If the net margin comes in at 5% i'd suggest they find another way to make a living
I’m fine, thanks. What do you think it should be?
I'd be more inclined to believe coffee shops and the like should be working off a gross margin of between 70/75% and take down their costs from that figure.
For coffee, that’s about right for a gross margin, though for other items (e.g. bought in food or cold drinks for resale) it would be much lower. The problem is the fixed costs are high and you have to sell a lot of what is at the end of the day a relatively low-value product to cover them. That, and/or charge a reasonable price, which currently works out at around €2.50 to €3.50 for a cup of coffee.
A lot of the problems with people going into business is their belief they have to open a snazzy place, expensive furniture, fancy cups and cutlery, etc, and their last thoughts go into the actual product
Have you been to any independent cafés lately? Most are pretty basic in terms of décor and fit-out. Partly this is because of a design aesthetic that calls for a stripped-out industrial look (no plaster on the walls never mind paint, concrete floors etc.), but partly it’s because they can’t afford or don’t want to spend money on “snazzy places” and would rather focus on the actual product.
A lot of people in small business's are nice lads and girls but as far as running a business is concerned they haven't a clue.
Thanks! I'll try not to take that personally. I’ve no doubt some are like that, but a bit harsh to write off an entire industry, no? For the record, I’ve owned and run several businesses across a couple of industries (technology and hospitality) and have found that whilst the industries are very different in all sorts of ways, there’s a mix of competencies in both. One thing I do know: because of the structural costs, it is very hard to achieve high net margins in the coffee business.
Don't bother coming back to me telling me I don't have a clue, that's just a knee jerk reaction from someone who just does not get it.
I wouldn’t say you don’t have a clue (a bit harsh), but I think it’s likely you are making a lot of assumptions that are not valid.
If you're telling me that a coffee shop owner is working off a net margin of 5% and at the end of the day, providing he doesn't have accidents and the like, all he takes home from every €1000.00 is €50, then he doesn't need me or anyone else to tell him he's wasting his time.
But that’s exactly my point: a 5% return on a business investment is not a good one, hence it’s not a good industry to enter if you think there are riches to be made, despite what you think. It depends on what you mean by “all he takes home” as well; if the owner is working in the business as well as investing in it their wages are a cost item. I think it highly likely that this is how most owner/manages cafés are run: essentially, the owners invest in them to give themselves a job in one. If it really was such a (potentially) lucrative business as you seem to believe it is, there would be a lot more businesses in it that would scale and exit, whether by going public or trade-sale. The fact that this is such a rarity in the industry is an indicator that your assumptions are incorrect.