coffee Source • Crossings Coffee • Acento Coffee Roasters • Sivitz Roasting Machines
Do you want to support the show without subscribing? Help keep us caffeinated by buying us a cup of coffee. Thanks for all your support.
How to Price a Cup of Coffee