Increase Your Profits
Customers in coffee shops associate your business with catching up with friends and drinking their favourite coffee, it is however a very different story on the other side of the counter.
It’s one thing to know your Latte from your Espresso, but do you know the difference between your fixed and variable costs? As a café owner, understanding the ins-and-outs of costs and profit models will help you shape your business plan.
By learning how to make your coffee shop more efficient, you can increase your profits while allowing your employees to focus more of their attention on customer satisfaction.
Financials - Understanding What They Mean
Profit margin: The amount by which revenue from sales exceeds costs. When considering adding a product, you should factor in the costs of materials, waste, and labor. This will allow you to price the product so that all these costs are adequately covered.
What is Gross Profit? This is the profit after you have paid for the “COG’s” Cost of good is produce, ingredients, coffee, take away cups etc.
What is Net Profit? This is the amount you have left after paying wages, rent, electricity, insurance, etc
To manage and monitor your money, and clearly see how much is going on COG's, wages and general running costs it is a good idea to us a spreadsheet to manage your P&L.
There a many accounting packages available that can assist you in managing your café which allow you to allocate income and expenses to the correct categories and to set up bank feeds.
Below is an example of what to aim for when running your cafe. It is based on industry guidelines and has been put together to assist in managing your business.
What is your Net Profit
Net Profit is what is left over after you have paid rent, outgoings, wages and salaries, cost of goods, expenses, fees etc. Annualising the amount will give you the profit for a year.
The annualised profit amount then uses a multiplier. This number differs from business to business and mean how long the buyer wants to get their money back from the business.
How do I increase sales and turnover?
Get the basics right and you will start seeing an increase in turnover.
Once the processes are in place it is a lot easier to focus on increasing sales and turnover. Fixed costs such as rent, electricity and insurances cannot be changed but wages and cost of goods can play a big part in either letting the costs spiral out of control, or manage them correctly which will be reflected in your profit margin.
Cutting costs the wrong way
Cutting costs incorrectly will not increase your turnover or profit margin, it can however have the opposite effect.
Some areas where cutting costs incorrectly are for example, hiring inexperienced staff, inferior or cheap ingredients, reducing portions and buying the cheapest coffee on the market. These might all work in the short term, but, customers will soon dwindle and you will not have a sustainable business left to sell.
Getting it right - The Fundamentals
A Barista is key to your business, do not underestimate the important of the barista who interacts with your customers everyday and is relied upon to make good consistent coffee.
Listen to your customers and appreciate the feedback
Customers not only come to your cafe for coffee and food, but also to feel welcome and loved.
It is often said, if customers are not taking photographs of your food it is not presentable, or "Instagramable"
Efficiency is key
Use a POS system to efficiently control the flow of orders to directly send orders to the barista and kitchen saving time and reducing staff numbers and allowing staff to focus on customers.
Make sure work areas, seating and and equipment allow for seamless flow of staff to be more efficient.
Efficiency is key in having a team that focus on the important things which increases productivity and increases sales.
Reduce your menu size, a bigger menu does not mean more customers. A simple menu allows for a better control of COG's, prevents wastage and allows the kitchen to focus on presentation and keeping the food fresh and consistent.
The bigger the menu does not mean you will attract more customers, simplifying the menu allows you to control and manage product waste and allows the kitchen to focus on producing food that showcases fresh produce.
Service, Service, Service - Get it right
Staffing is a critical factor in running a business, too many staff cuts into your profit margin, too little staff does not allow for a good customer experience.
Customers look for efficient and attentive service. Staff need to understand the menu, up sell when required and understand their job description which allows them to focus on the customer.
Customers will soon look fo ra better experience if the staff are not attentive enough, or lack the basic understanding of hospitality.
Sales by product
Sales by product is the best way to see what is selling and what is not, this allows you to keep track of the sales of individual menu items
Menu items that have high sales and high margins are more beneficial than menu items that have low sales and have low margins.
Focus on dietary requirements, there is a significant shift by customers to look for a menu that has a healthy option.
Food costs: How much it costs you in raw materials to make a dish as a percentage of how much revenue you generate from that item. This helps you price your menu appropriately and monitor food waste.
Grow your business
Now that you have the correct staffing numbers, increased efficiency, a menu that is manageable, processes in place and table service on point - It is now time to start increasing capacity and grow your business.