We’ve all thought about it. I’ve used an old hot air popcorn popper to “roast” coffee for my friends and family. So, what’s stopping me from quitting my job and building the next uber trendy microroastery? Well, besides being completely in love with the supply chain and trading side of the coffee industry, and thoroughly adoring the people who I work with (had to get that out of the way), there’s a big difference from being an enthusiast and professional, especially for someone like myself, who is averse to risk. However, I get asked all the time, “How much does it cost to start a roasting business?” So, of course, I crunched the numbers just to see how realistic it would be to get a roasting operation off the ground. Please use this solely as a basis for ideation and don’t take it as the only way to start your roasting business. My goal is not to discourage anyone from jumping into production roasting, but rather answer a few frequently asked questions we hear from enthusiasts and start-up stage professionals. I want to encourage everyone to pursue their dreams and hope I can support the beginning stages of your thought processes about how to start your own roasting business.
So, I’m thinking about starting a roasting business. “When is the right time to make the jump from hobby home roasting enthusiast, to full blown production roaster?” This question is nearly as subjective as “what is the best coffee in the world?”, a question every coffee professional receives at some point during their career. Only you can decide when you want to make the leap. For me, I would want to look at this question a few different ways to ensure I’m not taking too much risk. Let’s divide this up a few different ways. There is the startup and operating costs. There is the marketing capital to get things rolling. And of course at some point we will need to have some sales. A lot of folks I speak with have started roasting as a side hustle that seems to take on a life of its own and allows them to smoothly transition to a full time gig. That doesn’t mean you should do it this way, there are plenty of folks that have decided to just take the plunge.
Startup and Operating Costs
When talking about taking the plunge, we are talking about selecting and purchasing a roaster, investing in some sort of packaging and packaging equipment, finding the right space, and selecting the right green coffee. Of course, depending on your model, retail versus wholesale, these costs can quickly inflate to include all of your bar and brewing equipment. The build out and roasting equipment is your single largest expense. The cost of roasters can range greatly, and good work horse production roasters with 12Kg+ capacity are likely to climb into the mid to high five figures. The thing to keep in mind with roasters is your ability to grow. I would literally be roasting all day on a hot air popcorn popper to produce the same volume as a single roast cycle on a 12Kg roaster.
As someone intimately familiar with the costs of green coffee, I probably field more questions about this part of a roaster’s business than anything else. I watch the C market daily to see where the price of coffee is trading. The market impacts the price of many coffees on our website. So, the same coffee you purchased last month may very well be a completely different price (higher or lower) the next time you are ready to make a purchase.
As an importer, the most common question we receive is the cost of green coffee. Our standard response is, as a specialty importer, the coffee we sell trades at a premium over the C market which can be found on the upper right-hand corner of our website. However, the price can vary greatly. Threat of frost in Brazil can drive the price up and institutional selling can force a drop. A microlot separation from Kenya might be sold for over $6/lb. However, our Brazilian Eagle, a great clean sweet consistent neutral base to any blend can trade under $2/lb depending on the market. I like to make conservative estimates when projecting the potential future revenue of my roasting company. Therefore, I would recommend using an input of $4/lb for cost of green coffee. Obviously this cost will fluctuate from coffee to coffee, but I believe it is a safe price averaged estimate that should only prove your business more profitable in practice. And, it gives us a nice round number to use going forward.
Sales, Margins and Profit
The thing I would be most anxious about when starting a roasting empire is who I am actually selling coffee to. You may be familiar selling to friends and family but the sales cycle and interactions are different for wholesale accounts that depend on on-time delivery, and sometimes retro-active delivery. Unless you are planning on opening a retail space with heavy foot traffic, a wholesale account is going to be critical to increasing your roast volumes. While the margins won’t be as exciting as selling brewed coffee direct to consumers, a couple nice wholesale accounts will keep business consistent from the get go and keep the roaster (and lights) running. The thing to keep in mind is that wholesale accounts will depend on your reliability. When I was working in a sales role at a roaster, I would receive calls on the weekend requesting an immediate delivery, otherwise they wouldn’t be able to serve coffee for brunch. With wholesale accounts, you become the on-call go-to problem solver. Once you have organized and projected the volumes of your wholesale accounts, it will make it easier for you to plan ahead in your own green coffee procurement. Check out the article written by my colleague about buying forward for more insight.
I think It’s important to back out the numbers from time to time. In other words, how much revenue would you like to be doing and how much coffee do you need to sell to get there. An important piece of this puzzle is understanding your profit margin per pound. As we already hypothetically established, if you are buying coffee for $4/lb and selling it for $16, how much of the $12 is pure profit? Lots goes in to understanding your costing. As a trader I tend to include as much costing as possible in my per pound price to better understand my margins. I would include labor, material, financing and overhead costs in that per pound margin. However, some of these costs are not easy to breakdown into a per pound figure. Therefore, some people might only include the labor and material costs to calculate the per pound margin. Either way, we can all agree this is a question better suited for an accountant, and the actual net profit margin will be much less than $12 per pound. So, where do we go from here?
Let’s back out the numbers and set a goal. If your goal is to sell 300 pounds of coffee per month, that’s a great place to start. The minimum volume that Olam sells is a single bag of coffee. That is between 132 and 154 pounds of coffee depending on origin. Using shrink as 15-20% between unroasted and roasted volume, you will need 3-4 bags of green coffee to produce 300 roasted pounds. Purchasing multiple varieties of coffee will also give you options to offer both blends and single origins with the same basic inputs. Using the oversimplified formula of [Revenue-Cost of goods=Profit] you would stand to make $3,600 in profit at $12/lb if you sold 300 pounds per month. However, if you are still using the hot air popcorn popper you’ve probably burned yourself a few times and spent over 60 hours unevenly roasting coffee…but there is a significant charm in the simplicity of this operation. I think you see where I’m headed here. It might be time for an equipment upgrade. The popcorn popper has been good to you but it may need to be shelved in place of more professional and cost effective roasting equipment.
Marketing includes everything from branding to pricing strategy. It is every nonverbal interaction you are going to have with your customers. It is imaging, copy, content, pricing, signage, and of course social media. Do not underestimate the power of social media. It can quite literally increase both foot traffic and sales. If you don’t have at least a Facebook page for your business, create one now and let people know how they should interact with your business. Location, hours, email, phone and pictures are all a must to get customers interested. People want to know who you are and how to buy your coffee. Check out the article written by my colleague on the power of visual & viral if you’re not sold on the concept of social media. If you are a consumer facing business, I would highly recommend you also invest in a website. This gives you a great outlet to sell your coffee at retail prices and retail margins. You can sell as little as a single bag or, better yet for re-occurring revenue and inventory management, offer coffee subscriptions. A website and social media presence wont only help your business grow but will also give you the ability to manage a greater number of customers. You will be able to let all your customers know about deals, promotions, events and opportunities at the same time. It is a great way to interact with all your loyal followers and develop many relationships at the same time.
So, I’m thinking about starting a roasting business…
Get out there! Enough talking about it! There will always be something to analyze and figure out and there is something to be said about trial and error. No matter how well thought out and planned you are, something will always come up that forces you to recalculate and pivot. Any new coffee roasting venture will come with its own unique set of challenges. It will be your goal to better understand the market segment you plan to operate within and the flavor profiles your customers are interested in drinking. We at Olam are here to support your needs and talk through these challenges. We have a diverse background in coffee, many of us come from the roasting side of the industry. We are here because we truly enjoy coffee and would be happy to talk about the delicious beverage anytime. Good luck!