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Coffee Shop Math: 5 Ratios Every Non-Finance Owner Can Use

Coffee Shop Math: 5 Ratios Every Non-Finance Owner Can Use (In Plain English)

If you can make a latte, you can read your numbers. In the next few minutes, you’ll learn five simple ratios that turn “gut feel” into confident decisions. No jargon without a plain-English definition. Every example uses a coffee shop so you can swap in your own numbers.

1) Gross Margin

What it tells you: How much of each sale you keep after direct, per-item costs.

Definition: Sales minus the stuff that goes straight into the product (beans, milk, cups, per-drink labor if it truly scales per drink), as a percentage of sales.

Formula: (Sales − COGS) ÷ Sales

CoffeeShopMath example: Price $5.00; direct costs $2.25 → margin = (5 − 2.25) ÷ 5 = 55%.

  • Why it matters: Room to pay rent, wages, software, marketing—and profit.
  • Rule of thumb: Cafés >60% strong; 50–60% workable; <50% needs attention.
  • Do this next: Test a $0.25 price increase; reduce waste; renegotiate beans.
  • Common mistake: Treating fixed staff as COGS—usually an operating expense.

2) Break-Even (Units & Revenue)

What it tells you: The sales level where profit begins.

Definition: How much you must sell before you stop losing money.

Formula (units): Fixed Costs ÷ (Price − Variable Cost per Unit)

CoffeeShopMath example: Fixed costs $18,000/month; price $5.00; variable $2.25 → contribution $2.75; break-even = 18,000 ÷ 2.75 ≈ 6,545 units/month (≈ 218/day if open 30 days).

  • Why it matters: Gives a clear daily target and shows which levers move it.
  • Do this next: Promote a $3 pastry add-on; trim fixed costs; recalc for seasonality.
  • Common mistake: Calling base labor “variable” when you won’t reduce hours as sales dip.

3) AR Days (Days Sales Outstanding)

What it tells you: How long your money is tied up with invoiced customers (keep for catering/wholesale).

Definition: Average days customers take to pay.

Formula: (Average AR ÷ Credit Sales) × 365

CoffeeShopMath example: Invoiced sales $9,000/month (= $108,000/year); average AR $13,500 → AR Days ≈ 45.

  • Why it matters: Longer AR days = less cash for beans, payroll, equipment.
  • Do this next: Offer 2/10, net 30; send invoices same day; automate reminders.
  • Common mistake: Including counter sales in “credit sales.”

4) Inventory Turns

What it tells you: How fast product moves; faster is usually better (with stockout caution).

Definition: Number of times per year you sell through on-hand inventory.

Formula: COGS ÷ Average Inventory (at cost)

CoffeeShopMath example: Annual COGS $210,000; average inventory $7,000 → turns = 30/year (~every 12 days).

  • Why it matters: Slow turns = stale stock + cash trapped; too-fast turns risk outages.
  • Do this next: Set par levels; order twice weekly in smaller batches; prune slow syrups.
  • Common mistake: Using retail instead of cost to value inventory.

5) Quick Ratio

What it tells you: Near-term safety net—could you pay bills if sales paused?

Definition: Cash + AR compared to bills due within ~12 months (ignores inventory).

Formula: (Cash + AR) ÷ Current Liabilities

CoffeeShopMath example: Cash $28,000; AR $10,000; current liabilities $30,000 → quick ratio = 1.27.

  • Why it matters: Under 1.0 is thin; 1.2–1.5 is more comfortable for small shops.
  • Do this next: Negotiate net 30–45; shorten AR days; keep a 2–4 week cash buffer.
  • Common mistake: Forgetting sales tax payable—it belongs in current liabilities.

Your 10-Minute Owner’s Check-In (Weekly)

  1. Update last week’s sales & direct costs → scan Gross Margin trend.
  2. If price, hours, or rent changed, recompute Break-Even (units/day).
  3. If you invoice: check AR Days; nudge late accounts.
  4. Review Inventory Turns; adjust par levels or ordering cadence.
  5. Glance at Quick Ratio; plan cash for payroll & rent two weeks out.

Decision rule: If two or more ratios worsened, pick one lever (price test, promo, ordering change) to run for 7 days. Re-check next Monday.

Mini-Glossary

  • COGS: Direct costs per item sold (beans, milk, cups; sometimes per-drink labor if it truly scales).
  • Fixed costs: Costs that don’t change much with sales (rent, base wages, insurance, software).
  • Variable costs: Costs that rise with each unit (ingredients, packaging, transaction fees).
  • Contribution margin: Price − variable cost per unit.
  • Current liabilities: Bills due within ~12 months (credit cards, AP, short-term loans, sales tax payable).
  • Par level: Target on-hand inventory between orders.

Get the One-Page Calculator

Download the Coffee Shop Numbers Sheet and plug in your own prices and costs. It auto-calculates the ratios and highlights the daily break-even target.

Download the Coffee Shop Numbers Sheet (.xlsx)

Quick Reference

  • Gross Margin = (Sales − COGS) ÷ Sales
  • Break-Even (Units) = Fixed Costs ÷ (Price − Variable Cost/Unit)
  • AR Days = (Avg AR ÷ Credit Sales) × 365
  • Inventory Turns = COGS ÷ Avg Inventory (cost)
  • Quick Ratio = (Cash + AR) ÷ Current Liabilities