Cafe unit economics

Why Unit Economics Matter

• Cafés operate on slim margins compared to roasters.
• Understanding unit economics helps owners manage pricing, costs, and growth decisions.

Revenue Streams

1. Beverages (core): Espresso drinks, filter coffee, cold brew.
2. Food & Pastries: Often higher-margin if baked in-house.
3. Retail: Bagged coffee, brewing equipment, merchandise.
4. Other: Catering, subscriptions, classes.

Cost Breakdown

• Cost of Goods Sold (COGS):
• Coffee beans, milk, syrups, bakery items → usually 25–35% of sales.
• Labor:
• Baristas, managers, benefits → 30–40% of sales.
• Rent & Utilities:
• Highly location-dependent, 10–20% typical.
• Other Overheads:
• Equipment maintenance, marketing, insurance.

Example Per-Cup Economics (Latte)

• Coffee beans: $0.35
• Milk: $0.25
• Cup/lid/sleeve: $0.15
• Total COGS: $0.75
• Retail price: $4.50
• Gross margin: $3.75 (≈83%)
• After labor, rent, overhead → net margin drops to 5–15%.

KPIs to Monitor

• Daily Sales Target: Needed to break even.
• Average Ticket Size: Total sales ÷ number of transactions.
• Labor Cost %: Keep under 35% if possible.
• Prime Cost: COGS + labor → should stay under 65%.
• Contribution Margin: Profit per product after variable costs.

Profitability Benchmarks

• Healthy Café: 10–15% net profit margin.
• Break-Even: Usually requires steady foot traffic + $1,000–1,500/day sales for urban locations.
• Expansion Viability: Strong unit economics signal readiness to scale.

Summary

Café unit economics hinge on balancing high gross margins (per cup) with heavy fixed costs (labor, rent, overhead). By monitoring KPIs like prime cost and contribution margin, café operators can identify bottlenecks, improve profitability, and make smart growth decisions.

• Tags:
• Cold Brew
• Coffee Beans
• Coffee Brewing
• Filter Coffee
• Milk Syrups
• Brewing Equipment
• Espresso Drinks