In an economic climate marked by soaring costs—rising raw material prices, increased wages, tax hikes, surging energy bills, and property expenses—coffee business owners are facing tough decisions. Among them: whether to raise prices.
But is increasing prices the only viable path forward? And if so, how much should you raise them—and how do you do it without alienating loyal customers?
Industry veteran and Coffee Knowledge Hub (CKH) curator Andrew Tolley explores these questions and offers a framework for navigating pricing decisions in today’s rapidly evolving business landscape.
Profitability Under Pressure
For any coffee shop, roastery, or café group, profitability isn’t just about financial gain—it’s a necessity for long-term sustainability. As Tolley points out, “You have an obligation to yourself, your team, and your customers to run the business sustainably. In most cases, that means profitably.”
But achieving higher profit margins isn’t simply about raising prices. It’s about optimizing the three key drivers of revenue:
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Unit Sales: The number of customers you serve
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Average Transaction Value (ATV): The value of each sale
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Frequency: How often each customer returns
Increase any one, and your revenue goes up. Increase all three, and your business grows. But, warns Tolley, raising prices might boost ATV at the expense of unit sales and frequency—creating an unintended negative effect.
What to Do Before You Touch the Price Tag
Before making any pricing decisions, Tolley advises business owners to take a hard look at their margins. For each product on your menu, ask:
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Do I really need to offer this item?
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Can I reduce the cost without compromising quality?
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Would a slight price increase be acceptable to customers and improve both margin and revenue?
If the answer to any of these is yes, you’re already one step ahead.
Alternative Levers for Growth
Raising prices isn’t the only way to improve financial performance. Tolley outlines several strategies coffee businesses can use to grow revenue without risking customer goodwill:
1. Increase Unit Sales
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Invest in marketing to attract new customers or promote underperforming items.
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Streamline operations to reduce service bottlenecks.
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Train your team to improve product knowledge and upselling—asking simple questions like “Can I get you anything else?” can work wonders.
2. Increase Visit Frequency
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Launch loyalty programs to reward returning customers.
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Diversify your product range to attract visits across different times of day.
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Re-engage your customer base with timely, targeted promotions.
A Matter of Trust and Communication
Even when a price increase is the right move, execution matters. “We don’t live in a cold, rational world,” Tolley notes. “We have relationships with our customers.” Price hikes, even minor ones, must be handled with transparency and empathy.
From Tolley’s experience, price increases that are well-communicated tend to succeed. Customers generally understand the need—especially when it’s tied to higher quality, better service, or improved sustainability. “Most of the time the amount is so small they might not even notice,” he says. “But it’s still important to let them know. That relationship matters.”
The Bottom Line: Value is the Real Currency
In a challenging market, price increases may be inevitable—but they shouldn’t be the only lever you pull. Enhancing customer value, optimizing operations, and nurturing relationships can all contribute to stronger margins without risking brand trust.
As coffee businesses adapt to economic realities, those who focus on long-term value creation—not just short-term fixes—will be the ones to thrive.