I’m not sure the following makes much sense but I haven’t posted for a while so here goes.
How and why do we price coffee like we do? Selling beans is easy as you can work out exactly what you lose through roasting in labour and other expenses and then calculate what you need to make and mark it up accordingly. Coffee by the cup is more complicated as it is a lot more dependent on volume. The question I’d like to discuss is whether current specialty coffee prices are too cheap or is bad coffee just too expensive?
I’m going to say an average espresso price in Australia is $3.50, $4 with 8oz of milk. We charge about this and in our current ‘house blend’ is 2 coffees, 70% of the Rwanda Kinunu and 30% Brazil Passeio. We sell this coffee for $30 wholesale. I realise we save money by roasting our own but there are lots of other costs involved so I’m working on a average cafe buying in their coffee.
As I write this next bit I realise it makes not a lot of sense and is kind of irreverent as no two cafes are the same.
$30/kg = a base price of about 30c per shot or 60c per double. (20gm/espresso)
Milk costs us $3.45/2l = 34.5c per cup (200ml/cup average)
So at $3.50/cup a single shot cap we make $2.85. If you do doubles standard $2.55
After this things get complicated as everything else is based on volume. I’m going to work on being open 6 days and 9 hours a day.
Equipment costs get a little tricky, the lease payments on around $20k worth of gear though (2 grinders, Synesso or Marzocco, water filters, fridge) is about $350/week.
A bank loan for the fitout of $40k would be around $300/week.
Staff costs are about $22/hour for a barista. 2 baristas @ $22 x 8.5 x 6 = $1122/week
Rent and outgoings are going to be $40k/year = $770/week
So our costs per week are $2542
Coffee profit is $2.85
2542/2.85 = 892 = the amount of cups you need to make to break even. I think this setup could do 1800 a week with 2 people though. That would equal $2,588 profit. I think I missed something because that’s a lot.
If you go in cheap though and buy $2 milk and coffee for $20/kg you can make $3,038/week profit. You’ll probably get a free fridge with a big milk supplier also.
So if you take 2588 from 3038 you get 450 divide by our 1800 coffees and it comes to 25c extra the good cafe should charge to make the same profits as the one using cheaper gear.
Like I said above this makes no sense though and now its written I feel like I should delete it but I’m going to leave it in as it took a while to write. There is a few reasons it doesn’t make sense. Firstly people should pay more for atmosphere, time spent in the cafe, and experience as these things all cost much more money to deliver. Is it value for money to have 2 people share a $5 pourover and take up 2 seats for an hour? Is an espresso pulled on a Strada worth more then one pulled on a Linea? Does a more expensive fitout deserve a more expensive coffee?
There are lots of cafe owners not doing great every week and making less money then they would if they had jobs, but enough to stay open. Everyone of these cafes takes a little profit from the others and you end up pushing everyone to the point where it’s all a bit of a waste of time. Volumes for individual cafes drop so the cup price needs to rise and it goes around in circles.
So how do you price?
Perceived value vs actual value.
Good packaging is perceived value, good coffee roasted well is actual value. People will pay good money for both, however long term the actual value needs to be there or things will start to break down. This is important for pricing also as a higher price will add perceived value but it must be justified long term with a great product or people will stop coming back. Education is important here. I remember a very good roaster talking about selling coffee for a high price by just naming a famous farm. Farms are becoming brands now and a common misconception is trusting a farm name to mean great coffee. I’ve been given coffee from famous farms that was 2 years old (before roasting) and it was terrible. The roaster was so proud of it and happy to tell everyone when it was from and how great it was.
Its like the filter coffee is too expensive argument. Less coffee in, much less equipment needed but a higher price. You can’t really argue that labour costs are high as it takes more time as the only reason it’s slow is because demand is low, if you had to make 300 cups of filter coffee a day you would find a way to do it fast. That would be like me charging more for my roasted beans because I roast on a 5kg roaster.
I think in the end you need to price according to your location and market, not by comparison to others. Don’t expect people to pay lots for coffee when they don’t care. Education is important but specialty coffee isn’t for everyone. Know your market before you open and if there isn’t demand for something special then maybe you shouldn’t try to push it. At the same time if you are doing something great in the right location don’t be swayed by people telling you you’re to expensive.