Why does a $5 latte earn ten cents?

A latte in New York costs about $5, often more. The café that made it keeps, in a good month, about ten cents of it. The other $4.90 is spoken for before the milk is steamed.

▶ Try it yourself in Latte Ledger: drag cups a day from quiet to packed, move the rent from a side street to Midtown, and watch each latte sort itself into milk, beans, cup, straw, rent, staff and profit, with a clock that shows when in the day the bills are finally paid.

What the cup itself costs

Milk, beans, a paper cup with a lid and a straw come to about $1.25 in the model, and that part scales with every drink: sell two cups and you buy two cups' worth. Owners' own breakdowns put ingredients near a third of sales in a busy shop, so $1.25 on a $5 drink is on the lean side, and you can raise it in the tool.

What the day costs, open or not

The bigger slice is the day itself. A small Manhattan café's rent runs from a few thousand dollars a month on a side street to $19,000 for a former coffee shop in the West Village. Two or three baristas across a long day are about $680 at New York wages, and utilities, insurance, software and the card terminal add roughly $150. In the model that is $1,095 a day, and it is owed whether the door opens once or three hundred times.

Why the first 292 cups earn nothing

Each $5 latte leaves $3.75 after its own costs. Divide the $1,095 of bills by $3.75 and you get 292: the number of cups that only pay the bills. At 300 cups a day, eight cups' worth is left, about $30, or ten cents a latte. A café can have a line out the door and still be a dime away from losing money.

Put a clock on it and the number lands harder. Cups do not arrive evenly: baristas describe a rush of two or three hours after opening, then a long, thinner afternoon. On a typical café day in the model (38% of the cups by 10 am, 65% by 1 pm, 87% by 4 pm), cup 292 of 300 is poured at about 6:20 pm. The morning rush, the lunch line and most of the afternoon pay the landlord, the staff and the power company; the café starts earning for itself forty minutes before it closes.

Why 50 customers change everything

Add 50 customers and the bills do not move. Every one of those cups keeps almost its whole $3.75, so the day's profit goes from $30 to about $217, and profit per latte from 10 cents to 62. On the clock, break-even moves from 6:20 pm to about 3:30 pm, and the whole late afternoon turns to profit. Lose 50 customers and the same arithmetic runs backwards: the café is short about $150 a day. This lopsided response is operating leverage, and it is why cafés fight so hard for the morning rush, why a rent increase can close a shop that looks busy, and why the quiet side-street café with lower rent can still lose money.

The tool is a model, not a forecast: price does not change how many people come, staff hours do not rise with volume, and food, pastries, taxes and seasonality are left out. The hourly pattern is an assumption, not a measurement. The film's footage is a latte poured behind the bar at LB Coffee on the Upper East Side by @lbcoffeenyc, a barista's day at a café in New Rochelle, New York by @romerosaarah and a West Village coffee shop listed for rent by @capstonepropertiesny; the containers, coins and numbers come from the model.

Sources: Wikipedia, Break-even (economics); Wikipedia, Operating leverage; New York café owners' numbers in the footage research (a 405 sq ft shop at about $20,000 a month in sales, 180–200 weekday drinks, ingredients near 35% and labor near 25% of sales) and the West Village listing above.