How Many Coffees Need to be Sold to Break Even?
One of the most important things to know when learning how to run a successful coffee shop or preparing a coffee shop business plan is how many coffees the business needs to sell each day in order to break even. With this figure to hand, it is possible to get an idea of the size of the premises needed, the number of coffee machines required and the number of staff necessary to operate the shop.
At break even, the profit from the coffee shop will be zero. When people discuss break even or break even point, they are simply referring to the level of revenue needed to cover the costs of operating the coffee shop business.
To calculate the break even revenue for a coffee shop business, the coffee shop formula is used as follows:
To use the break even formula the business needs to obtain values for the gross margin percentage and the fixed costs.
To Calculate the Gross Margin Percentage
Suppose the coffee shop sells coffee at 2.00 (excluding sales tax), and the variable cost of the materials (coffee, milk, sugar, cups etc.) used to make the coffee is 0.70, then the gross margin from each coffee sold is given by:
The gross margin percentage is then calculated by dividing the gross margin by the selling price
So each time a coffee is sold 65% of the selling price is gross profit.
Our product gross margin calculator is available to help calculate gross margins.
The Coffee Shop Break Even Analysis
To carry out the coffee shop break even analysis and to calculate break even, the business now needs to calculate the total fixed costs of operating the coffee shop. The total fixed costs are basically any operating costs, including wages, salaries, rent, utilities etc. which were not included in the variable material costs used above.
Suppose for example the total fixed costs are 200 per day, then the coffee shop break even analysis at a 65% gross margin shows that:
This means that at 2.00 per coffee the shop must sell 308 / 2.00 = 154 coffees.
So the coffee shop start up business must sell 154 coffees each day at 2.00 per coffee, to break even. At this level, sales will be 154 x 2.00 = 308, gross margin will be 308 x 65% = 200, which will cover the fixed costs of 200, and the profit will be zero (break even).
We have developed a break even calculator to help carry out the coffee shop break even analysis by inserting values for sales, variable costs, and fixed costs.
The break even point is the dividing line between profit and loss. Above this level of sales the coffee shop will make a profit, below this level it will make a loss.
As soon a the coffee shop business has been operating for a period of time, the break even point should stabilize to a set figure (in the above example, this was 308 per day). With this figure in mind the owner can operate the shop knowing day by day whether it is profitable or not.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.