How to Determine the Cost of Selling 100 Coffees

 How to Determine the Cost of Selling Coffee

What is the profit margin for a cup of coffee?

How to Determine the Cost of Selling 100 Coffees

How much money can you make on a cup of coffee?

First, you have to calculate the costs. There are plenty of costs when it comes to starting a coffee business. Depending on the concept and your menu, your costs will vary from the coffee business to the coffee business.

Some of your costs can be anticipated while others you can only best plan for. Today, I want to discuss the cost of your coffee. Finding the average markup on a cup of coffee will help you determine how much coffee shop business income you will generate.

Many aspiring coffee shop owners fail to analyze the true cost of delivering their coffee (and other products) to their customers.  This might result in poor accounting, inaccurate financial statements, overspending, and eventually – loss of potential profit. 

Each cost segment of your business requires you to understand just what it takes to make money in each potential revenue stream.

The Gross Profit Margin for a Cup of Coffee

Selling Coffee & Crunching the Numbers

In this post, we’ll illustrate how to find your gross profit margin for the coffee you will serve. To do this, we will estimate the Cost of Goods Sold for 100 – 12 oz. Americanos, and 100 – 12 oz. Lattes.

I believe going through this simple exercise will give you a better idea of the cost associated with serving coffee and how many coffees you have to sell to post a daily profit. Understanding these numbers will help you better forecast your coffee shop sales.

The following is a simple hypothetical illustration using cost estimates for the U.S. market. You can still apply it to your local and regional costs to get a better idea of how much 100 coffee beverages will cost you. 

How much profit is in a cup of coffee?

How much profit can you make selling coffee?

The Estimated Cost of 100 Cups of Coffee

For most coffee shops, the cost of coffee is considered an operational cost and a variable cost. This is because you need to continuously purchase coffee beans in variable amounts. In the following example, we will determine the costs of Americanos and Lattes.

 Americano: Two Shots of Espresso (2 oz.) and Water (10 oz.)

Your Roasted Coffee Costs:

Depending on the quality and brand of your whole-bean coffee, you’ll probably pay between $8 and $13 per pound of roasted coffee from your roaster (This would be the wholesale cost of specialty coffee in the U.S.).

Let's assume that you will pay $12.00 per pound for whole-bean coffee. A double shot of espresso requires 18 grams to 22 grams, depending on how old the coffee is.

One pound of coffee is about 453.59 grams of ground coffee.

Therefore, averaging about 20 grams per double coffee shot, you can make about 22 full double shots of espresso or 22 coffees (Americanos).

If you use 18 grams of coffee, which is often typical for espresso, you will make about 25 shots of coffee.

For the sake of this illustration, let’s use 18 grams of coffee per espresso shot (for an Americano drink).

Note: It’s easy to lose 1 or 2 grams of coffee (considered waste) when tamping or dosing. If you average 2 grams of waste per shot, that is 44 grams of wasted coffee per pound (or just over two full Americano drinks). Additionally, in the mornings, it may take you 4-6 shots to “dial in” your espresso to taste the way you want it to. So consider that these numbers are simply estimates and that you should lean towards more conservative estimates.

Using the numbers listed above:

18 grams of coffee x 100 double shots = ≈1800 grams of coffee (or about 4 lbs. of coffee) In this scenario, you will need 4 pounds of whole coffee beans to make 100 coffees.

So, let’s determine the cost of our coffee:

4 lbs. of coffee ($12 per pound x 4 lbs.) = $50

$50/100 shots of espresso = .50 cents per espresso.

The total cost of your espresso is $.50.

Your Cups and Lids:

The quality and characteristics of coffee cups and lids vary. Regular paper cups cost less, but they may not have the plastic lining that prevents leaking. Other disposable paper cups may have a Polyethylene lining but can’t be composted or recycled. Cups with polylactic acid (PLA) are biodegradable.

The solutions for compostable or biodegradable coffee cups cost more. We suggest you pay slightly more and stay eco-friendly.

I recently paid $24.00 for 100 cups and lids (this works out to about .24 cents for each 12 oz. beverage).

Cups/Lids = $24.00

$24/100 = .24 cents each

Your paper costs will cost .24 cents

Your Water Costs:

This will ultimately vary from municipality to municipality. Therefore your water costs are hard to determine here. However, as a placeholder cost, let’s use .05 cents for each coffee.

Using the numbers above, we come up with the basic costs for an Americano.

($.50 for Coffee) + ($.24 for a paper cup and lid) + ($.05 for Water) = $.79.

The total cost of your single double-shot Americano is  .79 cents.

Therefore, it will cost you about $79 to make 100 Americanos.

Now that you know the costs, you can determine what your margins are. Of course, you'll need to determine what your retail price of coffee will be before you make that calculation.

For example, if you charge $3.00 for your Americano, your profit per drink is:

$3.00 – $.79 = $2.21.

If you sell 100 Americanos at $3.00 per cup, that comes to $300.00

$300 gross sales – $79 COGS = $221

At a $2.21 margin, your profit would be $221.00

$221 seems like a significant amount for 100 cups of coffee. But it’s too early to call it a profit as you haven’t calculated your other daily costs like payroll and taxes yet. At the end of the article, we’ll give an overview of how to subtract the costs and see your daily leftovers.

The gross profit margin for a cup of coffee

The Estimated Cost of 100 Lattes

 (Latte: 2 oz. of Espresso and 10 oz. of Milk)

Let’s use the numbers for the items we have already worked out above.

Cost of Coffee:

2 oz. of espresso = $.50

Cup and lid per beverage = $.24

Cost of Milk:

Now let’s figure out the cost of milk.

Costs per gallon of milk will vary from location to location. Some of you will purchase milk per liter. (We will measure in gallons for this illustration.)

Let’s assume that the wholesale cost of 1 gallon of Whole Organic Milk is $4.00.

Note that the price of almond, soy, or any lactose-free milk will be slightly higher. It would help if you figured this in your estimates accordingly. This means that depending on the milk or milk substitute, your lattes' costs will differ. You will want to reflect these costs on your coffee shop menu board prices, too.

So, there is 128 oz. to a gallon of milk.

But how many 12 oz. lattes will this make? Since we will use two oz. for the espresso, each beverage will have about 10 oz. of milk. (Note: you will likely use less milk per drink because the heat expands the milk.)

128 oz. (1 gallon) divided by 10 oz. will give us 10 (10 oz.) steamed milk or 10 coffee beverages. (Let us estimate the remaining 8 ounces for waste).

Therefore:

If each gallon gives enough milk for 10 (12 ounces) lattes, we need approximately 10 gallons to make 100 lattes.

10 gallons of Milk = 100 lattes (12 oz)

10 gallons of milk will make 100 Lattes.

10 gallons x 4.00 per gallon = $40.00 (not estimating taxes).

$40/100 beverages = $.40

On average, this will give us the cost of milk per coffee, which is .40 cents.

($.50 for Coffee) + ($.24 for paper cup and lid) + ($.40 for milk) = $1.14.

The total cost of your latte is $1.14.

Let’s say you sell your 12 oz. Lattes for $4.00, you will gross $400.

It will cost you:

$1.14 x 100 = $114 dollars to make 100 lattes.

Each beverage will make you $2.86

Your profit will be:

$400 gross sales – $114 COGS =$286 per 100 lattes.

These calculations illustrate how every variable impact the COGS and your ultimate profit. You should be able to tweak your numbers depending on what you want to achieve – higher profits, fewer expenses, higher margins, etc.

As you can see, it’s more profitable to sell lattes than Americanos, but you will have to factor in refrigeration, delivery costs, etc.

The higher the cost of goods sold, the less profit you will get. This is why it’s important to find the right quality and price ratio for the goods you sell. Yes, you can buy the cheapest whole-bean coffee and sell it with high margins but don’t hope that it’ll go unnoticed by your customers.

On the other hand, you can buy organic fair-trade coffee and train your baristas to brew it well. In doing so, you’ll have to raise your prices to cover your expenses and generate a profit.

How much profit can you make selling coffee?

The average markup on a cup of coffee

How Many Coffees Do You Have to Sell To Make Your Daily Goal?

To continue with our illustration, let’s factor in your business's labor and rent costs (along with many other costs that we won’t calculate in this article but that you have to be aware of).

Suppose you hire a barista for $10 per hour (plus tips), plus factor in your daily cost of rent, insurance, utilities, etc. How many coffees would you need to sell per day?

Illustrating a coffee shop with 2 baristas at $10 per hour (16 shift hours) = $160. Estimating your rent, insurance, and other fixed and operational costs at $160. Your daily costs would be $320.

Let’s play with your sales here. Let’s say you sell 100 Americanos and 100 Lattes during an eight-hour shift. That equals about 25 beverages per hour.

As we figured out earlier:

100 Americano margin is $221

100 Lattes margin is $286

That’s $507 of margin for your coffee.

$507 coffee margin – $320 daily costs = $187 left over.

This is, of course, an incomplete look at your margins versus costs. You may have other sale items (as we mentioned at the start, coffee is only one revenue segment or revenue stream). You may offer cookies, pastries, bagels, tea, juice, soda, etc. For each of these items, you want to calculate the COGS and profit margins just as we did above.

Final Thoughts On Your Coffee Shop Budget

This illustration should give you a very straightforward way to look at your coffee beverage costs, your profit margins, and overall revenue. From here, you can start to analyze your monthly budget.

As you calculate your daily and monthly operation costs, you will know just how much money you will need to make daily to show the profit. Additionally, you will want to consider where you are starting your coffee shop – as the cost of goods sold could vary widely. For example, if you start your coffee shop in India, the costs would be very different.

As you can see, there are plenty of things to consider when considering your costs versus profits. We have a few other general recommendations:

Get Your Coffee Shop Paperwork Organized

Very few of us love to do paperwork. However, keeping your paperwork up-to-date and organized can help you see through the clutter and help you develop the space to make decisions on your:

• Costs
• Inventory
• Sales

Choose a Better Coffee Shop POS System 

If you are already in business, you may want to utilize your coffee shop POS system to help you manage your inventory costs against your sales. Knowing what sells, what doesn’t sell, and when it sells can provide you with some important information that can lead to a significant decrease in your COGS.

For example, you may not need a second barista to work for an entire shift, saving you hundreds of dollars a month, or you might not need to order so many bagels or milk.  

We've written an extensive review on Choosing The Best POS System for Your Coffee Shop.

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