How do you calculate your coffee shop's profit and loss from a single cup of coffee?

Many owners of specialty coffee shops focus on bean quality, interior design, or even customer service... but they overlook a fundamental and crucial element for the continuous success of the cafe: accurate cost and profit calculation. Understanding the costs associated with each cup of coffee and every service the cafe offers is what ensures business sustainability and helps in making correct financial and administrative decisions that improve operational efficiency and increase profitability. Without a clear understanding of actual costs, sales may seem high, but in reality, profit might be low or even a loss, which leads to the project's stagnation or decline.

Expert Ahmed Al-Hani explained this topic in a video on Marid Coffee's YouTube channel in a simple and very clever way: he calculates costs and profits through a single cup of coffee. In this article, we provide a summary of the idea, but we recommend watching the full video because it contains important practical details and examples.

In the video presented by expert Ahmed Al-Hani, a simple and practical model for calculating a cafe's profits and losses was explained by focusing on just one cup of coffee. Many people assume that the selling price of a cup of coffee, for instance, at a cafe that sells a cup for 15 Riyals, is entirely pure profit, and that costs do not exceed 20%. However, the reality is completely different.

This price includes several key components: the Cost of Goods Sold (COGS - the cost of materials used in preparing the product), in addition to daily Operating Expenses (OPEX) such as salaries, rent, and electricity, as well as taxes and government fees. Therefore, it is important to understand how this price is broken down to know the cafe's true profit.

The Cost of Goods Sold (COGS) refers to the direct costs associated with producing a product or providing a service. In our case, this is the cost of preparing a cup of coffee. These costs include the raw materials directly used in the product's preparation. It is essential to accurately determine these costs as they directly impact the cafe's profitability.

• Coffee beans: The cost of coffee beans used to prepare the cup, which is the product's core.
  
  

• Milk: Used in preparing coffee types that require milk, such as lattes and cappuccinos.
  
  

• Syrup Flavors: Such as caramel or vanilla, which add a distinctive flavor.
  
  

• Sugar: Used to sweeten some beverages like Spanish lattes or other sweetened drinks, and is considered a direct cost for each cup.

• Coffee beans: 2 Riyals (based on a Mblend price of 100 Riyals per kilogram, and a cup requires 20g).
  
  

• Milk: 0.9 Riyals.
  
  

• Syrup: 1.5 Riyals.
  
  

Total = 4.9 Riyals. (Before adding tax)

• Employee salaries: Wages for baristas, service staff, and cleaning staff.
  
  

• Social and medical insurance: Legal obligations towards employees.
  
  

• Rent: The cost of leasing the premises.
  
  

• Electricity and water: For operating equipment and lighting.
  
  

• Internet and telephone: To facilitate communication and customer service.
  
  

• Bank expenses (POS - Point of Sale and others): Fees for electronic payment transactions.
  
  

• Government fees: Such as business licenses, permits, postage, and other expenses.
  
  

• Equipment maintenance: Such as maintaining coffee machines and refrigerators.
  
  

• Cleaning and operating supplies: Such as detergents and daily necessities.
  
  

• Other administrative expenses: Such as office supplies or marketing.
  
  

Typically, operating expenses (OPEX) constitute between 20-30% of the cup's value.

Through these courses, you will learn how to practically use the coffee flavor wheel to select the right coffee beans and build a professional menu that enhances your customers' experience.

The most important operational cost items are:

• Rent (1 Riyal)

• Employee expenses (2.5 Riyals)

• Utility bills (0.5 Riyals)

• Other expenses including bank fees, cleaning, maintenance, etc. (1 Riyal)

Total operating costs = 5 Riyals

After deducting the Cost of Goods Sold (COGS) and Operating Expenses (OPEX), a healthy and sustainable cafe should aim for a net profit of 10% or more of the coffee cup price. This target is the foundation that ensures the continuity and growth of your project.

Net profit is what remains after covering all costs related to preparing and selling the cup, including direct costs such as raw materials, and indirect costs such as rent, salaries, and government fees. Therefore, accurate profit calculation requires a clear and comprehensive understanding of all expenses associated with the cafe's operations.

Achieving this profit does not depend solely on the price of a cup of coffee, but is closely linked to the number of customers who visit the cafe daily, and the frequency of their visits and their loyalty to the place. The more customers and the higher the retention rate, the greater the chances of achieving higher profitability. Therefore, customer relationship management and improving the customer experience are crucial factors in increasing net profit.

Let's remember that the selling price of the cup is 15 Riyals. According to our calculations:

• We start by deducting the value-added tax = 2.25

• Cost of Goods Sold = 4.9 Riyals.

• After deducting tax and COGS from the selling price, 7.85 Riyals remain.

• From this amount, operating expenses (OPEX) must be deducted, which we calculated as 5 Riyals in our example.

• To this, we add depreciation expenses = 0.3 Riyals

Thus, after deducting all the mentioned costs, the net profit remains at 2.55 Riyals per cup.

Paying attention to regularly analyzing these figures and closely monitoring costs helps management make sound financial and administrative decisions, such as adjusting prices, improving operations, or reducing unnecessary expenses, which contributes to enhancing profitability and the project's sustainability.

Therefore, net profit is the true indicator of a cafe's success and should be a clear goal for every project owner striving to build a sustainable and profitable business.

• Focus on sales stability.
  
  

• Enhance repeat purchases from your customers.
  
  

Invest in customer loyalty and the quality of their experience.

To increase cafe profitability, it's important to focus on improving operational efficiency and reducing costs without compromising product or service quality. Here are some practical tips:

• Accurate cost analysis: Monitor actual costs associated with each product and service to identify saving opportunities.
  
  

• Improved inventory management: Avoid waste by organizing inventory and purchasing materials in appropriate quantities.
  
  

• Staff training: Enhance employee efficiency to improve service speed and quality, which increases customer satisfaction and boosts sales.
  
  

• Product diversification: Offer various options that cater to different tastes to increase sales volume.
  
  

• Effective marketing: Use social media to attract new customers and reinforce the loyalty of existing ones.

Marid's experience provides you with a practical model for accurately calculating costs and profits, which helps you reduce costs without compromising the quality of coffee and service offered. By following an effective accounting system, you can make informed financial and administrative decisions that enhance the sustainability and profitability of your project.

For more details and practical examples, we recommend watching the full video by expert Ahmed Al-Hani on our YouTube channel. Don't forget to subscribe to the channel to follow more videos that help you develop your business and achieve success.

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