How do you calculate your cafe's profits and losses from a single cup of coffee?

Many specialty coffee shop owners focus on the quality of the coffee beans, the décor, or even customer service… but they overlook a crucial element for the continued success of their establishment: accurately calculating costs and profits. Understanding the costs associated with each cup of coffee and each service provided is what ensures the sustainability of the business and helps in making sound financial and administrative decisions that improve operational efficiency and increase profitability. Without a clear understanding of actual costs, sales may appear high, but in reality, profits may be meager or even incur losses, leading to the closure or decline of the business.

Expert Ahmed Al-Hani explained this topic in a video on the Coffee Giant YouTube channel in a very simple and clever way: he calculates costs and profits using just one cup of coffee. This article provides a summary of the concept, but we recommend watching the full video as it contains important details and practical examples.

In the video presented by expert Ahmed Al-Hani, a simple and practical model for calculating a café's profits and losses was explained, focusing on just one cup of coffee. Many people believe that the selling price of a cup of coffee, for example, 15 riyals in a café, represents pure profit, and that costs do not exceed 20%. However, the reality is quite different.

This price includes several key components: the cost of goods sold (COGS - Cost of Goods Sold), plus daily operating expenses (OPEX - Operating Expenses) such as salaries, rent, and electricity, as well as taxes and government fees. Therefore, it's important to understand how this price is broken down to determine the cafe's true profit.

Cost of goods sold (COGS) is the direct cost associated with producing a product or providing a service; in this case, it's the cost of preparing a cup of coffee. These costs include the raw materials used directly in preparing the product. Accurately knowing these costs is important because they directly impact the profitability of the coffee shop.

• Coffee: The cost of the coffee used in preparing the cup, which is the basis of the product.
  
  

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

• Syrups (flavors): such as caramel or vanilla that add a distinctive flavor.
  
  

• Sugar: Used to sweeten some drinks such as Spanish latte or other sweetened drinks, and is considered a direct cost per cup.

• Coffee beans: 2 riyals (based on the price of (Mblend) at 100 riyals per kilo, and a cup requires 20 grams).
  
  

• Milk: 0.9 riyals.
  
  

• Syrup: 1.5 riyals.
  
  

Total = 4.9 riyals (before adding tax)

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

• Social and medical insurance: legal obligations towards employees.
  
  

• Rent: The cost of renting the place.
  
  

• Electricity and water: to power appliances and lighting.
  
  

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

• Bank fees (POS - Point of Sale and others): Electronic payment transaction fees.
  
  

• Government fees: such as work permits, licenses, postage and other expenses.
  
  

• Appliance maintenance: such as the maintenance of coffee machines and refrigerators.
  
  

• Cleaning and operating tools: such as detergents and daily supplies.
  
  

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

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

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 items of operating costs are:

• Rent (1 riyal)

• Employee expenses (2.5 riyals)

• Utility bills (0.5 riyals)

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

Total operating costs = 5 riyals

After deducting cost of goods sold (COGS) and operating expenses (OPEX), the net profit for any healthy and sustainable coffee shop should be 10% or more of the price per cup of coffee. This target is the foundation for ensuring the continuity and growth of your business.

Net profit is what you have left after covering all costs related to preparing and selling the cup. This includes direct costs such as raw materials, and indirect costs such as rent, salaries, and government fees. Therefore, accurately calculating profit requires a clear and comprehensive understanding of all expenses associated with the café's operations.

Achieving this profit isn't solely dependent on the price of a cup of coffee; it's closely tied to the number of customers visiting the café daily, their frequency of visits, and their loyalty. The more customers a café has and the higher their retention rate, the greater the potential for profitability. Therefore, managing customer relationships and enhancing the customer experience are crucial factors in maximizing net profit.

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

• We start by deducting VAT = 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, and in our example we calculated it at 5 riyals.

• We add depreciation expenses = 0.3 riyals

Therefore, after deducting all the aforementioned costs, a net profit remains equal to, the cafe has 2.55 riyals as a net profit from each cup.

Paying attention to analyzing these figures periodically and monitoring costs accurately helps management to make the right financial and administrative decisions, such as adjusting prices, improving operations, or reducing unnecessary expenses, which contributes to enhancing profitability and the continuity of the project.

Therefore, net profit is the true indicator of a cafe's success, and should be a clear objective for every entrepreneur seeking to build a sustainable and profitable business.

• Focus on stabilizing sales.
  
  

• Boost repeat purchases among your customers.
  
  

Invest in customer loyalty and the quality of their experience.

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

• Analyze costs accurately: Monitor the actual costs associated with each product and service to identify savings opportunities.
  
  

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

• Employee training: Raising employee efficiency to improve service speed and quality, thereby increasing customer satisfaction and boosting sales.
  
  

• Product diversification: Offer multiple options to meet different tastes in order to increase sales volume.
  
  

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

Mard's experience offers a practical model for accurately calculating costs and profits, helping you reduce expenses without compromising on coffee quality or service. By following an effective accounting system, you can make informed financial and managerial decisions that enhance your business's sustainability and profitability.

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 watch more videos that will help you develop your business and achieve success.

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