There are different ways to run a business, and coffee in particular has many models that can work. Whether you are a semi–pro hobbyist roasting in your garage for a few shops around to a full–blown national roastery, it’s good to be on top of costs, particularly at this time. Here we look at a few common tactics people use to keep things tight.
Buying
Buying your coffee is the first big hurdle. Getting terms is not always the goal here, as this just defers the money you owe, and your prices will involve interest charges to cover the days you get. If you can’t pay on time, this may also incur charges, and can affect the future price you are offered too.
What is useful is planning ahead, setting a budget and acting on it when you can. When the market is pushing prices up, then delays and indecision cost you money.
You can read more about buying forward below.
Operations
With the rise in gas and electricity, this is becoming more pertinent. Do you roll the cost of operations into your final roasted kilo price, or take it as an overhead and try to account for it that way?
We all know that a 25kg roaster doesn’t actually roast 25kg, but if you are only dropping 15kg in there, you are losing capacity, and that too has a cost. That cost may be offset by the quality of roast you are trying to define and the customer it will therefore land you, or it may not. What it will do, though, is take you longer to roast the lot you bought, and that will affect the profitability.
Batch size pricing impact on labour costs:
600 kg bought and roasted in 20kg batches vs 15 kg batches.
16% Roast loss – 96kg
Roaster is paid £15/hour
Roast time is 12 minutes. 3 minutes cooling/batch turnaround.
One of the biggest challenges as a small roaster is how to compete against a larger machine with more capacity. Capacity drives down costs which can be passed on to the customer as more competitive pricing
The flip side to this, of course, is stock sat on the shelf, which also has a cost and not only in perceived quality; often overlooked is the fact that those shelves take up space and cost you rent. Whilst having a buffer is important to manage supply, too much too early will impact your cash flow, especially if you are giving terms to your customers. You can also read about the impact deliveries can have on your spending here.
Next is scheduling. Warm-up times and roaster efficiency are related, so roasting 2.5 full days a week is better than roasting 5 half days, as you are saving additional time and maximising the residual heat (slightly roaster dependent). Staggering the arrival of packing staff is another good tactic, allowing the roaster to build up a small buffer to compensate for packing speed if you run machinery.
Here good inter-batch protocols will help you manage your efficiency and, therefore, bills too. Ensuring consistency between batches means the roaster will behave the same, and therefore your roasts should too. Making sure you have as many batches prepped as you can help tremendously here, but the capacity to deal with your roasted coffee shouldn’t be overlooked. A packing machine is incredibly useful when roasting for kilo packaging as it can often keep up with the roaster, but for the 250g bags, having silo or storage container capacity will help too.
Understanding your QC flow and batch numbering is vital to maintaining the trustworthiness of the product out-the door. Having a blend-back matrix is also useful when batches are not quite perfect but still good enough to use.
If you don’t run machinery, what is your hourly rate and how much is that offset to the roaster? Do all your staff need to be in while the roaster is warming up? Agility over label printing and bagging prep here is often the driver behind these patterns, and you will know your requirements far better than I for this article. They all impact that roaster flow, though, so worth being aware of.
Selling/Costing
Pricing strategies can and do change, so it’s both important to be agile when needed, but key to sticking to your positioning too. Are you rolling the costs of gas, staff and time spent packing into your finished goods, or are you assuming they are an overhead and taking them out of the business afterwards?
The need for a good cash flow analysis is vital, and easy yet dangerous to overlook. Buying a coffee for £8/kg and selling it for £16 may feel like good business, but have you considered when the green coffee needs to be paid for, what volume it is bought in, and what terms your customers will ask or expect from you? How is that covered?
The rent you are paying for the roaster footprint as well as the green coffee storage counts, and what about the roasted packaging?
This is where the models start to bite, and your business strengths will show against others. If your roaster is in a prime retail area that may well help you advertise your artisanal side, but is the extra ground rent and lost opportunity to sell other products offset by the uplift in overall sales or higher margin? If the space you have is dead space, then this may well be so, but there is a reason trading estates exist.
If you want to directly link all these to your kg price, then efficiencies and volume will directly impact your final price, along with any pay rises etc influencing your profitability. This will often give you a crystal-clear understanding of your costs, which can be useful in thinking about how to streamline your processes and layout. Be careful around weights, though. Are you reducing this to a per kg roasted or green calculation? Is everybody in your business clear on this? Your beans may shrink by 16-18%, but your wages and associated costs certainly don’t.
As your volume grows, these may become easier to manage separately as part of your overheads rather than as a direct cost. Keeping these out and part of the business costs will make your coffee appear more profitable, but can also divorce the sales from reality, especially as gas and electricity rise alongside the wage pressures and rents. However, if you have multi-use premises, you may find it easier to do a percentage split across areas and have a contribution made, which will certainly keep complexity down.
Roasted batch size also has an implication on price breaks. It’s hard to know where to offer these on the whole, but do they share some correlation with each other? If a batch for you produces 16.8 kg roasted, then offering a price break with some relation to ease of roast makes the most out of that. 30 kg would make more sense here than 25, for example, as you get to maximise the batch size. But don’t forget as well the number of bags in a box. If you get 8kgs roasted to an outer box, then making it 32 would be the best in this example. If 12kgs, perhaps the breaks start at 48kgs.
All of this talks to the fact that out of the many complexities of running a roastery, a clear understanding of exactly where the demands on your money are will help you manage the costs as best you can. There is no one right way to run the business, and it will change as you grow and circumstances change. At DRW we are well experienced with working with a number of these models and customers, so as far as the green pricing side of it goes, at least, we are happy to help you navigate your own path.
