It can be hard to know where to start when setting prices in your coffee shop. How much is too much for a flat white? Are you undercharging for the level of comfort and excellent customer service?
Setting the right prices is paramount to your café’s success. Read on to find out some tips and tricks to getting it just right.
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Baristas at work in a central barista station. Credit: Banter Snaps
Know Your Customers
Pricing is dictated by what customers are willing to spend. So take a look at who comes into your coffee shop. What kind of experience do you think they expect and do you provide it? A group of retirees likely wants a different experience to an office worker on their break. Students and families probably have different needs again. Identify who your main customers are and consider what they are likely to pay for the experience you provide.
When you’re confident in who your customers are, you can focus on specific offerings or signature items. For example, providing workspaces with power sockets and free wireless internet if you’re looking to encourage students or digital nomads.
If your café is known to provide these services, the demographic that you’re targeting is likely to spend more for the convenience of being here. Sell yourself as a “destination” rather than just somewhere to grab a coffee.
An espresso-based drink with latte art. Credit: Kari Shea
Location, Location, Location
Know your area. If you’re in an upmarket area with a reputation for high quality, you can charge a little more because it is expected. But make sure you’re keeping up with the competitors in terms of experience. If you’re in a less affluent part of town, be cautious of pricing your menu too high and gaining a reputation as out-of-reach.
This doesn’t necessarily mean you’ll make less money in a cheaper part of town – just be mindful of your price levels and add-on options. Can you set an affordable basic menu but with the option of bigger sizes, extra shots, different milks, etc? Keep the basic menu accessible but have options for those open to spending more.
A barista behind the bar. Credit: Tim Wright
Know Your Enemy
OK, so the coffee shop down the street doesn’t need to be your enemy, but whatever your relationship, it’s smart business to know the menu prices of your competitors.
Some variation in price is reasonable, as long as it’s justified by higher quality drinks or experience. If your latte is 25c more than the competitor, ask what you are doing to make up the difference. Are you more convenient to a train station or park? Do you have better customer service? Is your coffee of a higher quality and do you make that known?
A view from behind the bar. Credit: Nate Dumlao
Actual Costs
It doesn’t matter what experience you provide or how good your coffee is if you aren’t covering your actual costs. Be aware of your direct costs such as labour and supplies, but also remember to factor in indirect costs such as taxes, heating, and repairs.
Use these to make a cost estimate and try to work out a realistic average week’s sales. Only when you have an idea of how much you need to cover expenses each month should you start pricing individual products.
When setting prices and choosing which items to include on your menu, make sure that each item has enough of a profit margin to justify its place on the menu. For example, if you decide that your drinks should have an average profit margin of 100% and one is just 25%, consider what it adds to your menu. Is it a specialty item that brings in new customers? Do you have an excellent reputation for providing this item? If so, perhaps it deserves to stay. If not, consider replacing it with a more profitable option.
Coffee drips into a Chemex. Credit: Jim Kalligas
Events & Seasonal Menus
Events provide a captive audience, where consumers don’t have the option to shop around. They’re also an additional experience, so consider adding a premium to your prices or making more high-end items available.
Maria Eduarda Becker Pavani is the general manager at Seven Fortunes Coffee Roasters in Dubai. She tells me “When we are part of the events, we also increase the price based on the cost of being part of the event.”
Similarly, you may want to add seasonal items and price them at a premium. If you’re offering fresh lemonade and slow drip coffee during a hot summer, you can price them high.
But take them off the menu when temperatures drop and introduce a specialty version of a seasonal latte that is priced a little higher than your regular drinks. If customers know that a drink is only available for a limited period, they may be willing to spend more for the rarity of the experience.
A cappuccino and a mocha with latte art. Credit: Nate Dumlao
Menu Design & Layout
Some design choices can have an impact on consumer spending. For example, consider placing your core choices at the start of a menu.
Noon NutRada is the CEO of Bluekoff, a coffee shop in Bangkok. She says, “Mostly, we put the simplest menu offerings (black coffee, milk based drinks, hot/iced options etc,) before more complicated ones (i.e. frappe, mixology and other special menu drinks).”
This allows customers to quickly see the options that they’re most likely to want. Then think about placing add-ons to the right of these first items. This includes alternative milks, guest roasts, and larger sizes. Don’t have too many add-ons or variations.
The theory is that if you have a simple menu with the popular items at the forefront, customers can make easy choices. You don’t want to confuse or complicate customers and create barriers to them placing an order.
A coffee shop menu. Credit: Nate Dumlao
The menu that you create and price today will not be the one you stick with for forever. Expect to add items, change prices, and redesign your physical menus. Pay attention to which items customers buy and which are less popular. And keep an eye on your changing expenses – your profit margins could be reduced without you changing the menu.
Pricing may seem intimidating, but the menu is a key part of your business. So don’t be afraid to try out options and then re-evaluate after a period.
Written by Max Dodd.
Enjoyed this? Check out Coffee Shop Marketing: Why You Need to Understand Your Customers
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