What margin should a small café make on a cup of coffee?
Beans, milk and cup typically cost 20–25% of the price before VAT, so gross margin is around 75–80%. A £3.40 latte is £2.83 after 20% VAT and costs about £0.72 to make, a 75% gross margin. After barista time at an average 15 drinks per paid hour, about £1.18 is left per cup — 42% of the net price — before rent, energy and waste.
£1.18 per cup left for rent, energy, waste and profit — 42% of net price, not the 75% the ingredient maths suggests.
The most common costing error is working from the price on the board. In the UK, a sixth of a VAT-inclusive price goes to HMRC, so a £3.40 latte is £2.83 of revenue. Costing against £3.40 overstates margin on every cup sold.
Ingredient cost is the smaller problem. Milk is often the biggest variable on milk drinks, and oat or other alternatives cost more per litre; if you charge the same for them, those drinks carry a thinner margin than the menu suggests. Check whether the alternative-milk surcharge actually covers the difference.
Throughput decides the real margin. A barista at £14 an hour making 30 drinks during the morning rush costs under £0.50 a cup; the same barista averaging 15 drinks across a whole shift costs £0.93. The quiet afternoon hours are where coffee margin actually goes.
That makes staffing to demand, and selling something with the coffee in quiet hours, worth more than shaving a few pence off beans.
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Figures are typical ranges for small businesses in the UK, US and Canada, given so you can check them against your own books rather than take them on trust. They are arithmetic on stated assumptions, not a forecast, and not financial advice.