As the old saying goes “turnover is vanity, profit is sanity”. Keeping this difference in mind is central to keeping any business profitable. Everyone knows that the gross margin on coffee is substantial, but the common misconception is that opening your own café is a license to print money. On average net profit a the coffee business is around 10-20% of turnover and this may not be a huge amount.
So what do you need to do to ensure profitability? Well, start by growing your sales. This might sound obvious but there are only really two options when your business is not profitable. Increase sales or cut costs. Often business owners will automatically look where they can cut costs – this is the first mistake. Cutting costs may improve your net margin for a short while, but if service standards are lowered and the quality of the products on offer is lessened customers will invariably notice and begin to spend their hard-earned cash elsewhere. Cutting costs again to compensate for a loss in custom is a race to the bottom and cannot be a sustainable strategy; eventually there is nothing left to cut and your business may find itself in trouble.
Building a strong and successful business requires sustained growth over time. Costs fluctuate and may creep up in line with inflation but a continued focus on building sales to decrease the percentage of turnover applicable to paying fixed overheads gives you the buffer to spend more time on controlling variable costs such as labour and wastage.
So if the turnover in your business isn’t increasing what can you do about it?
Marketing strategies such as loyalty cards, incentivising offers and social media are great little business builders are important to do, but a better long term strategy is to get to grips with the basics; great customer service, great tasting coffee, great food and a great atmosphere. Getting all of these things right is a recipe for success, there is no point bringing custom to your doorstep once, and not having customers return because of bad service or lack of atmosphere. These things are difficult to measure objectively when you work in the business all day, every day and its easy to quickly experience a kind of “shop blindness” that can cloud your view so get some feedback from others, no matter how painful, call on friends, family and maybe even other business owners to give you feedback. Then try to be objective, use this information constructively, discuss it and feed it back to your team and don’t allow yourself to react negatively or with denial.
Improving the efficiency of service in your business is a great focus area when thinking about profitability. No one likes slow, disorganised service – it’s frustrating for staff and it’s bad for customers – it costs you money you didn’t realise you were spending on labour and to top it off can potentially lead to big losses of sales.
Let’s imagine you have a fantastically busy day where your sales are up 30% on the previous week but the service has been strained and difficult to sustain with the levels of staff you had rota’d on shift for the day. What should you do? Add in extra labour, although this will eat into your profits for the day? Maintain the labour level and risk losing out on sales due to poor service or ( and this can be worse) risk frustrating and potentially losing established customers? Neither of these outcomes are desirable.
Focusing on efficiency must be the priority. Training your team to be more productive without using extra labour and without demanding extraordinary effort is key.
Let’s have a look at a few ways in which to do this:
Streamline your offering – take a good look at your menu. Menus that contain a lot of products and a lot of ingredients require a lot more time and energy. Managing waste and ordering becomes more difficult and takes extra time so keep the menu quality driven and simple
Improve your workflow and subsequently improve your speed of service. Arrange the bar to minimise the amount of running around for your team. A good point of focus is the barista cockpit, everything should be within arm’s reach – getting this right can go as far as to reduce the need for a second barista in moderately busy times.
Automate repetitive processes – invest in technology! This can save a lot of time and frustration. Use automatic grinders, contactless card readers etc, these are just a few items that will save you and your team time.
Setup your POS system correctly. Send tickets to where they need to be, whether it be to the barista or to the back of house – this will enable your front of house team to focus on the customers without needing to run about allocating tickets.
Getting the right product mix is also really important. Knowing the mix of products that you sell and the numbers behind them is key information. Some items will have high sales and high margin where others will be less popular and offer lower margins. Get to know them thoroughly and promote high margin products.
Where possible, increase capacity. Once efficiency has improved and sales are on the up, look at where you can improve the number of covers in your business. Look at increasing sales by removing barriers. If customers can’t get a table that is a barrier to sales.
There are a few other things to keep in mind when thinking about capacity, efficiency and profitability:
Speed up service times. This is particularly attractive for commuters. Speed of service should never be underestimated, customers are more likely to return if they do not have to wait an excessive amount of time to be served, or to have their purchase delivered to the table. It seems very simple but the vast majority of cafes are just too slow.
If your seating fills up during peak times, increase your capacity by adding tables or reconfiguring the floor layout to allow more usable seating. Consider marrying up tables to encourage the sociable aspect of the coffee shop business.
Review your trading hours – widening your opening hours might not pay off immediately but if you experiment to find the best balance it will pay off for the business long term.
Consider adding a mobile ordering option. There are a lot of options available on the market currently. Starbucks increased its overall sales driven through their mobile app by a massive 22%! This relatively low-cost scheme can help boost profit margins and encourage returning customers.
There are many factors which feed into the development and maintenance of a profitable coffee business but paying close attention to the areas discussed will give you every chance of success!