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Profitability: A Lesson From Starbucks on Profit and Loss

I once read Everything but the Coffee by Bryant Simmons.

It explains the fundamental marketing techniques Starbucks uses in branding, customer experience, and product promotion to evoke a very particular set of emotions for its customers.

Starbucks has become so commonplace in our life that I’m willing to bet there are few individuals who haven’t studied, worked, or held meetings at countless Starbucks locations across the country. While we may frequent the location, many of us rarely stop to think about what we can learn by simply watching customer interactions, inspecting the décor choices, or witnessing the assembly line production of simple-syrup laced coffee-flavored drinks.

Observations that Lead to Important Lessons

Last week I found myself working at a Starbucks. The location was no different than any other; wood tables lined the walls, neutral taupe colors throughout, and the all-too-familiar aromas wafting out into the parking lot.

It was busy and the only spot available was at a bar that overlooked the Frappuccino station.

I plugged away at some emails, but, after the sixth Frappuccino and having accidentally met eyes with the barista enough times for it to become awkward, I began to notice a pattern.

The barista would make each drink with a pre-determined amount of powder, syrup pumps, and liquids and, even though each cup was full to the brim, the blender pitcher always had a decent amount of drink left over. Each time, the barista would simply dump out the extra.

Starbucks Operating Revenue and Gross Revenue

I quickly hopped online to find out what I could about Starbucks’s profit and loss.

In 2021, Starbucks total revenue was approximately $29.1 billion; however, it’s expenses of $22.5 billion left the company with a gross income of roughly $6.6 billion.

Big whoop, right?

Starbucks is still making billions every quarter. But how much of that $22.5 billion in expenses can be traced back to something so simple as throwing out a half-cup of every blender-made drink?

When Losses Impact Your Bottom Line

Let’s assume that Starbucks ingredients cost pennies on the dollar—maybe even fractions of a penny. We will operate under the assumption that each time a half-cup of Frappuccino gets tossed it costs Starbucks just one penny, and, at an average Starbucks, a half cup is tossed out a total of 20 times per day.

This doesn’t even consider variables like summer-time being a season when more Frappuccinos are ordered, the Frappuccino happy hour week that happens once every year, baristas that are sloppy and toss out more than half a cup, or Starbucks locations that are located in densely populated cities where there’s likely triple the amount in Frappuccino orders.

Twenty tosses a day amounts to a 20 cent loss at every location. With roughly 9,000 locations in the U.S. alone, a 20 cent loss would mean Starbucks loses, on an extremely conservative estimate, roughly $1,800 a day on wasted product.

Multiply that figure by 365 days and (poof!) Starbucks has lost $657,000 a year.

Do I know for a fact Starbucks loses that much money on a yearly basis from poorly executed drink making or imprecise recipe measurements?

No, but there’s an important business lesson to be learned.

Read: How to Control Your Business Expenses

The Important Lesson

In every business we seek to make enough profit to offset operational costs. Every year, whether the business is a Fortune 100 company or a mom and pop donut shop, owners and executives will look back at the expenses and try to find ways to reduce loss.

Perhaps the store is wasting too much money on paper towels or staff is abusing the office supply closet. Maybe your company is paying a software vendor each year and the software isn’t even being used anymore.

A loss that seems minuscule, such as a penny, can quickly add up to make a large impact on your overall profitability.

If just twenty cents per store can cause Starbucks to experience, in our hypothetical situation, a little over half a million dollars in loss each year, we, as business owners, should be on the lookout for what seem to be inconsequential business costs that recur habitually.

Bottom Line

For a small business owner a simple loss of $20 per month may only amount to $240 per year, but that $240 is priceless. It can be used for advertising, a brand new sign, more business cards, etc.

Plain and simple: loss of any sort can make a large impact on how your business experiences annual growth.

So take a step back.

Don’t think about your role; don’t think about your next set of meetings or your laundry list of to-dos. Be the customer, client, patient, or business partner for just one day.

  • What processes can be optimized?

  • Where are resources being wasted and no one seems to notice?

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

Paloma Goggins - Business Lawyer in Phoenix, Arizona
Paloma Goggins is an experienced business attorney specializing in helping business owners buy or sell a business

I’m Paloma

I’m experienced business attorney licensed to practice in Arizona and Wisconsin. My client-first philosophy allows us to collaborate turning skills, passions, and knowledge into the ultimate form of change-making. Let’s innovate together.