Will lowering prices increase sales and profits in the case of a coffee shop?

Will lowering prices increase sales and profits in the case of a coffee shop?

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0 thoughts on “Will lowering prices increase sales and profits in the case of a coffee shop?”

  1. Lowering prices in an already low margin environment, such as a coffee shop, isn’t usually a good idea. Unless your prices are currently a good deal higher than the competition, lowering them won’t add a great deal of new customer traffic.
    Traditionally, this type of business succeeds with one of two approaches:
    Great location, with limited competition, or
    Unique products that are popular, and not offered by the competition. You can usually charge a little more for “unique”.
    If you drop your prices by 10% (which might not be enough for people to notice), you would have to increase your customer counts by over 20% just to break even on the deal (based on standard restaurant profit margins). Even then, the strategy only works if your competition doesn’t decide to start dropping prices too.
    The competition can always cut their prices. The 2 points listed above are things that the the competition will have difficultly duplicating. Try them first.

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  2. Short answer is yes, but in food services, margins are so thin, you might be killing yourself to do it.
    It’s a very delicate decision. Once you lower prices or constantly discount, you lower the value of your brand often permanently.
    But if you are overpriced, and your atmosphere or prestige isn’t making up for it (Starb…. ) then lowering your price may be the right thing to do.
    Do some market research. See what competitors are selling for. Can you market a better customer experience or a niche product and up the value of your brand to make the sales? If you can, I’d opt for this.

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  3. Not necessarily. Increasing profits depends on increasing sales. If there’s sufficient demand at lower cost, your sales may increase. But, they’ll have to increase to compensate for the decline in margin as well as make up the higher profit. It’s easy to model in a spreadsheet.

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