How to calculate Business Cost – Coffee Shop Example

Learning to calculate your business cost can help you better understand your business risk to reward ratio. Not every business is worth going into and understanding your business cost is 1 sure way to understand what you are going up against if you decide to put money to begin your business.

Cost:

• Fixed:
  • Renovation cost – 30k
  • Utensils – 10k
• Operating:
  • Rentals – 6k/month
  • ingredients – $1.2k/month
  • Manpower cost – $2.4k x 2 = $4.8k/month

This sums up to a total of 40k + 12k (running cost) = $52k of capital for the first month of operation.

If a cup of coffee comes up to $1.50 per cup:

John will need to sell 267 cups of coffee per day just to settle his running cost and sustain the business. In order for John to cover his start up capital and start making money, he will need to sell at least 300 cups of coffee everyday at least for the next 2.2 years of his life.

Scary isn’t it? Now lets take another look at an example.

Now, John wants to start an ecommerce business selling products.

Now. Apart from all the financial calculations involved above, John will have to determine the cost of redundant inventory, the type that he has to sell for Zero cost. All those will eat into the profits of those made at the front and if the overall is a lost, then the business is gone.