The Cost of Cheap Coffee

In 2011, I visited a coffee farm in Puerto Rico that had been all-but shut down due to the rising cost of operation and competition on sales prices from cheaper farms. What was once a thriving estate with several employees was now basically an owner-operator tourist destination, only producing enough coffee to supply several wholesale partner cafes on the island. The owner told me that their online merchandise sales – mugs, t-shirts bearing the name of the farm and stock photo graphics – made them just about as much money as coffee sales. Most of the land had been converted to crops that made more profit (and needed less labor) than coffee: sugar cane, bananas, avocados.

This is the future I expect for 90% of specialty coffee farms within my lifetime. While environmental factors are a large contributor to farms making the transition from growing high-grade coffee to other crops, from my own unique viewpoint as the owner of a relatively small roasting company I see that the competition to sell a cheaper cup is extremely harmful on a macroeconomic level.

Compelling was fortunate-enough to start with a founder that understood the business side of coffee as well as the quality side. We started as a lean operation, and continue that lean mindset today: every person that works for us pulls their weight, and I personally still work as an owner-operator where appropriate. We keep our prices fair to reflect that. Here’s an approximate breakdown of what goes into a single bag of retail coffee, shipped to your door:

-Average cost of what we pay for 12oz worth of roasted coffee, including the ~14% weight loss from roasting: $3.27
-One outsourced printed retail bag, and in-house printed label: $1.36
-Cost of First-Class Mail, shipping 12.9oz: $4.30
-Cost of overhead (rent, utilities, website-related costs): ~$1
-Cost of labor (roaster, packing, support): ~$2.75
-Miscellaneous costs (Coffee used in quality control, employee travel expenses, etc.): ~$0.45
-Payment processing costs: $0.69
Total Cost: $13.82
Our Roaster’s Choice sales price on a 12oz bag: $17.80

That leaves about $4 gross profit, from which we still have to consider the cost of keeping an inventory on hand, emergency costs, growing our business, marketing (including the occasional 10% off codes we release), income taxes… and finally, our own net profit.

Business owners would look at the above costs and immediately see where we can cut back: labor, cost of coffee, and shipping. I believe in investing in Compelling’s deserving employees, so I choose to increase that input whenever possible. I believe in compensating farmers fairly, and working with companies that do so (again, the above stated figure is an average, and sometimes our coffee cost is even more!). Finally, our shipping cost: offering free shipping has been a competitive advantage for us, and its likely a major reason we’ve built a thriving mail order business.

So when I see small businesses offering mail-order coffee for $15, including shipping, my first thought is that they’re cutting corners somewhere. Its likely the coffee cost and the labor, as our shipping rates are among the most-competitive that can be found in shipping a <1lb package.

Cutting those costs is a sure contributor to the death of specialty coffee farms. I really want to urge you to consider where you buy your coffee from, as those extra few dollars can make a difference in not just the quality of your cup, but in the sustainability of this business.

If you have questions about our pricing inputs, remember that we post our purchase price for every coffee on its product page – and if you’re still not satisfied, feel free to email me personally at [email protected] and I’ll answer you if I can.