Setting a price that pays and feels right

You have a cost. Now you need a price. They're not the same number, and the relationship between them is where most cafés quietly lose money, not by being careless with ingredients but by setting prices without a method. There are exactly two things a price has to do: clear the margin you need to trade profitably, and feel right for what the drink is and who's ordering it. Both bars matter. Clear one and miss the other and you're either selling unprofitably or not selling at all.

The GP formula is the only right way to price from cost. The formula is: selling price = cost price ÷ (1 − target GP%). That one bracket is where most people go wrong. Cost times three gives you a 66% markup, not a 66% GP. Markup and margin are completely different numbers, and if you confuse them, your target GP will always be lower than you think. For the Mont Blanc coffee at £1.16 cost and a 75% GP target, the formula gives a minimum price of £4.64. That's the floor, not the price — it's the point below which the drink doesn't pay.

The ceiling is what the market will actually pay, and psychology shapes it more than arithmetic does. The format matters, because £4.99 reads as discounted and £5.50 reads as deliberate. Anchoring matters, because your price only has to feel right next to the other drinks on your menu, not against every café in the city. And the viral premium matters, because a drink someone's seen on their feed arrives with an expectation already built in. People expect to pay more for something they recognise as special, and that expectation is real margin.

When the two bars don't line up, there's a clear order of operations. First, cut the cost, not the margin — a cheaper cup, a tighter portion, a supplier switch can close the gap without touching the GP. Second, reposition the drink — a different glass, a different size, a different framing changes what the price is for. Only then, as the third resort, accept a lower GP as a deliberate footfall or social play. The one thing you never do is pick a number that sounds about right and assume the margin follows. It doesn't.

For the Mont Blanc coffee, £5.50 clears both bars: the maths pays at around 75% GP, and the price reads as considered for a specialist, eye-catching serve. That's the whole skill repeated on every drink: know the floor the formula gives you, read the ceiling your market and menu set, and find the price that sits comfortably between them. Next lesson, we look at what happens when you do this across every drink at once, and where the real margin opportunity lives on a full menu.

Margin across the menu