So, especially now that coffee is going through the roof, I'm having trouble working out a retail price for drip coffee. I can still do espresso drinks with a 29% COGS, but if I try that with drip coffee, my retail price is nuts compared to the competition. I do carry Fair Trade from a micro-roaster and, unfortunately, my competition does not, but the coffee house is also in a small Midwestern town where a lot of the customers do not necessarily understand or care about Fair Trade and why it's more expensive. Do I stick to my guns and set my prices based on 29% GOGS or consider it a 'loss-leader' and maintain comparable retail prices, leaving my COGS at 34-39%, but bringing in customers who will buy food too? My overall COGS is almost 40% due to lower margin on drip coffee and retail items where I have 50-60% cost. It's been almost 6 years and I do have my loan paid off now, but with the economy, sales have been sluggish so I'm still not making a salary that's at even poverty level.
Wow. Yep, I definitely have to work on my pricing. What kills me is the unfair pricing strategies of distributors...I have to try to maintain a comparable sell price to the competition, but they receive lower costs due to pricing.
My espresso COGS are 22-25%. Espresso is $7.30 (with a 10% discount that I negotiated), milk is currently $4.06 which is a bunch of crap since I can get it at the local grocery store for $3.50, and syrups were $5.85 but have jumped to $6.85. So, the 16 oz flavored latte example costs me 93cents, not 80 and the 12 oz regular latte cost is 47cents, not 40. If I tried for a 20 oz breve at 20% COGS, I'd have to sell it for $8.00!! It does look like your latte retail prices are 50-60 cents higher than mine, though...which is a big difference.
Thank you so much for your advice. I guess I'll have to not be so concerned with pricing with my competition and work it based on my own costs. I will reprice espresso beverages for 20% and start with drip at 30%.
What are your 12-16-20 oz sell prices on drip? My local competition is $1.55, $1.75, and $1.95 (or less), but with a 30% cost, I'd have to sell at $1.70, $2.25, and $2.80. Unless I'm figuring it wrong...I base it on 185 ounces brewed per pound.
Thanks again...this was really helpful...I just needed a kick in the butt to not be so scared of scaring off customers...they're loyal, so I think it'll be fine.
I prefer to include cost of cup, lid, and sleeve in the COGS, as these are variable costs directly linked to the beverage sold.
This would add approximately 4-5% to your COGS calculations.
It really doesn't matter where you figure the costs, as long as you remember to include all of the costs somewhere.
"the oldest guy at your party"
BTW - I find it interesting that you are able to buy your espresso coffee @ $7/pound. You must be buying large quantities (or roasting your own to save the roaster mark-up).
Using a % based on COGS for your pricing is one approach. But I think the understanding that most people have of it is flawed. It's a minimum. When pricing, you should also think about a few other things.
1) Positioning - If you want to lead, lead by example. Be the highest. Price what your market will bear. But be forewarned... if your product doesn't live up to it, it's not a good move.
2) Value of your (the shop's) skill. Do you do what you do better than many? than most? than nearly everyone? Two chefs may have the same ingredients, but it's their skill that can command the price of the dinner. Want to increase your price? Improve your skills.
3) Rarity of product you offer. If they can't get it anywhere else, AND you make that product shine, charge accordingly.
No one ever went out of business by charging too much. Just make it worth it!
I agree with Nick. According to recipes I've followed at corporate stores, we've yielded 128 ounces (1 gallon) from 8 ounces (1/2 a pound) of beans. So we also got 2 gallons from a whole pound. If the numbers are right on your end, check the recipe.
4 ounces of coffee should give you a pretty solid half gallon of brew.
Heather, 185 ounces of brewed coffee per pound seems really low. Is that number correct?
We use a Bunn Twin into 2.5 L airpots. I use a Bunn burr grinder and we grind just before we brew. Coffee beans are stored in vacuum sealed bags until they go in a hopper, which is filled at the beginning of each day. The grounds are all wet when brewed and, no, the filters do not fall. Our coffee is definitely not sour, we actually receive daily compliments that it's the best coffee in town and that it's very smooth and not bitter like many other places. I am able to change the grind, so perhaps I am doing too coarse a grind, allowing too much to be dispensed. I am going to mess with it this weekend to see if I can use a finer grind, creating less volume per pot and see if I can get the same taste.
Thanks so much for your help (everyone)...quantity is obviously my issue in regards to my costs and I think it must be that I need a finer grind with less quantity.
Heather, 3.5-4.5 oz of ground coffee per half gallon of brew water is more typical... and with the right grind and temperature will deliver a good, full flavored, and balanced cup.
Out of curiosity, what does your roaster recommend for weights?