Are your COGS keeping you up at night? Inflation, high rents, staff shortages and wage increases can all pressure on your bottom line. Understanding your margins and their impact is a key to success in todays cafe industry.
With the average profit in the industry at 7.6%, hospitality business operators are looking for ways to maximise income and minimise overheads.
The good news is, there are ways forward. We’ve put together some tips to help control costs, increase margins, and improve your night's sleep as a cafe business owner.
1. Have a good grasp of your P&L
Your profit and loss statement clearly shows your sales 'in' vs your sales 'out' and the margin percentage across your key categories. All businesses are different but we all share similar costs – with the core spends being food and beverage costs, wages and rent.
Review your major costs and compare them to the ATO Benchmarks. If any of your costs sit outside these recommendations, you may need to make some adjustments. Request a copy of our P&L template by contacting our business team.
Giving yourself targets and measurements will help identify which areas of your business take the most investment and will help you identify tactics to reduce costs, or if you need to – increase prices.
2. Review your pricing
The price for coffee in Australia and New Zealand is among the cheapest in the world. The average price of a flat white in Australia is $4.78, vs a UK flat white at AUD$6.96.
COGS for operators have been increasing recently, so it pays to review your prices twice a year or in line with major supplier increases. If you have a clear target margin percentage for all food and coffee items, it's easy to adjust prices keeping them in line with that target as supplier costs increase.
It’s not that easy to put prices up though right?
Things to to be aware of when increasing cafe pricing:
Your competition’s prices, quality and offering – make sure your prices encompass your entire offering.
Quality of your product – make sure you’re maintaining quality or even ramping it up. Consider presentation, customer service, loyalty offers.
Value for money – including the experience your staff provides.
Your unique position and experience providing a community destination.
Your customer demographic – what are they willing to pay?.
Our own Australian Allpress cafés have put their prices up twice in the last 12 months, and have not seen a decrease in coffee sales. This is largely down to our emphasis on quality and customer experience, encouraging customers to keep coming back.
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3. Running a tight ship
An efficiently run business can help the bottom line.
Are your trading hours optimised?
Reviewing your opening and closing times, and in particular, identifying any trading gaps in your neighbourhood competition can open up extra profit.
Optimise staff rostering
Staggering shifts so the right amount of people are on at peak times but reduced during quiet times. But never at the expense of the customer experience.
Ensure your staff are fully trained and even incentivised to upsell. Asking questions like “Do you have coffee for the weekend”, or “Would you like to add any sides to that order, we have in-season avocado this week” all help to start building sales efficiency.
4. Optimise your workflow
Focusing on your productivity and workflow is a great way to generate additional revenue without costing too much.
Review your menu
Understand what items make up the majority of your revenue and find ways to grow and optimise your top sellers.
Allpress Café’s top 5 items make up 25% of the total revenue. That means nailing these high-demand items – presented beautifully, priced accordingly and COGS efficient. Don’t put in too much effort to improve your bottom sellers.
How’s your workflow?
Is your coffee bar set up to make the production line as simple as possible? Electronic grinders, auto-tamps, and milk dispensers can help speed up production and make you more profitable.
Your local Allpress trainer or Customer Manager can analyse your workflow and identify improvements, helping you find solutions to any pain points in your service.
5. Use your POS system effectively
The best POS systems provide insights about your café offering that can improve decision-making and inform positive change.
At Allpress, we use leading POS programs like Lightspeed and pay close attention to the insights they offer.
Peak trading times to ensure we have the right amount staff and our full offering is ready to go
Daily trading – which days are our most profitable
Top-selling items within each category – beverages, food and retail, and inversely lowest-selling items
Trends that show growth vs previous periods on particular items
Seasonal trends – cold coffee is (obviously) more popular in summer, but track sales growth vs previous years to see consumer patterns. We’ve seen cold brew go up year-on-year for the past two years
Performance of new menu items, and impact on overall sales.
Lightspeed has a handy Food Cost Calculator that you can download here.
If you're interested in more information on how to get COGS under control and maximise the profitability of your business, get in touch with our business team today. Our team has worked with countless customers over the years from start up phase all the way to growth and multi-site expansion.
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