To price a coffee shop drink correctly, add up the cost of every ingredient in the cup, divide that cost by your target cost percentage (usually 20–25% for drinks), and round to a sensible retail price. For example, if a flat white costs you £0.55 to make and you want a 22% cost ratio, your price is £0.55 ÷ 0.22 = £2.50.
That's the short answer. Below is exactly how to work it out, drink by drink, plus how to read your gross margin so you actually keep the money.
You can't price a drink until you know what it costs to make. Break each drink into its components and cost them by the exact amount used, not the bag or carton price.
Espresso/coffee cost. Work out your cost per shot:
Milk cost. Work out cost per ml:
Everything else. Add the cup, lid, sleeve, sugar, napkin and any syrup:
Here's a full cost build for a regular latte:
| Item | Cost |
|------|------|
| Double shot (18g beans) | £0.32 |
| Milk (220ml) | £0.14 |
| Cup, lid, sleeve | £0.12 |
| Napkin/stirrer | £0.02 |
| Total cost | £0.60 |
That £0.60 is your cost of goods (sometimes called food cost or, for drinks, "pour cost").
Most coffee shops aim for a drink cost of 18–25% of the selling price. Lower is better, but don't price yourself out of the local market. To turn cost into price, divide:
Selling price = ingredient cost ÷ target cost %
For our £0.60 latte:
So a price between £2.80 and £3.20 (ex-VAT) keeps you in a healthy range. Round up to a clean price your till and customers like.
Gross margin is the opposite side of the same coin: the share of the price you keep after ingredient cost.
Gross margin % = (Price − Cost) ÷ Price × 100
For a £3.00 latte costing £0.60:
A 20% cost ratio and an 80% gross margin are simply two ways of describing the same drink. Coffee is one of the highest-margin items in hospitality, which is exactly why coffee shops can survive on it.
In the UK, hot drinks to eat in or take away are standard-rated at 20% VAT. The price on your menu includes VAT, but that VAT isn't yours — it goes to HMRC. Always do your margin maths on the ex-VAT price.
If your menu price is £3.00 including VAT:
Costing on the gross (VAT-inclusive) price flatters your margin and quietly eats your profit. Strip VAT out first, every time.
Using rough costs, here's how a typical menu shapes up (ex-VAT prices, ~75–80% margin target):
| Drink | Approx. cost | Menu price (ex-VAT) | Gross margin |
|-------|-------------|---------------------|--------------|
| Espresso | £0.35 | £2.00 | 83% |
| Americano | £0.40 | £2.30 | 83% |
| Flat white | £0.50 | £2.60 | 81% |
| Latte/cappuccino | £0.60 | £2.90 | 79% |
| Mocha (+ chocolate) | £0.75 | £3.20 | 77% |
| Flavoured latte (+ syrup) | £0.68 | £3.20 | 79% |
| Hot chocolate | £0.55 | £3.00 | 82% |
Notice that adding milk, chocolate or syrup raises cost, so those drinks should carry a higher price to hold the same margin. Charging the same for an espresso and a mocha quietly erodes your profit on the more expensive drinks.
A drink can have a great margin and still lose you money. Two things to watch:
1. Wastage and over-pouring. Free pours, generous milk, dumped stale brews and staff drinks all increase your real cost. If a barista pours 18g target but actually uses 20g, your bean cost jumps 11%. Measure regularly.
2. Labour and overheads. Gross margin doesn't include staff, rent, energy or equipment. A barista takes 60–90 seconds per drink, and that time costs money. As a rule of thumb, after a strong gross margin you still need volume to cover fixed costs — which is why footfall and speed matter as much as the recipe.
1. List the recipe for each drink with exact quantities.
2. Cost each ingredient per gram/ml/unit from your supplier invoices.
3. Total the cost to get cost per cup.
4. Divide by your target cost % (start at 22%) to get an ex-VAT price.
5. Add VAT and round to a clean menu price.
6. Check the margin with (Price − Cost) ÷ Price.
7. Re-cost quarterly, or whenever a supplier price changes — bean and dairy prices move a lot.
The single biggest pricing mistake is setting prices once and never revisiting them. When milk goes up 30p a litre, your latte margin slips and you won't notice until the month-end numbers look thin.
Working this out for one drink takes minutes. Doing it for a full menu — and updating it every time a supplier price changes — is where a proper costing sheet saves hours and protects your margin.
We built PrepSheet to make this painless: free food-cost and recipe-costing tools to price your drinks and scale recipes, plus ready-made Excel templates including a drinks margin sheet built exactly for this. Try the free tools at getprepsheet.com — and if you'd like early access to new features, you're welcome to join the waitlist.