Coffee Shop Cost of Goods Sold: What Should Be Included?

Coffee Business Resource Center

Cost of goods sold, usually shortened to COGS, helps explain what the products you sold cost the business. For a café owner, it is a useful starting point for understanding gross profit and ingredient control.

The difficult part is often not the arithmetic. It is deciding which purchases belong in the calculation, counting stock consistently, and separating the cost of product used from the cash spent on deliveries.

Set up the bookkeeping policy with your accountant, then use a management view detailed enough to help run the bar.

Start with inventory consumption

For a basic inventory-based management calculation, opening inventory plus purchases minus closing inventory gives the cost of stock used during the period, before any necessary adjustments for transfers or other classifications. The BC food-service text describes this relationship in its inventory procedures chapter.

Suppose the café starts the month with $3,200 of the included stock, receives $8,700 of net purchases, and closes with $2,900. The result is $9,000 of consumption before adjustments: $3,200 + $8,700 − $2,900.

That is not the same as the $8,700 paid or invoiced for new deliveries. Some opening stock was used, and some newly purchased stock remains available. Keep the purchase and count dates aligned so a delivery is neither omitted nor counted twice.

Agree on what each category includes

The following is a suggested discussion sheet for the bookkeeper, not a universal tax classification. Preparation, manufacturing, accounting method, and business structure can affect the final policy.

The IRS's COGS guidance describes inventory, purchases, and additional cost categories, as well as relevant accounting exceptions. Have the accountant apply the rules to your business rather than importing another café's chart of accounts or assuming every small business uses the same tax inventory method.

Make the count reproducible

Count at the same operational cutoff and include all relevant locations: the bar, back room, refrigerators, vehicle, and approved preparation space. Record transfers between them so the same stock does not appear to have vanished from one business unit and been purchased by another.

Use a standard unit for each item. Coffee may be counted in kilograms, cups in individual units, and syrup in bottle equivalents or measured volume. Record case quantities explicitly. “Two boxes” is not enough when suppliers change pack sizes.

Use the agreed valuation method consistently. If you change how partial containers are estimated or how costs are assigned, note the change before comparing periods. A more accurate stock count can move the apparent cost percentage without any change in barista performance.

Identify damaged, expired, or unusable stock according to the appropriate policy. Keeping it at full usable value can make the current result look better while postponing the write-off.

Compare actual use with recipe expectations

Theoretical cost uses the recipes and sales quantities. Actual consumption comes from stock movements and counts. The gap deserves investigation, but it is not automatically theft or employee waste.

Suppose sold drinks should have used 36 kilograms of espresso coffee under the recorded recipes, while the stock calculation shows 40 kilograms consumed. The four-kilogram difference could include dialing in, purging, training, staff drinks, remakes, spills, counting errors, or unrecorded transfers.

Record known non-sale uses so the unexplained difference becomes smaller and more meaningful. Check whether recipes in the register match what staff actually make. An extra shot routinely given without being recorded can produce a cost variance even if every weighed dose is correct.

For milk, distinguish recipe use from excess steaming and carton discards. For pastries, compare received units, sold units, complimentary items, and remaining or discarded units. Different product categories need different operational questions.

Avoid double-counting waste

If actual consumption already includes product that was discarded, do not add the same waste again when calculating total product use. You can show waste separately as an explanation of consumption or reclassify it under the accountant's policy, but the total must reconcile.

Likewise, if a recipe cost includes an allowance for ordinary handling loss, do not add another identical allowance when forecasting the same use. Be clear whether a figure is a clean theoretical recipe cost or an expected actual cost.

Staff drinks and samples still consume stock. How they are classified in the accounts may differ from how you display them on a management report. Keep the quantity record accurate and let the accounting policy determine the financial presentation.

Use COGS to improve a specific process

Calculate the relevant cost percentage against net sales for the same period. Then break it into useful groups such as espresso drinks, brewed coffee, food, retail beans, and packaging. A shift toward food sales can change the blended percentage even when every recipe is made correctly.

For a cart, analyze event packages alongside consumption. The number of cups served affects cost even when the package revenue is fixed. Record product returned from each event and its usability before assigning the event's actual consumption.

If equipment inconsistency is contributing to remakes or excess dosing, review the measurements and maintenance history with Dylan and the commercial equipment team.