Yeah, it wouldn’t make sense even if they drop shipped beans directly to customers, as in, let’s forget about costs to staff, shops and other services.
The purchase price and sales price are not directly related like that.
She’s effectively increasing her own revenue and profit by more than the increase in cost price.
I’m sure you already know this, but let’s break it down, because apparently a lot of people don’t seem to grasp this.
Let’s say a bean used to cost 100 and she’d sell it for 200 making 100 in profit.
Now let’s add 15% to both, so a bean costs 115 and she sells it for 230, making her profits 115.
The extra 15 in profit simply appeared out of nowhere, because she made the wrong calculation.
If she wanted to fairly increase the sales price by the change in cost price, she should’ve maintained her profits at 100 and made the sales price 215. The sales price should only rise by 7.5% in this example.
This is exactly what’s causing inflation, and doubling the effects of the tariffs and other costs price increases.
So sure, she could argue that because of inflation, everything is increasing so she needs more profits to cover her base costs, but please keep focused here: Those things should already be in the calculation of sales price. The profit is the excess and thereby not required to cover any of the costs any more than they already do. The same calculation can be done on each of them and none of it would justify adding the same percentage to her own mark up.
What makes you say this is going into her profit? There’s a lot of competition in coffee shops, so if what you say it’s true there’ll be someone undercutting her.
It’s more likely that besides beans her other costs have gone up, too.
It also doesn’t make sense to maintain absolute profits instead of a percentage margin. Low margin means that you aren’t hedging as much against risk (if your stock is destroyed in a fire you have to pay the cost of the stock, which has increased) and aren’t paying yourself any more in the face of the rising costs YOU are paying every day.
Yeah, it wouldn’t make sense even if they drop shipped beans directly to customers, as in, let’s forget about costs to staff, shops and other services.
The purchase price and sales price are not directly related like that.
She’s effectively increasing her own revenue and profit by more than the increase in cost price.
I’m sure you already know this, but let’s break it down, because apparently a lot of people don’t seem to grasp this.
Let’s say a bean used to cost 100 and she’d sell it for 200 making 100 in profit.
Now let’s add 15% to both, so a bean costs 115 and she sells it for 230, making her profits 115. The extra 15 in profit simply appeared out of nowhere, because she made the wrong calculation.
If she wanted to fairly increase the sales price by the change in cost price, she should’ve maintained her profits at 100 and made the sales price 215. The sales price should only rise by 7.5% in this example.
This is exactly what’s causing inflation, and doubling the effects of the tariffs and other costs price increases.
So sure, she could argue that because of inflation, everything is increasing so she needs more profits to cover her base costs, but please keep focused here: Those things should already be in the calculation of sales price. The profit is the excess and thereby not required to cover any of the costs any more than they already do. The same calculation can be done on each of them and none of it would justify adding the same percentage to her own mark up.
It’s pure greed.
Perfect! You just summed up the problem more clearly and concisely than I have seen in any mainstream media.
But I see this kind of coffee shop maths everywhere going completely unchallenged. Company statements just printed wholesale.
What makes you say this is going into her profit? There’s a lot of competition in coffee shops, so if what you say it’s true there’ll be someone undercutting her.
It’s more likely that besides beans her other costs have gone up, too.
It also doesn’t make sense to maintain absolute profits instead of a percentage margin. Low margin means that you aren’t hedging as much against risk (if your stock is destroyed in a fire you have to pay the cost of the stock, which has increased) and aren’t paying yourself any more in the face of the rising costs YOU are paying every day.
This idea does not adequately address reality.