The café business (in all its different forms) really is a great way to make money. It isn’t easy, but if you play the game properly and work hard you really can make a lot of money with a great lifestyle to go along with it. But there are some rules that you need to be aware of.
Break these rules at your peril. So what are these rules? How should a perfect coffee shop work? What exactly should you be expecting from your business financially? Well, the figures vary for a number of reasons, but unless you are paying huge rent (more than 10% of your turnover) then ideally you don’t want your wage bill and food cost to be more than 65% of your total sales (after any VAT or sales tax).
The goal should ideally be 60% as a total for these two combined. How this breaks down between them is entirely based on the model you operate. A coffee the shop which makes all its own food from raw ingredients will be aiming for a food cost (total including drinks) of about 25% and a wage cost of about 35%. A coffee shop which buys in most of what it is selling should be aiming for about 35% food cost and 25% wage cost since you need less staff to prepare the food and obviously won’t be able to buy as cheaply because you need to give the food producer some margin.
This leaves you with a 35 – 40% contribution to overhead. If you rent and rates are approximately 10% of your turnover then you are left
with 25 – 30% for general running expenses and depreciation.
It’s all about the money the bad news!
Sounds obvious but it really, really isn’t. The number one issue that we deal with is clients who will not accept, either consciously or subconsciously, that they are running a business. Of course, heaven forbid we would be lumping you into that category, but let us indulge ourselves for a minute. You simply have to grasp this concept.
Going bankrupt or out of business in any way is a horrible, humiliating thing. It is the kind of event that you really want to avoid it. We both know from bitter personal experience. Time after time we still see it, year in and year out. Clients and friends who just won’t accept that running a food or coffee business is about money and not some wonderful lifestyle choice. Let us just put a few possibilities to you. A little list of horrible things that happens if you don’t keep the money thing right at the forefront of your mind.
Wake up to the reality of making money…
“It’s a kind of spiritual snobbery
that makes people think they can be
happy without money.“
Creditors beating down your door and trying to find your home address.
Having to tell staff they no longer have jobs.
Having those same staff that you paid for years get cross with you because you messed up and they have no job.
Slimy, oily food reps, who you tolerated for years and used to schmooze you, becoming arrogant and rude, asking for money.
Pitying looks from friends and family.
Having to put up with those same friends and family telling you that you now must get a job and maybe “running a business just wasn’t right for you”.
Having cars repossessed.
Sitting in front of creditors at a meeting whilst they pick over every aspect of your business and decide whether to make you bankrupt or not.
Trying to get supply from those creditors in the future and feeling like a naughty schoolboy or girl who has “learned their lesson”.
Not being able to answer your phone because it might be somebody looking for money.
Having holes in your shoes on wet days, having a car that breaks down.
Not going to social functions because you can’t afford to, and can’t stand the looks of pity from your friends.
It’s all about the money – a little story
Okay, what’s the deal here? You promise “52 ways to make more money” and then you proceed to use up three of them preaching to me that it is all about the money? Well, yes – that’s exactly what we’re doing but look closely at the 52nd way and you’ll notice we’ve dropped an extra “tip” in for you. So remain calm and let us carry on. We can’t say this enough – it’s about the money. You need to get that and then get it again. It’s time for a true story.
Johnnie – true story When I was young, naive and full of my own immortality, I had a very successful sandwich and coffee shop chain which was expanding at a ferocious rate. We were growing far too fast and although the business was basically profitable we had totally run out of cash.
One of my business partners also acted as the accountant and unknown to me and my other partner had accrued huge debts in his own name.
One day we arrived into work to discover he had gone personally bankrupt and there were several huge “holes” in our accounts. Since it was a partnership, our bank financing immediately stopped and the wonderful growing business very quickly turned into a horrible, scary nightmare. We immediately removed the bankrupt partner and ran around like headless chickens pulling in cash from whatever source we could. Desperate to find a way to prop up the business and pay our suppliers while we tried to refinance.
A large customer put us in touch with a gentleman in his seventies who had previously helped him in a similar situation. This character was worth well in excess of £40 million and certainly had the financial wherewithal to rescue us. He arrived at the door in his huge Mercedes S500 but didn’t cut much of a physical presence himself. He was small, wore a cheap brown suit and chain-smoked the entire time he was with us.
“Okay boys – let’s see where we are. How much money did you make last week?” “Well”, I Spluttered, “we don’t know that. We haven’t even got our accounts for last year yet. How can we work out our profit for a week? There are four shops and a factory!” “What do you mean you can’t work out your profit for a week?” he asked with a curious look on his face. “I have a big café over in Bangor and this is what I do …” He took out an old brown envelope from his pocket and with the cigarette hanging from his mouth started writing at the top of the page with a chewed Bic biro. “At the start of the week, I count all the stock in the shop.
Everything. Every single thing. Every tea bag, every sugar cube and every single item of food. And then do you know what I do?”
Focus on coffee for a profit
If it’s all about the money then coffee is the key thing to focus on. It’s easy to forget that the margin in coffee is so great. We often tend to look at total spending and the revenues from larger spend items such as lunch, whilst forgetting that the gross profit from two cups of premium coffee can easily be the same as a full meal.
And it will have less of a labor cost attributed to it. Too often coffee is an afterthought, a means to an end, and we either buy the cheapest brand available or are seduced by a hyped-up sales pitch. Operators rarely invest any time or money into researching, sourcing and purchasing the best coffees available. But they should, as the rewards are huge.
Coffee is not only a great margin product, but it is also a product, probably the only one on your menu, that customers will come back for several times during the week. But they will only come if you “hook and addict” them with a brilliant product. Coffee is so compelling that they can’t leave without a second cup. Or won’t have lunch without a cup afterward. Or sit at their desk in work thinking about how they can get a cup of your coffee to “keep them going”.
Wake up to that great
“If you do build a great experience,
customers tell each other about that.
Word of mouth is very powerful.”
Great coffee (profits) come from great training
There is great profit in coffee but you must be prepared to spend a little of that margin on training to make sure the product is good enough. Cheap machines, cheap coffee and poor training is simply a rip-off. The customer knows it and they won’t be back. These days people know what tastes great and what doesn’t and you can’t get away with a pot of stewed coffee any more if you want a lasting business.
Wake up to the value of training…
“What’s going on in the inside
shows on the outside.”
As ever this comes down to a mindset. Often we simply don’t treat coffee like a fine food that needs to be lovingly and skilfully prepared. The margin is even greater than with our food and yet we trust the preparation of untrained waiting staff in a way we would never trust food preparation. This mindset from the top down needs to change.
The staff needs to fully understand what they are dealing with a sensitive product and that with a bit of care they can produce something really wonderful. The great thing is that this is actually remarkably easy. Staff generally love the theatre attached to coffee and enjoy being associated with the barista culture.
The secret to great coffee training (and profits) is to implement a good barista training program. This is an on-going commitment, particularly with the high staff churn in the industry. Businesses that focus on the training are the ones that will make money at the coffee business. Don’t let anybody near coffee until they are at basic barista standard and challenge them to get to professional barista status by entering the World Barista Championship every year. The competition is run in most countries and will prove to be a strong and exciting motivator for your staff.
Great coffee sales come from one thing–great taste
Freshness Wake Up Questions
When was your coffee brewed?
When was your coffee ground?
When was your coffee roasted?
Cleanliness Wake Up Questions
How dirty does your equipment look right now?
How clean is your water?
When was the last time you cleaned the screens/filters or pistons?
Extraction Wake Up Questions
Espresso – is your extraction time between 20 & 30 seconds?
Filter – have you tried golden cup standards – 90g to 3 pints?
Plunger – have you infused for 4 minutes?
These wake-up calls are just for starters. We haven’t even started on varietals, origins, roasting degrees and milk preparation techniques, so you need to do some pretty heavy research into the world of a cup of coffee and how to control enough factors to ensure that essential consistency. Coffee is at the heart of your business. Treat it with serious respect. Find a good advisor/supplier and get them to teach you how to buy coffee.
Wake up to expecting your
coffee to taste excellent
“High achievement always takes
place in the framework of high
Charles F Kettering
Take care not to fall into the coffee marketers and salesmen trap. Clearly Sustainable Fairtrade, Organic, Bird Friendly, Shade, Rainforest Alliance, Utz Kapeh and other good coffee stories can be good for your business and good for others, but they are applicable only if you understand them first, can use them as part of your business plan and don’t let them affect your taste standards. (You have a standard written down don’t you?) The good coffee businesses need to be environmentally, socially and economically profitable.
Once you have established this great taste, you need to keep on top of it. You need it to be there in your induction program. It needs to be there in your training and you need to keep checking. You need a formalized mystery shopper system in place and you must ask your regulars for constant feedback.
It’s all about the food
Now that we have hopefully drummed into you the importance of the “money” you need to flip things around and see the whole enterprise from your customer’s perspective. You must never forget about the money, but remember that all they care about is the value you’re going to give them for their hard-earned money. And that means you have to provide great food. Great food creates a happy customer who gives you more money. Simple as that? Well not quite, but read on.
Wake up to the power of great food and coffee…
“You do not merely want to be considered just the best of the best.
You want to be considered the only
one who does what you do.”
We all know a few businesses that seem to survive sometimes surprisingly long periods of time serving bad food. They are rare though and are generally situated in odd locations where the competition is minimal. Over the years between us, we have owned or worked with a huge variety of food businesses.
The one thing that marks out the most successful operations is great food. Good food doesn’t have to be expensive or fancy – one of our best businesses was a Fish and Chip shop for example – but it does have to be as appetizing and tasty as you can possibly make it.
If you’re going to produce something simple like a ham sandwich ensure it’s as good a ham sandwich as you can possibly make. Make sure you’d feel comfortable serving it to your family for a big occasion. Make it so you’d serve it to a potential future spouse after a first date.
Make your muffins, scones or biscuits or whatever you are serving, as good or great as you possibly can. Slave over the recipes and sit up late at night in your own kitchen experimenting. If you don’t cook yourself then drum into your kitchen staff or suppliers that you simply can’t and won’t accept anything other than wonderful food.
There are dozens of café options for your customers to choose from and it’s up to you to create some part of your offer that really appeals to them and keeps them coming back.
You need to have a hook or variety of hooks on your menu that will keep them coming back day after day. In the past, we, or our clients, have created a variety of excellent products that are appreciably different from competitors’ products and can be justifiably loudly and proudly promoted.
Apple and cinnamon scones, the world’s best Croque Monsieur, cherry brownies, huge apple pies, superfood flapjacks. The list is endless but your shop needs a few “stars” that can appeal at every time of the day. You need a product that jumps out of the menu, is delicious and (relatively) unique, and can be eaten morning, lunch and afternoon helping to keep all parts of the day as busy as possible.