What's the Cost of a Cup of Coffee? What's the Profit Margin? How Much Does a Coffee Shop Make Annually?

For professional coffee knowledge exchange and more coffee bean information, please follow Coffee Workshop (WeChat public account: cafe_style).

For more premium coffee beans, please add FrontStreet Coffee on WeChat: qjcoffeex

Recently, a friend of mine mysteriously shared a bill with me, expressing that they felt completely ripped off! My initial reaction was... (quite loud!). Upon learning that a double espresso cost 23 yuan, I immediately realized how quickly I had jumped to conclusions!

Besides this friend, many netizens have also shared on social media that more and more coffee shops now have very unclear pricing. Some only list product names without prices, while others don't even have Chinese menus - all products are in English, and customers often feel shocked when it's time to pay!

Some netizens also mentioned that even when products are clearly priced, seeing the prices still gives them a sense of being ripped off... "An Americano for 30 yuan, a latte for 35 yuan, and a specialty coffee with just some flavored syrup and fruit starts at over 40... I feel like I can barely afford coffee anymore! The point is, it wasn't even that impressive - I felt like such a sucker."

Regarding the significant price variations in coffee products today, many people are very curious about the actual cost of a cup of coffee.

Coffee Shop Pricing Strategy

First, it's important to clarify one point: every coffee shop has different costs for rent, labor, utilities, renovation, equipment investment, etc., so price differences are normal. Therefore, we won't directly discuss the cost of a cup of coffee, but rather how coffee shops determine their prices and how they should price their products.

Determine Coffee Positioning → Create Menu → Set Costs & Prices

Based on observations, many coffee shops price highly mainly due to rent and labor costs, as well as unreasonable menu product settings. Many shops lack clear positioning and haven't researched the consumption habits of customers in their surrounding area, leading to overly chaotic menus that increase material costs and waste.

Therefore, before creating a menu, coffee shops must first define their positioning (whether targeting general consumers, social media influencers, niche coffee enthusiasts, etc.). Objectively speaking, the main featured items on the menu are basically the products that the shop promotes and that customers accept.

The coffee products on the menu must align with the shop's location and style, which also means that the location and decor are part of the shop's selling points. Therefore, the menu should be adjusted accordingly based on these factors. For example, if a shop opens in a community/small town but has products and pricing aimed at busy streets/big cities, both the menu and prices will intimidate customers.

Thus, treat the coffee menu as a product to be crafted, making it a signature that attracts customers to visit specifically. Then comprehensively consider costs and pricing. Only with clear positioning can you better select materials, control costs, and price more reasonably.

How to Price Menu Products?

Many coffee shops actually buy materials first and then decide on products, so their high prices aren't intentional - it's because the material costs are too high! They need to factor in various costs while considering how much profit they can make.

Therefore, you absolutely must determine your coffee shop's primary customer base, set an approximate selling price range, and then choose the materials for production.

If determining pricing based on raw material costs, you need to reference the cost ratio. This refers to the proportion of raw material costs in the product price.

Raw Material Cost = Material Cost × (1 + Waste Rate) - The waste rate is calculated at approximately 5%, for example, defective coffee beans in coffee beans.

Cost Ratio = Raw Material Cost ÷ Selling Price × 100%

For example (just an example): if an Americano sells for 10 yuan, its raw material cost should be around 3 yuan, making the cost ratio 30%. Generally, the cost ratio should not exceed 30% of the selling price, but this also needs to be adjusted based on individual shop situations, including rent and labor costs.

How to Control Material Costs

Coffee Equipment: Choose what's suitable, not what's expensive. We don't recommend blindly investing in expensive equipment when opening a shop. You really don't need to throw all your capital into equipment when starting! Expensive equipment naturally leads to very high product pricing.

Coffee Materials: Whether for coffee beans or other material purchases, always choose suppliers, manufacturers, and brands with legitimate production qualifications! This is very important!!! Generally, hot-selling products in coffee shops are mostly espresso-based drinks, so espresso coffee needs to be very cost-effective and is key to whether customers will make repeat purchases.

Espresso coffee bean prices range from cheap to expensive. Looking at per-pound prices: regular espresso beans range from 50-60 yuan; beans with more prominent overall flavors range from 70-80 yuan; beans with unique flavors/using estate coffee bean blends/SOE coffee beans range from 90-150 yuan.

Generally, 1 pound of beans is about 454g. (Calculated for double espresso) - a coffee drink needs about 17-20g of beans, which can produce about 22-26 cups. The cost of espresso in one drink ranges from 2.2 to 6.8 yuan.

Milk Cost: Regular fresh milk costs 11-13 yuan per liter; better quality fresh milk costs 16-19 yuan per liter. Based on the milk needed plus waste for a milk coffee drink, about 200ml is needed, so 1 liter of milk can make 4-5 drinks, with a cost of approximately 2.5-4.5 yuan.

But this is just the cost of coffee beans and milk. Adding the various costs of rent, equipment, materials, and positioning for each shop makes it impossible to compete with chain coffee shops. Therefore, it's normal for independent coffee shops to have higher drink prices than chain stores.

Sometimes, consumers go to independent coffee shops hoping to receive service and experiences they can't get at chain stores. It's actually a psychological preparation for most people that product prices are higher than chain coffee. Many consumers feel ripped off more because the product quality doesn't match the pricing, and there's a lack of service, making it feel not worth it.

Image source: Internet

Important Notice :

前街咖啡 FrontStreet Coffee has moved to new addredd:

FrontStreet Coffee Address: 315,Donghua East Road,GuangZhou

Tel:020 38364473