Setting the prices in your coffee shop or cafe
Maximise your profit without upsetting your customers...
If you run a coffee shop, then you will be acutely aware of the price rises that are impacting you.
Every day the newspapers are full of the effects of Brexit; the fall in the value of the pound, the increase in business rates, the shortage of vegetables, the rising price of milk. Unless you find a way to pass these costs on to your customers or operate your business more efficiently, then very soon you will no longer have a profitable business left, but instead, you'll be running a charity.
Deciding what prices to charge can be a minefield, you may feel that you don't want to charge too much because it will put customers off, while on the other hand unless you charge enough to make a profit your business will not be around for much longer.
The irrefutable fact is that as an independent coffee shop it is impossible for you to compete on price by charging less than the big chains. They have got greater economies of scale and a more efficient supply chain that makes it impossible for you to charge less than them.
The truth is your customers don't want you to be cheaper they want you to be better.
They want to know that they are supporting a local independent business and pride themselves on the fact that the money they spend with you stays local.
So how do you go about setting your prices to ensure that your business is profitable?
There are many things you need to do, but the very first one is to work out exactly what each product costs you to make, without this costing exercise you will be working in the dark. Don't forget to include the cost of packaging in your calculations.
The next step would be to set a target margin percentage for each product group and do some competitor research.
To be able to charge more than your competitors whether they are the big chains or Great local independents you need to be able to justify this in the minds of your consumers. Each one of your products should ideally have a tangible benefit or what we call a + 1.
For something to be perceived as being better value without being cheaper it needs to; taste better, look better, be served better or be served in a nicer environment, these elements can all your +1.
Your objective should be to ensure that everything you sell has built in added value. There are certain things that the consumer has a high awareness of price, and these are called known value items and coffee is one of those items. The secret to being able to charge more is to differentiate your product sufficiently from the run-of-the-mill known value items.
One way you can do this is by having an excellent description as the name for your product rather than having the ingredient list. You should give your products names, for instances McDonald's Number one selling product is not a burger in a bun it is the Big Mac, the best-selling stout beer in the world is Guinness.
Appetising descriptions can differentiate and enhance the product themselves and lead to a 30% increase in sales.
For example, which would you prefer to buy? Chocolate cake or Grandma's traditional recipe chocolate cake?
Some other psychological things to be aware of when you're displaying prices:
- Don't show a currency sign in front of the price, as it gets the customer to think about money
- Use 99p rather than 95p or 89p as there is no perceived difference.
- Use a smaller font than the description for the price
- Prices with fewer syllables seem cheaper
- Prices should be at the end of the description not in a line down the page
- Use highlights and boxes to sell more of the higher margin items
- The top right of a menu is the most read, and the bottom is the least looked at
- Include some higher priced items to make the rest of the menu look better value; these are called decoy lines
- Keep your menu uncluttered and easy to read
These principles work as well on a wall hung menu board as a more restaurant style menu.
A lot of the big chains keep their menus simple, often not displaying everything they sell and as such focusing sales on their more profitable or seasonal lines.
As an independent operator don't be embarrassed about putting up your prices and think that customers will stop coming, be bold maximise your profit, and start reinvesting in your business to keep it ahead of your competition.
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