A Coffee Shop Ratio that Boosts Profits by 50%

by Greg Ubert – Crimson Cup Coffee

gregMany cof­fee shop own­ers go into the busi­ness based on their pas­sion for cof­fee.  They often believe the key to their suc­cess is bring­ing the finest cof­fee avail­able to their com­mu­nity. That’s a big part of the equa­tion, and you can’t suc­ceed with­out great cof­fee. But you also need to attend to the busi­ness side of run­ning a cof­fee shop.

When you get down to basics, sell­ing cof­fee is a num­bers game. If you play the game cor­rectly, you win. If you try to cut cor­ners or stray from your focus, you will lose.

Let’s begin by break­ing down the num­bers, start­ing with the cost of cof­fee. Say, for exam­ple, a one-pound bag of fresh-roasted cof­fee costs $7.45 at whole­sale. As a cof­fee shop owner, you have four basic ways to sell that pound of coffee.

The first is to resell the bag of whole bean cof­fee at retail. If your sales price is $11.45, you make a gross profit of $4.00.

The sec­ond option is to brew and sell drip cof­fee.  Assuming you brew the cof­fee accord­ing to spe­cialty cof­fee stan­dards of 3.75 ounces of beans for each 64 ounces of water, and you sell the cof­fee for $1.70 per cup, you’ll make about $31.75 per pound gross profit when fac­tor­ing in the 11-cent cost of the paper cup and plas­tic lid.

Until you con­sider the third and fourth – and by far the most prof­itable – options: sell­ing espresso-based bev­er­ages or hand poured cof­fees like V60 (see below).

You can pull about 50 espresso shots from your one-pound bag of cof­fee. If you sell each espresso shot as a caffé latte for $2.70 using 30 cents of milk and 11 cents for your cup and lid, your gross profit increases to $109.50 per pound of coffee.

People often ask how hand-poured cof­fees fit into the ratio.  You can cre­ate about 22 –V60 12 oz. cups of cof­fee from your one-pound bag. The costs of cof­fee and lid are about 50 cents. If you sell a hand-poured cof­fee for $2.95, your gross profit is $ 2.45 per cup or about $ 54 per pound.

You don’t have to be a bean counter to under­stand that sell­ing cof­fee in the form of an espresso-based drink or hand-poured cof­fee will go much fur­ther than sell­ing a bag of beans or a cup of drip coffee.

So what is “The Ratio?”
The ratio is sim­ply the num­ber of espresso-based drinks sold to the num­ber of cups of drip cof­fee served. The higher your ratio, the higher your prof­its.  Over the years, our cus­tomers have found that a ratio of 80 per­cent espresso-based drinks to 20 per­cent drip cof­fee max­i­mizes profitability.

At this point, you may be think­ing that espresso-based drinks have a higher sales price because they cost more.  That’s true. But you incor­po­rate the cost of the cup, lid, milk, syrups and other ingre­di­ents into the price of drinks, as you can see below.

Table 1

It’s clear that you’re going to make about twice as much per drink when you sell espresso-based drinks as com­pared to drip coffee.

So, how does the ratio play out across mul­ti­ple trans­ac­tions in your cof­fee house? Let’s take a look.

Say you’re cur­rently pro­cess­ing 400 trans­ac­tions per day. Here’s how the ratio affects your bot­tom line.

Table 2

At this level, you’ll make about $110,000 more annu­ally if your ratio is 80/20 as com­pared with 20/80.

How to Improve Your Ratio
For most cof­fee shops, the ideal ratio is 80 per­cent espresso-based drinks to 20 per­cent drip cof­fee.  The ratio is sim­ple but pow­er­ful. It affects every area of cof­fee shop oper­a­tions. Several areas have a big impact on The Ratio. Here is my top five.

1.    Great-tasting Espresso-based Drinks. The qual­ity of your prod­ucts is para­mount. Customers are not going to pay twice as much for an espresso-based drink unless it tastes twice as good. To ensure repeat cus­tomers, drink qual­ity must remain con­sis­tent day to day, month to month and year to year.

Drink qual­ity begins with the qual­ity of the beans – their ori­gin, roast­ing, pack­ag­ing and fresh­ness. So buy the best you can find.

Your baris­tas must be trained to pro­duce drinks that are flaw­less in both prepa­ra­tion and presentation.

You may think your drinks taste great, but are you sure?  If you hear from cus­tomers, “I love it when you make it but not when … does,” you may need to spend more time on train­ing your folks.

2.    Well-trained Staff. It’s not enough for your staff to know how to make per­fect espresso-based drinks. To increase your ratio, they also need to be per­son­able and skilled in cus­tomer service.

Your baris­tas and cashiers must rec­og­nize reg­u­lar cus­tomers and get to know their tastes so they can sug­gest new drinks for trial. They must be obser­vant and have good inter­per­sonal skills – which enable them to upsell a cus­tomer with­out sound­ing pushy or offensive.

3.    Efficient Coffee Shop Layout – An effi­cient lay­out directly impacts prof­its. The most prof­itable bev­er­age – an espresso-based drink – should be showcased.

That’s why the first thing the cus­tomer should see upon approach­ing the bar is the espresso machine.  The drip machine should be as far from the customer’s sight as possible.

You also don’t want to set out self-serve cof­fee in air pots. Doing this removes the per­sonal inter­ac­tion that enables you to upsell to an espresso-based drink.

Working with hun­dreds of cus­tomers, we’ve found that a poor lay­out decreases The Ratio by at least 20 per­cent. If you have 200 cus­tomers per day, an inef­fi­cient lay­out could be cost­ing your busi­ness roughly $20,000 in profit per year.

4.    The Menu – When I walk into a cof­fee house, I can gen­er­ally deter­mine The Ratio just by look­ing at the menu. Drip and fla­vored cof­fees near the top left of the menu are a dead give­away to a poor ratio.

Why? Most peo­ple read from left to right and top to bot­tom.  Putting your espresso-based drinks at the top left of your menu places your most prof­itable drinks in the most valu­able real estate.

Probably the best thing you can do is take drip cof­fee off your menu entirely. Customers who want it will still ask for it.

Giving cof­fee away kills your ratio. So never adver­tise or offer free refills.

5.    Marketing Via Weekly Specials and Seasonal Promotions. How do you sell more espresso-based drinks?  By hav­ing cus­tomers try them.

Weekly spe­cials and sea­sonal pro­mo­tions are two of the most effec­tive meth­ods of increas­ing drink trial, which leads to increased drink pref­er­ence – and profits.

To be effec­tive, the Special of the Week must be changed weekly. Additionally, it should be good only for a regular-sized bev­er­age – served hot, iced or frozen—sold at the same price every day.

Begin adver­tis­ing your weekly spe­cial at the front of your shop. Simply take a chalk­board, write up what the spe­cial is and set it up on an easel by the front door.

Seasonal pro­mo­tions are drinks that are avail­able for a lim­ited time. Think Pumpkin Latte and Peppermint Mocha.  In-store mate­ri­als such as posters, counter mats and table tents that fea­ture a pic­ture of a deli­cious drink will entice your cus­tomers to try some­thing new. I rec­om­mend that you fea­ture about eight sea­sonal drinks each year.

Greg Ubert, founder and pres­i­dent of Crimson Cup Coffee & Tea, has been roast­ing cof­fee in small batches since 1991 and has taught hun­dreds of busi­ness own­ers how to run suc­cess­ful inde­pen­dent cof­fee houses. The author of Seven Steps to Success in the Specialty Coffee Industry can be reached at greg@crimsoncup.com.

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