When a few cents matter

What has always surprised me about cafe ownership is the margins you are operating in.  According to Chron.com, a cafe should be providing a return between 10-18%.  If you were turning over $400k for example, you will be taking home $40k in profit (10%).  Spread this over a full calendar year and it’s only $110/day.  There’s not a lot of space for error.

A few things we keep an eye on to keep our costs in check:

  1. Regularly we check our bills from our major suppliers and check for price increases.  Even a 2-3% increase on a few key ingredients can have a major effect on our cost of goods sold.  Once a year we negotiate lower pricing on items we use a lot of.
  2. For every menu item, deli item, coffee/tea and cold drink we know exactly what it costs for us to make it (including wastage, power and labour) and the mark-up we need to add.
  3. Wastage is kept to an absolute minimum.  Every wasted product is a cost we’ve had to incur that we can’t on-sell and make money on for a customer.  Too much wastage will drive our gross profit percent down.
  4. Every cent counts especially when it’s used in volume.  A coffee cup costs us $0.16, if that price jumped, for example, by a tiny 4 cents, it may not seem like much, but if you’re doing 1,000 coffees a week, that’s an extra $2k annually just in cups.  I have had to be very aware of even the smallest increases (likewise, finding a cheaper provider can work much better in your favour).

There’s also structuring things in ways to benefit you better.  We made the decision early on to purchase our coffee machine (most coffee roasters will give you a machine for free if you sell over 10kg a week).  This was a big expense at the beginning, however it allows us to negotiate a very competitive rate per kg for our beans.  We do have to cover the maintenance and repairs on the machine, however the lower kg price more than adequately covers this.

A cafe is definitely not a business where you can sit back and watch the money roll in.  As an owner, you need to keep a close eye on everything, as you need to be able to quickly adjust something that isn’t right.  It’s too late to wait until the end of the financial year to try and patch things up.