The Receipt Bank Blog

Back in 1994 I was involved in the "coffee shop" business.

The business was born from the acquisition of a coffee roasting business. Put simply, we would buy the raw coffee beans and roast them to make different mixes dependent of type of beans and roasting times.

Our strategy was to get our branded coffee beans on the supermarket shelf, but that proved to be both extremely difficult and costly.

However, as an existing business, we already had a number of independent retailers buying our roasted beans, so we decided to "make our own shelving space" and we began opening coffee shops. We later franchised the business and the rest, as they say, is history.

So why am I telling you this story, and how relevant is this to accounting besides the "bean" pun...

Well it's all about pricing...

As you can imagine, the volatility of the coffee market is very high, with its dependence on Mother Nature; we were forever buying the raw beans at a different price. There was even a time we paid two different prices in a day.

The roasting and processing costs stayed the same, but the point was we couldn't be increasing and decreasing the price we were selling a cappuccino in our coffee shops. So how did we overcome this?

Our approach was to ignore the cost of making a cappuccino, especially the cost of the roasted coffee bean, and instead price it on the value to the customer of that cappuccino. We knew that many customers valued a proper extracted espresso based cappuccino, with perfectly frothed milk and were willing to pay accordingly. So when everyone was selling a cappuccino at 65-90p we were selling it at £1.45 and business was good... Strike that, it was brilliant.

The point is, it's not about adding the cost of monthly subscriptions and number of hours worked to come up with a price, but it's about spending time understanding your client and determining what they value and then pricing the service appropriately.

Yes, some days we were big in the money (beans were cheap that day) and other days we weren't quite as much (beans went through the roof today), but because we priced on value, we were never not in the money!