My Coffee Company Is Going Broke

What's up guys, it's Graham here. So this is a video I'm certainly not happy about making, but since I started this channel with the sole purpose of being as open and transparent as possible, I think I owe it to you to explain what's going on and bring you up to speed with the company that I started a year ago: Bankroll Coffee.

This was initially meant to be a fun project that I could grow on the side because, let's be real, I like coffee a lot, but I also like saving money. Ever since I was a kid, I just never saw the point of spending five dollars for a cup of coffee at Starbucks when instead you can make the same thing yourself at home for a fraction of the price. So that's what I did. Even when I started making YouTube videos, I would constantly share the importance of saving your money, investing the difference, and eventually that daily five dollar cup of coffee could be worth almost a million dollars by the time you're ready to retire.

Even though I constantly hammered that message in my videos, I never really thought much of it until I received a huge package of coffee in the mail from a subscriber with an invitation to join them in the coffee business as an equal 50/50 partner to bring my 20 cent coffee to life. And I went for it. I have to say this is my first time ever selling a physical product of this magnitude, so I had no idea what I was doing. But at first, it really wasn't as difficult as I expected.

We started by taste testing dozens of coffees to find the perfect blend. We had non-stop provisions with graphic designers to come up with a theme that was not only fun but also fit the aesthetic of something that saves you money without being cheap and flimsy. And in about six to eight months, we had the concept of Bankroll Coffee fully ready to launch.

Now, from a cost standpoint, we invested a total of thirteen thousand dollars for branding, legal, website creation, and packaging. Then we pre-ordered another several thousand dollars' worth of coffee to get ready for a launch. So all in, we spent about eight thousand dollars each to get it off the ground. However, overhead is expensive all of a sudden when you're running a business. Every single item adds up, and in one way or another that cost gets passed on to you as the customer, which is not something that I wanted.

For instance, most people, including myself, never consider the cost of packing peanuts, paper, confetti, custom packaging, cardboard boxes, or a printed thank you card included with the order—all of which increases the cost to the item that you buy. Then you have the additional fixed cost of warehouse space, storage, labor, shipping, marketing, customer support, utilities, and a multitude of other expenditures that have to be factored into the final cost that you charge as a business.

So over the last year, we made the very conscious and unprofitable decision to literally sell our product at our own breakeven cost simply for the sake of being able to grow and give you the most affordable coffee that we can without going broke. I know this goes against every single capitalistic instinct on the planet, but my thought was that at least you guys would be happy, and we’re both in a position where we can operate on a very thin margin and be totally fine—or so I thought.

See, one year ago when we launched, our expenses were pretty reasonable. The coffee itself was ethically sourced from Brazil and Colombia, roasted and shipped the same day, and our own cost was anywhere from three dollars and thirty cents to four dollars and ten cents each depending on the roast. From there, we paid 75 cents a bag, 15 cents a label, and 86 cents for packaging. Shipping initially cost us anywhere from five dollars and twenty-three cents on the West Coast to eight dollars and eighty cents on the East Coast, and that increases marginally if you order more than two bags.

For those doing the math trying to add this up, since we charge 10 to 12 dollars per bag of coffee, we're left with slightly less than two dollars profit per bag, which very quickly gets eaten up by all the other miscellaneous expenses that go into running a business like employees, utilities, warehouse storage, accounting, insurance, filing fees, and business tax.

Listen, I knew this wasn't going to be a money printing business, and if all I wanted was fat stacks of cash, I would be much better off just shilling NFTs. But I was really excited about doing this, and I was able to experience a completely new side of business that I could share in videos like this.

Now evidently, when we first went live, the business model of purposely not trying to make any money did really well—in fact, we sold out of everything in 72 hours. We had fully prepared 10,000 bags of coffee and labels, expecting that to last us 30 days, but that was all gone over a weekend. We very quickly realized that, hey, maybe we were onto something here. Although honestly, since then, it's only gotten more difficult.

Our first issue was the rising price of coffee. In fact, it was reported that the price of a regular coffee is 76 percent higher than it was just a year ago, and slowly every single month the price of our own coffee began to increase. On top of that, shipping costs were also getting more expensive, and because we offered flat five dollars shipping regardless of your location, and we didn't want to raise prices shortly after launching, we just absorbed the cost ourselves.

We offered one alternative: items like the Bankroll Coffee mug, tumbler, diamond dice molds, metal straws, and money shooter have enough profit margin built in to offset the loss on some of the other items. That gives us enough money left over to reinvest back into the business to stay afloat. In addition to that, the bundle pack also allows us to optimize the cost of shipping by combining five packs within the same order, giving us a little bit more room in terms of what we make as a company.

And that did fairly well. As you can see, since launching about eight months ago, we've done about 270 thousand dollars worth of sales with an average order of about 32 dollars. Year to date in 2022, we have an almost 50 percent returning customer rate, which is incredibly high, and makes me really happy to know that people enjoy it enough to come back again and get more. In fact, throughout the last few months, we've averaged over twenty thousand dollars a month in sales with almost no marketing whatsoever. I just place a link in the description for anyone interested. I'll occasionally repost someone's story if they tag me in an order and that's it. Almost everything at this point is entirely organic, and with so many returning customers, it's evident that we've created a very solid foundation.

Now, I haven't mentioned this before, but in the very beginning, I was worried that selling coffee like this would be just seen as a novelty item that people would only buy to try once because it was mine. Even though I recognize that's an incredibly fortunate position to be in, and it blows my mind that so many people want to be a part of these ventures, it does make it slightly more difficult to get honest real-world feedback. The line gets blurred between: is it actually a good product that stands on its own, or are people only buying it because they want to support the business?

Thankfully, over time, judging by the insanely high amount of repeat orders, it's apparent that people enjoy it enough to want to buy more, which means the absolute world to me. But if we then go beyond the numbers, here's where it gets interesting and where the problem starts.

From our total sales of 236 thousand dollars in 2021, we spent fifteen thousand dollars on marketing, seventeen thousand seven hundred dollars in packaging, eighty thousand dollars on shipping, ninety-three thousand dollars on coffee and inventory, twelve thousand dollars on supplies, nine thousand dollars on various business subscriptions, and eight hundred dollars on office expenses for a net income of, uh, wait for it, eighty-five hundred dollars. Yes, you heard me correctly: eighty-five hundred dollars split between two people before tax.

Now, yes, granted, we do have some of that expense held as inventory, where we buy product in bulk to lower our costs, so our net profit is higher than that amount. But as you can see, this has always been a business that's been centered around the customer, giving as much back as possible and decreasing margins to the point where you get the best product possible even at our expense.

Although flat out, I'm gonna say it: our expenses are increasing to the point where this is no longer working. Let's start with the coffee. What used to cost us three dollars and thirty cents now costs us 4.45, and what was four dollars and ten cents is now four dollars and ninety cents, so that's all 35 percent more expensive. Coffee bags also increased from 75 cents to 85 cents, labels increased from 15 to 18 cents, labor increased from 1.85 to 2.45 cents, and shipping went from 7.29 to eight dollars and twenty cents on the West Coast, and from 9.52 cents to 12.67 on the East Coast for more than two bags.

And the most shocking from all of this is that our advertising cost increased from two dollars to six dollars. See, some of you might have noticed that occasionally we'll run targeted ads on Instagram, and they've actually performed insanely well. In fact, for every one dollar we would spend, we'd make three dollars back. But the iOS privacy update meant that we had to target a much broader demographic with a lot less precision, thereby driving up the price. That's why we have no other choice than to raise prices over the next few weeks.

It's weird because we always see store stories about companies raising prices, and we think to ourselves, "Oh, that just means that they're making more money." But it's quite alarming when you see just how quickly back-end costs are rising to the point where you have to raise prices; otherwise it's more profitable to go out of business. Honestly, it's a little upsetting because I hate the idea of raising prices, and I've resisted making any changes because I don't want to be that guy making things more expensive than they need to be.

But the reality is we are at a crossroads in terms of what we pay, and it doesn't look like it's coming down anytime soon. So beginning on this date here, our prices will be increased accordingly just to be able to offset the additional costs that we pay—no more, no less. At the end of the day, I just want to build a brand that's strong enough to stand on its own and isn't reliant on one single influencer pushing it to their audience to be successful. That's partly why I've only mentioned it twice on the channel, with the last time being over five months ago. That gives us a really good metric on how many people want to come back on their own, and over time, I really believe that the more organic the growth, the more valuable it'll eventually become.

On top of that, even though we've had a lot of bad news, there's also a bit of a bright side. One, I'm letting you know in advance: you could still place an order at a lower price and save some money. The second, we're also using this as an opportunity to expand into Bankroll Tea because I understand not everyone drinks coffee. The tea margins are also slightly larger because they don't weigh as much. The more you know! Hopefully that should be ready in the next one to two months, so if you're interested, I'll have a link down below in the description where you could give us your email to join the waitlist. Then you could be the first to get access before I make the announcement here on the channel.

Obviously, raising prices here is not ideal, and for a business that I started for fun out of passion, supported by a strong community who makes it all possible, I wanted to do everything that I could to prevent that from happening. But this time, there's really no way around it, and we've gone as long as we could without making any changes. As of now, we still don't have any intentions of being sold in-store, mainly because we're still building out the foundation of figuring out what works and what doesn't. But we are open to a strategic partner if you're interested in working with us and have something unique to bring to the table, so feel free to email us, and if it sounds good, we'll be in touch.

But like I said, at the end of the day, all of this is about sharing the enjoyment of coffee and eventually putting Starbucks out of business. So with that said, you guys, thank you so much for watching! Also, make sure to subscribe, hit the like button, feel free to add me on Instagram, and on my second channel, The Graham Stefan Show. I post there every single day I'm not posting here, so I'll link to them down below in the description. Thank you so much for watching, and until next time!