There are infinite reasons why someone might open a new coffee shop.
To create a stronger sense of community in their neighborhood…
To offer a new, more sustainable option for coffee lovers in their area…
Or even a simple desire to share the magic of a really good cup of coffee.
But, no matter the motivation behind opening a coffee shop, there’s only one thing keeping that coffee shop open:
Profit.
Now, to be clear, profit doesn’t have to become your “why” — you’ve likely got a far more meaningful explanation for that, and we’d recommend you keep it that way!
But it is your “how” — the solution to keeping your doors open, your lights on, your customers happy, and your numbers in the green.
In this blog, we’ll guide you through all things coffee shop profit margin, including:
- What coffee shop profit margin is,
- Why coffee shop profit margin matters, and
- Five strategies to increase your coffee shop’s profit margin
(And, if you stick around to the end, you can grab our free Coffee Shop Profit Margin Calculator, too!)
Let’s get started.
What is a coffee shop profit margin (and why does it matter)?
Coffee shop profit margin is a financial calculation representing how profitable your business is.
(Or, to put it bluntly — it shows how much money your coffee shop makes.)
There are three types of profit margins you need to know about: gross, net, and operating.
Gross profit margin
The gross profit margin is how much your coffee shop makes after covering the costs of making what you sell (AKA “cost of goods sold” or COGS).
Your coffee shop’s gross profit margin shows you how your business is doing financially by showing whether each sold product is actually making you money. Of the three profit calculations, it’s also the simplest; you only need to use revenue and COGS.
A “good” gross profit margin depends on your specific coffee shop, but most businesses aim for 50-70%.
Operating profit margin
The operating profit margin is how much your coffee shop makes after covering COGS and operating expenses (like rent, utilities, and salaries, for example).
Your coffee shop’s operating profit margin shows you how your business is doing efficiency-wise by showing whether you’re making money after paying to keep things running. Operating profit margin is the middle of the road in simplicity; it’s a step up from gross profit margin but not as complex as net profit margin.
A “good” operating profit margin for coffee shops depends on your specific coffee shop, but most businesses aim for 8-15%.
Net profit margin
The net profit margin is how much your coffee shop makes after covering all its costs — COGS, operating expenses, interest, taxes, and everything in between.
Your coffee shop’s net profit margin shows you how your business is doing overall by showing whether you’re making money after paying for everything you’re responsible for. Net profit margin is the most complex of the three profit calculations because of how much data is needed to calculate it properly.
A “good” net profit margin depends on your specific coffee shop, but most businesses aim for 10% or above.
Make math easier with our free Coffee Shop Profit Margin Calculator.
5 strategies to increase your coffee shop’s profit margin
Now that you know what the three different types of profit margins are, what they can tell you, and why they matter, it’s time to get to the real reason you’re here:
Our top five strategies to increase your coffee shop’s profit margin.
1 — Figure out where you can cut costs
Our first strategy to increase your coffee shop’s profit margin is to cut costs, spending less on making your products so you can make more selling them.
A good place to start when figuring out where you can reduce spending is your coffee shop’s food costs. Looking at your food costs — and your food cost percentage — can help you flag menu items that aren’t performing as well, ingredients that are too expensive, and other product-related spots to reduce spending.
2 — Get smart about your pricing strategy
Our second strategy to increase your coffee shop’s profit margin is to optimize your prices, finding better, more strategic ways to earn a better bang for your buck.
Now, how you go about doing that is up to you! You might consider trying out cost-plus menu pricing, where you add a fixed profit percentage to each item, or psychological pricing, where you use subtle tactics like ending prices in “$0.99.” Either way, there are tons of different ways to get smart about pricing — only you can pick what’s “right!”
3 — Focus your menu on high-margin items
Our third strategy to increase your coffee shop’s profit margin is prioritizing your high-margin items, encouraging your star sellers to shine even brighter.
The best way to do that is through menu engineering, a process designed to help you evaluate (and maximize!) the profitability of your coffee shop’s menu items. Once you’ve identified which menu items are your best sellers, you can start experimenting with strategies to amplify their profits with specific tactics (which we talk about in this blog!).
Get all the insights and none of the manual calculations with our free Coffee Shop Profit Margin Calculator.
4 — Offer extras that encourage bigger orders
Our fourth strategy to increase your coffee shop’s profit margin is incentivizing your guests to spend more by offering extras and add-ons to encourage higher orders.
One of the most effective ways to do this is through customizations — although what that looks like in practice is up to you. Whether you opt for Starbucks-level customization – where anything and everything can be personalized – or a softer strategy – like Rook Coffee’s focused range of customizations – a tailored experience of any kind is never a bad idea.
5 — Get your own app with profit-boosting features
Our fifth (and final!) strategy to increase your coffee shop’s profit margin is getting a custom mobile app, offering your guests the features they want with the profit-boosing results you need.
The nice thing about a coffee shop mobile app is that there’s not just one way it can boost your profits — there are tons. You could create a loyalty program to encourage repeat visits, use integrations to streamline your customer experience, leverage zero commissions to keep more of your profits… the options really are endless!
With Craver, coffee shops earn up to 48% revenue through their app — and you can, too.
Craver’s FREE Coffee Shop Profit Margin Calculator
Before you can test out any of our profit margin-boosting strategies, you need to know where your current profit margins are sitting, first — and that’s where Craver’s free Coffee Shop Profit Margin Calculator comes in handy.
Our calculator has everything you need to evaluate (and eventually improve) your coffee shop’s profit margin, including calculators for:
- COGS
- Gross profit margin
- Operating profit margin
- Net profit margin
And did we mention the calculations are already programmed so you don’t have to do any manual math?
It’s a pretty sweet deal if we say so ourselves… but don’t just take our word for it.
Download a copy and see for yourself!
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