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Help! My coffee shop is losing money

Costa Coffee and Starbucks make it look so easy don't they?  If your adorable little coffee shop is not making enough to cover its costs, what do you do?  This post is based on a real life, recent consultation with one of our lovely clients.

You've done all the right things - running costs - staff, food, waste, heat and light - have been cut back to the bare minimum. But you're still losing money and struggling to pay the rent.

Is this business viable?

These first 3 steps will give you a clear indication of whether your business can survive.

Step 1 - what are my fixed costs?

How much does your business cost you in rent, rates and other fixed costs before you've sold a single cup?  This is the first test to see if your sales are even in the right ballpark.  So, if your monthly rent, rates and utilities is £600, and you open for 20 days a month, the minimum your business needs to stay alive is £30 per day. If you absolutely have to have staff e.g due to size of shop, security or other reasons, then add this in to your fixed costs. Now compare this to what you are currently taking per day.  If the shop feels fairly busy on most days but you don't take much more your daily fixed costs on average then you really need a drastic change to make this work - different location (bigger, smaller, higher footfall), different products - otherwise you'll be out of business in no time at all.

Step 2 - how much do i make on each sale?

Factor in the cost of food and drink and work out how much money you make on average for each sale. So, if the typical sale is 2 coffees and a cake that you sell for £4, at a cost to you of £1, then you are making £3 gross profit (75%) on each sale, before taking into account covering the fixed costs.  On average, how many sales do you make in a day or in an hour? When you stand back and look at your hourly profit, is it higher than the national living wage? If it isn't, then something fundamental needs to change for you to stay in business.

Once you've completed the first 2 steps you probably have a good idea of which way this is going and whether there is light at the end of the tunnel.  

Step 3 - what is my daily minimum sales target to cover all costs?

If your daily fixed costs are £30 (from Step 1) and you make a gross profit of 75% on each sale (from Step 2), your daily minimum sales target is £40, or 30 divided by 75%. You need to take sales of at least £40 to cover both your fixed costs £30 and the costs of the food and drink you are selling £10.  This doesn't make you a profit, it just means you are not losing - you're breaking even  When you look back at your average daily sales, the chances are it's either below or bobbling around this figure, which is why you're struggling.

What else can I do

After you have tackled all areas of costs, how can you generate more income.

Step 4 Push Takeaways

It's no coincidence that Costa and Starbucks generally locate themselves in high traffic areas. They get trade from two types of customers - those that eat in and those that take out. And they make most of their money on those that take out. Moving to a location where you might attract more passing trade is one option, but is there a takeaway market on your doorstep that you haven't tapped into, for example other businesses near by?

Step 5 Simplify your menu and pricing

The bigger the variety, the more you need to spend on stock and the more difficult it is to manage costs and make sure everything turns a profit. Price so that people feel they're getting a deal, or something for free - coffee and cake for £3.  Buy a drink and sandwich for £4 and get free crisps.

Step 7 Reward Loyalty

Anything that encourages customers to come back is a great idea, plus this also ties in with the fact that people like free stuff. A loyalty card with ten stamps where the tenth leads to a discount or freebie is incredibly easy to implement and perfect for the takeaway coffee market as well.

Step 8 Layout & Location

Are you making the most of the space? Is the serving area efficient and well laid out. Do you have the right mix of tables, chairs, sofas, bars, stools.  If you are in a location where you cannot get passing trader takeaways, is the shop large enough to generate enough income from sitting customers?

Step 9 Random income generators

When you're not Starbucks and Costa it is really hard to make money from coffee and cake, so you need to get creative.  Is there anything cool or quaint about your brand that you can sell at minimum cost and outlay, either online or in the shop. Do you make your own jams, chutneys or relishes that you could package nicely and take to local farm shops? Do you have any wall space where you could display local artwork and take a commission? Can you deliver working lunches to neighbouring businesses? Do you have funny shop Tees that your customers are always asking about?  The Merch Amazon programme is a great way to get T shirt designs out there with minimal outlay, but it does take a while to get accepted.

Step 10 - Talk it over

Running your own businesses is hard work and can feel very lonely, and stressful, especially when there are financial pressures.  Don't bury your head in the sand and don't suffer in silence - talk to friends and family for support and talk to your suppliers or lenders if you are struggling to pay bills.

Contact Soup to Nuts today to arrange a free introductory chat.