Small Coffee Shop Margin Case
Business context
A small neighborhood coffee shop selling coffee, tea, and a small selection of pastries and snacks.
The numbers below are simplified fictional examples used for educational purposes.
The numbers
| Average order value | $5 |
| Customers per day | 120 |
| Operating days per month | 28 |
| Ingredient costs (coffee, milk, snacks) | $5,200 |
| Rent | $2,500 |
| Labor (barista wages) | $5,500 |
| Other operating costs | $800 |
Step-by-step calculation
Monthly revenue = $5 × 120 × 28 = $16,800
Gross profit = $16,800 − $5,200 = $11,600
Gross margin = $11,600 / $16,800 ≈ 69%
Operating costs = $2,500 + $5,500 + $800 = $8,800
Net profit = $11,600 − $8,800 = $2,800
Net margin = $2,800 / $16,800 ≈ 17%
What this means
Coffee has a high gross margin (typical for drinks), but rent and labor are heavy fixed costs. A 17% net margin is healthy for a small coffee shop. Small changes in customer count or average order value have a large impact, because fixed costs stay roughly the same.
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Pricing and volume sensitivity
If average order value rises from $5 to $5.50 (for example by adding pastries to more orders), monthly revenue becomes 120 × 28 × $5.50 = $18,480. Ingredient costs rise slightly too, but most of the extra revenue flows to profit.
If customer count drops from 120 to 100 per day, revenue falls to $14,000 and net profit drops sharply, because fixed costs do not change. Tracking daily customers is often more important than tracking price alone.
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This case study is for educational and planning purposes only. It is not accounting, tax, legal, investment, or financial advice. Numbers shown are simplified fictional examples.