Recently, we surveyed hundreds of coffee shop owners about how inflation and talk of an impending recession are affecting their business. 80% said they are concerned about how a recession will impact their business.
The key to thriving during a downturn boils down to efficiency. However, as a busy shop owner you have your hands full making sure things are running from day to day - you may not have the time to really take a step back and analyze your numbers to strip out excess spending.
Here are three quick and easy ways to strip out excess cost and increase efficiency at your coffee shop or cafe.
Keep Labor Cost Below 35%
To have a healthy business, you want your cost of labor to be below 30% (including taxes!) of your total revenue. You can achieve that by increasing your revenue per hour or decreasing your cost of labor. If you don’t want to work more hours behind the coffee bar yourself, the best way to reduce labor cost as a % of total revenue is streamline workflow to increase efficiency and drive more sales per hour.
[TESTIMONIAL: How Surfers Coffee Added $12K / mo in new revenue by streamlining workflow with joe]
At joe, our data has shown that shops that reach 20% of their order volume coming via mobile ordering results in a 20-35% increase in revenue without increasing labor cost. This boost to overall profitability is exactly why Starbucks has invested millions of dollars in their digital ordering capabilities and prioritized it over in-person orders.
This can seem counterintuitive, but it’s actually pretty simple. Data from our point-of-sale has shown that once customers order ahead on joe, they order 50% more often each month in addition to their in-person orders thanks to our industry-leading SMART loyalty program and industry-leading mobile ordering app.
The increase in sales is easily handled by baristas who save time by not having to punch in the orders manually to the POS and wait for payment to process. This saves 45 seconds to 1 minute per customer.
Additionally, baristas have visibility into the mobile ordering queue which allows them to batch drinks together rather than making them one at a time. As a result, baristas are able to prepare 2-3x more drinks on mobile orders vs. in-person orders, regular customers are able to have their drinks ready when they arrive which speeds up the lines, and you can spend more time winning over new customers that are ordering in-person for the very first time.
Use The 4% Rule For Total Tech + Processing Costs
There are lots of invisible costs when it comes to running a cafe or coffee shop. From water bills, to food waste, it can be tough to run a tight ship. That makes it all the more important to make sure you take care of the simple stuff first.
When it comes to the technology you use to run your coffee shop, it can be tough to really get a sense of your return on investment. The best way to get a real sense of your total costs and the return you are getting from them is to add up all of your costs and divide them as a percentage of your revenue. You can use our free online calculator to keep things simple or do it yourself. Here’s a quick list of costs you should consider:
- Monthly software fee
- Terminal fee
- Variable rate
- Flat fee per transaction (in-person)
- Flat fee per transaction (online orders - this tends to be $0.30 and most owners are unaware of the extra cost)
- Hardware fees
- Setup costs
- Support fees
- Loyalty program fees (these tend to go up as more people opt-in)
- Reporting fees
If your total spend is above 4% of revenue, that means you are paying for software that is too expensive or is not offering a return on the investment. The joe POS provides all of those tools without any monthly costs. Checkout our price comparison to see how joe can save you hundreds per month on software fees alone.
Maintain 80% Margin on Drinks
These days your cost of goods are being affected by inflation at a rapid clip. Partners on the joe network have increased their menu prices as high as 30% since the beginning of the year. In fact, the most popular drinks are up $0.25 to $0.30 network-wide.
To have a healthy business, you have to maintain strong margins. The healthiest coffee shops are able to maintain margins on their drinks of 80%. In other words, your cost of goods including coffee, milk, syrups, cups, lids, and add-ons should be 20% of the total price. For every drink on your menu, calculate the total cost to make the drink (not including labor cost) and multiply by 5 to price your menu.
If you price your menu this way and are concerned the numbers are coming out too high for what your customer base can tolerate, you might consider pricing in margins to your add ons instead. A strategy we see often is pricing your drink menu at 70%-75% margin and then relying on upcharges for things like alternative milks, additional syrups, and add ons like whipped cream to bring margins north of 80%.
All that is to say - don’t be too timid when it comes to raising prices to keep pace with inflation. Your customers will understand and it’s just a reality of operating in today’s environment.
Interested in recession-proofing your coffee shop with joe? Email firstname.lastname@example.org or go to https://joe.coffee/for-coffee-shops and submit a form to be contacted by a representative.