Profitability: A Lesson From Starbucks on Profit and Loss

I once read Everything but the Coffee by Bryant Simmons.

The book breaks down the marketing techniques Starbucks uses in branding, customer experience, and product promotion. The goal of all that strategy is simple: to create a very specific emotional response in its customers.

Starbucks is familiar to almost everyone. I am willing to bet that very few people have never studied, worked, or sat through a meeting at one of its locations. Yet most of us walk in, order our drink, and never stop to think about what we could learn. Just by watching customer interactions, studying the decor, or following the assembly line of syrups and blended drinks — there are lessons everywhere.

Observations That Lead to Important Lessons

Last week I found myself working from a Starbucks. Nothing unusual about the location: wood tables along the walls, neutral taupe colours, and the familiar smell drifting into the parking lot.

The only seat available was at a bar overlooking the Frappuccino station. I started on some emails. But after watching the barista make six Frappuccinos — and accidentally making eye contact one too many times — I noticed a pattern.

Each drink followed the same formula: a fixed amount of powder, a set number of syrup pumps, and measured liquids. Every cup filled to the brim. But the blender pitcher always held more. Each time, the barista simply poured the extra down the drain.

Starbucks Operating Revenue and Gross Revenue

I pulled up Starbucks’ financials. In 2021, the company brought in roughly $29.1 billion in total revenue. After $22.5 billion in expenses, it was left with a gross income of about $6.6 billion.

Big whoop, right? Starbucks still makes billions every quarter. But how much of that $22.5 billion links back to something as simple as pouring out the leftover half-cup after every blended drink?

When Losses Impact Your Bottom Line

Suppose Starbucks ingredients cost pennies on the dollar — maybe fractions of a penny. Say that every time the barista throws out a half-cup of Frappuccino, it costs the company one cent. And say that happens 20 times a day at an average location.

That estimate is conservative. It does not count: the summer spike when customers order more Frappuccinos, the annual Frappuccino Happy Hour week, baristas who pour out more than a half cup, or high-traffic city locations where order volumes are triple the average.

Twenty pours a day equals a 20-cent daily loss per store. Starbucks has roughly 9,000 US locations. That adds up to about $1,800 in wasted product every single day.

Multiply $1,800 by 365 days and — poof — Starbucks has lost $657,000 in a year.

Do I know for a fact that Starbucks loses that much from sloppy pours or imprecise recipes? No. But there is an important lesson here.

Read: How to Control Your Business Expenses

The Important Lesson

Every business tries to make enough profit to cover its operating costs. Every year — whether you run a Fortune 100 company or a local donut shop — owners and executives review expenses and look for ways to cut waste.

Maybe the store spends too much on paper towels. Maybe staff raid the supply closet too freely. Maybe your company still pays a software vendor every year and nobody uses the software anymore.

A tiny loss — even a single penny — can compound into something that hits your overall profit hard. If twenty cents per store can cost Starbucks over half a million dollars a year in our example, then small, recurring costs deserve your attention too.

Bottom Line

For a small business owner, $20 a month is only $240 a year. But that $240 is not nothing. You can put it toward advertising, a new sign, business cards, or anything that moves the needle.

Any loss — however small — affects how your business grows year over year.

So take a step back. Set aside your to-do list and your next round of meetings for a moment. Spend a day as your own customer, client, or business partner.

Which processes can you improve?

Where are you wasting resources that nobody has noticed yet?

How can you save your company hundreds, thousands, or millions?