Coffee Business: How to Improve Profitability & Reduce Risk
You may have started your coffee business for passion, but you also need to consider profitability. Whether you own a specialty coffee shop, roastery, farm, or importing/exporting company, profits are what allow you to not just stay afloat but also to invest in what matters to you: buying good coffee, training staff, purchasing equipment…
Unfortunately, sometimes it can feel like money just slips away from us. So I spoke to Ricardo Pereira, Director of Specialty Coffee at Ally Coffee, and Ildi Revi, Director of Education at Ally Coffee, to discover their tips for remaining profitable.
Spanish Version: Negocio de Café: Cómo Mejorar la Rentabilidad & Reducir Riesgos
Being passionate is important – but so is profitability. Credit: coffeeoutings
1. Cost Management
High costs can make profits much harder to achieve. However, once you start analyzing your business, many people find there are many ways to cut spending. Here are the key areas to look at.
Understand Your Business
The best way to reduce indirect costs and overheads is to improve systems and measure outgoings. You’ve got to know what you’re spending your money on – and if you’re spending it efficiently.
Ricardo tells me it’s important to focus on labor costs, employee performance, and waste management. For example, during summer, coffee shops often experience less business as people buy fewer hot drinks. If there are fewer customers, should you have the same amount of employees? Should you stay open for the same hours?
We can’t have the same operating costs, Ricardo explains, if we don’t have the business to justify it.
For a roastery to remain profitable, it should understand its business costs. Credit: Toma Café
Control Cashflow & Inventory
Secondly, make sure to plan your purchasing and know your cashflow. There are a lot of ways for you to manage your cashflow with many looking to invoice templates to help manage their problem. Remember that operating costs, such as purchasing inventory or paying bills, often need to be paid before your business receives income from customers. You can find free invoice templates for your business, as well as tips on your invoicing at theselfemployed.com.
“Control your money before making profits, and always check your inventory,” says Ildi Revi.
When it comes to managing your inventory, you could consider a just-in-time system. By only receiving goods when they are needed, you will have increased efficiency, less money tied up in stock, and potentially reduced waste. Speaking of which…
Take control of your stock. Credit: Panther Coffee
Waste can come in many forms: stock, resources, employee labor…
One common issue in coffee shops is milk wastage. Milk isn’t cheap, especially if you use high-quality milk to match your high-quality coffee. Local dairy, or milk from grassfed Jersey cows, soon adds up. So instead of training your staff with good-quality products, give them water and dishwashing soap!
Only give a barista milk if a customer is paying for it.
2. People Management
When it comes to people management, two things are important: motivation and training. And, to a certain degree, these go hand in hand. Employees are often more motivated when they feel they have a purpose.
“Happy people, who are engaged in their jobs, help your business,” Ildi tells me.
So how do you keep your staff happy? Ildi advises, “Keep your word.” Make sure you actually provide your staff with all you the benefits that come with the job, such as health care, a good work environment, and time off.
Although looking after employee motivation may initially seem like an expense, your employees will be more productive and more likely to stay. The costs of hiring and training new staff can soon build up.
Training can improve employee motivation. Credit: Ally Coffee
When it comes to training, Ildi’s says that companies should be honest about their needs in order to make the investment worthwhile.
The tricky part is choosing who to train and what for. As a business owner, you’ve got to understand the needs of the job. For example, a barista should understand extraction and be great with pour over devices and the espresso machine. But they should also be able to upsell and provide impeccable customer service.
It’s easy to overlook the value of customer service. Remember that the quality of the experience within your café is as important to the customer as the quality of your products.
Train your staff how to cup, and they’ll roast, brew, and purchase coffee better. Photo Credit: Ally Coffee
Train Yourself, Too!
Training isn’t just for your employees – you too should be mastering new skills to improve how you run your business. In fact, Ally Coffee’s educational division often trains business owners as well as employees.
From technical skills (Q grader certification, roasting skills, etc.) to business management (accounting, marketing, HR), there are many areas where investing in training can help you improve your profits.
Employees, the leadership team, and business owners alike can benefit from training. Credit: Ally Coffee
3. Risk Management
Every business comes with risks, and the best you can do is try to anticipate and manage them.
Know Your Company
You can only prepare for risks if you know what they are. Take time to think about risks you might encounter, but also be aware that you can’t always see the risks for your own company. Ildi recommends, “Interview your employees and customers. It’s important to get feedback.”
Buying Coffee: A Common Risk
Ricardo tells me that one common risk is knowing when to buy coffee. To avoid problems, buyers need to know exactly what type of coffee they want and when it is available, due to seasonality. To understand these better, Ricardo suggests visiting coffee farms.
However, if you can’t do that, he suggests doing as many cuppings as possible to become familiar with different coffees. So go ahead and request cuppings with your importers, ask for samples, and book your coffee.
Booking your coffee is extremely important if you want to avoid risks. Many coffee buyers wait in case the prices decrease, but instead they can end up paying more. When you book your coffee, you’re ensuring you’ll get it for a price you’re happy with, no matter what.
Cup as many coffees as possible to create a menu with seasonality. Credit: Ally Coffee
SEE ALSO: VIDEO: Will Your Third Wave Coffee Shop Be Profitable?
Insurance may sound expensive, but Ricardo doesn’t recommend skipping it. If something goes wrong, it will get a lot more expensive.
What’s more, while some insurance policies are cheaper than others, read the small print – the “cheaper” version could become a lot pricier if it doesn’t meet all your needs.
Reach Out For Help
The most important thing of all, Ricardo tells me, is ask for help or information if you need it. “Don’t assume you know everything,” he emphasizes.
A profitable coffee shop is often one that plans to be profitable. Credit: Ally Coffee
Running a profitable business is never easy, but by managing costs, staff, and risks well, it will become easier. And once you’ve got all this sorted, you can focus on the things you really care about – whether that’s providing great coffee, changing the way people think about their drink, or running a socially and environmentally sustainable business.
Please note: Ally Coffee is a sponsor of Perfect Daily Grind and was consulted in the creation of this article. They have received a courtesy copy of the article prior to publication but have exerted no editorial control over the final copy.
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