Coffee consumers often ask why their daily caffeine fix costs what it does. Some people seem to think we are highway robbers making a killing on innocent coffee connoisseurs. However, if you look at the cost behind the coffee you might have a better understanding. So before your pot boils over, here are some of the things that go into keeping our doors open to continue supplying you with your drug of choice - caffeine that is!
First, we have the cost of the product. There is the growing, processing, transporting, storing, roasting and brewing just to get you the coffee. Next, you have the milk including the dairy farm, delivery, and cost of refrigeration. Then you have the cup, the sleeve and the lid along with the wide array of sugars, cinnamon, nutmeg, and honeys as well as stirs and spoons and napkins!
There are also the fixed costs of our physical location such as our mortgage, taxes, insurance, gas, water, electric, internet, and phone. And finally, there are t he variable costs that change based on the needs and challenges of the business like marketing, credit card processing fees, and of cost labor - we do have to pay our staff, after all.
Fixed and variable costs alone without labor can easily be $5,000 per month. And labor at $10 per hour for 400 hours average a month along with workers comp, employer taxes, unemployment etc. come to another 4-$5,000 per month. That's $10,000 just to break even! So, dividing out the costs per day using an average of 25 days per month, we need to do a minimum of $400 per day to stay open and there are days in the summer especially where we struggle to get there.
Then, how much do we need to charge per item to cover those costs? Well, now we have to calculate an average number of customers or transactions that we need to do per day to break even - which for us is at least 50, putting our minimum per transaction right around the $8 mark. This is why we set our credit card minimum at $5, actually by law it could be set at $10 and truthfully we are under water on any credit card transaction less than $8. Now, approximately how many items do we need to sell in a day to break even - for us, it is around 150, that puts the starting price of each and every item at about $2.67 - and none of our cups of coffee or baked goods come in at that level. This is where we try to up sell and cross sell additional items to each customer and it is also why we sell bags of coffee and gift items and not just cups of coffee. Our bagged coffee sales and gifts increase our average transaction sale to closer to the $10 mark that gives us an edge over just selling liquid coffee and is one of the main reasons we did not open a sit and sip cafe and instead opted for a roaster/retailer model.
Not many people are willing to pay much more than $2.00 for a cup of auto drip coffee, so if you think we are making a killing on your coffee, you are kidding yourself.
Additionally, in order to attract and keep skilled laborers we need and want to pay key employees more than minimum wage and of course, we also need to pay ourselves. How long would you work at your job regardless of how much you like it, if you did not get paid? As you can see, setting prices is complicated. We also need to check the competition and revisit our pricing structure at least annually.
We could decrease our costs by cutting our quality, but if we don't offer a good product, you won't come back for more, so being frugal may not be the smartest plan if it is going to cost us our reputation. We look for savings on things like credit card processing, energy cost saving products, waste reduction, and recycling or making the best use of the space and resources that we have available to us all while maintaining the quality you have come to expect from us.
Of course, the best way to reduce per unit operating costs is to increase sales! So keep coming back for more and tell your friends too and as long as you do we will be able to keep our costs in check and continue to keep our doors open for our customers to feed your coffee addiction without an excess strain on your wallet!
So now you know why your coffee costs a latte'! Thanx a latte for your interest in and support of our business. If you have any helpful cost saving suggestions, please let us know!