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Then, from your gross profit, all other expenses are Ask your existing suppliers for a price reduction
subtracted (labor, taxes, rent, utilities, repairs, etc.). If after you The first, and easiest way to reduce the prices on these
subtract all your remaining expenses from your gross profit there items is to ask your current purveyors for a price reduction. This
is money left over, you were profitable. But, if your gross profit may seem like an awkward thing to have to do, but it's not dif-
doesn't even represent enough money to pay all your bills, let ficult if you know how. I like to say something like the following:
alone yourself... you're losing money. "Betty, I really like you and value our business relationship, and
I'd like to keep doing business with you, but I need your help.
What's important to understand, is that as sales keep in- This recession has really put a kink into my flow of income, and
creasing, bottom line income grows exponentially. In other words, truthfully, like many businesses, I’m struggling. I need you to
as sales grow, profits grows at a faster rate than sales. This happens sharpen your pencil on about a dozen products... can you help
because cost of goods maintain the same % relationship to sales as me out?"
they grow, but many fixed expenses do not increase at all (rent,
utilities, insurance, management wages, etc.), therefore a greater An appeal, as opposed to a demand, along with a subtle
percentage of gross profit will end up on your bottom line. inference that you might be considering changing suppliers, will
almost always produce positive results. While your purveyors
So, building sales will be an essential component of real- may not cherish the thought of reducing their margin on some
izing the extra bottom line you are seeking, and we will spend of the things they are selling you, they'll probably find that much
considerable time talking about that subject later in this action more palatable than losing you as a customer.
plan, but first, let go for the low hanging fruit; cutting costs and
expenses. If they are unwilling to budge on prices, you should not
dump them immediately. Realize that they may be struggling as
Slashing Costs and Expenses well. You'll want to make sure you can find an alternate supplier
Developing and implementing a program to increase with lower prices before making a change.
sales may take a little time to put together, and yield results. But,
cutting costs and expenses is something you can start doing to- Put your product lists out to bid with different purveyors
morrow that will show immediate results. So, where should you Whether your existing vendors lower your prices or
look and what should you do to cut costs and expenses? Money not, you should also distribute your list of products to all other
can leak from your business in a number of ways, they include: applicable vendors in your marketplace to see what their prices
• Over paying for products and services you purchase are. If you find someone who is lower on a significant number of
• Losing product because of over portioning products, switch vendors.
• Losing product because of spoilage
• Losing product because of waste in production Some coffee business owners have a problem doing
• Losing product because of theft this, even though they know their pocketbook would benefit
• Losing money because of theft from the switch. They have developed a relationship with their
salesperson, and feel as if it would be almost treasonous to switch
Over paying for products and services to another company. But, if Joe is over charging you for the ma-
One of the quickest ways to gain some additional bottom jority of the products you are purchasing from him, how exactly
line income is to reduce what you are paying for the products and has he been so good to you? It's business, get over it! You prob-
services you purchase. Everyone who starts a coffee business has ably wouldn't patronize a grocery store that was charging higher
to make decisions about what products they will use, and who they prices on the majority of the products they sell, when compared
will purchase them from. Unfortunately, once a source has been to a competitor across the street (quality being the same). You
found, few comparison-shop to see if they are getting the best deal. need to use that same common sense when purchasing products
for your business.
The easiest money you'll ever earn is the money you
don't spend! Think about it, for every extra dollar you spend on A couple words of caution when considering changing
products or services, it will take more than a dollar in additional purveyors: First, never burn the bridge with a purveyor. Be polite
sales to get that dollar back. Because there is a direct cost related and respectful. Thank them for their past service. After all, at
to sales (the expense of the ingredients used), that cost reduces some point in the future, they may be the one with the lowest
the retained income. If your cost of goods averages 35% of sales, prices, and you may want to do business with them again. Second,
then an extra dollar earned only produces 65¢ of gross profit. So, when putting your list out for bids, be aware that some purveyors
it will actually require almost $1.54 in extra sales to recover your may low ball prices to win you over, but then plan to methodically
lost dollar ($1.54 x 65% = $1.00+). raise prices on you shortly there after. Let those who are bidding
When looking to save on the products you purchase, it will not be on your products know that you understand how the price game
necessary to reduce prices on everything you buy to realize some is played, and ask them to please not do that. Of course you'll
substantial savings. The 80/20 rule is applicable here. You'll want understand that their prices might inch up with normal inflation.
to concentrate on the 20% of products you order, which probably But, if their prices quickly move from being lowest in the market
represent 80% of your total dollar purchases. Following is a list of to some of the highest, they need to understand that you will drop
items this most likely includes: them like a hot potato, and it will be unlikely that you will ever
• milk• cups• napkins• coffee• syrups do business with them again. You should be putting all of your
• sauces• smoothie puree• powdered blender base• pastries products out for bid at least once every 6 months! Remember,
• sandwich meats & cheeses• bread• paper bags every dollar you overspend for something, will require $1.54 or
• cup wraps • dish detergent, etc. more in additional sales to recover.

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