Why I Stopped Selling Coffee

What's up, you guys? It's Graham here. So, I think it's about time that we have an open talk about what's happening with my coffee company. I read all the comments; I see everybody asking for an update. It's usually one of the first things that people ask me about when they see me in person.

To be honest, sometimes I don't quite know how to respond. Even though this company was initially started as a fun project that I could build on the side, I have to say I was not prepared for all the obstacles along the way. As someone who's always been completely transparent about the inner workings of everything I do, I felt like I owe you a full explanation of everything going on and the future of the company because you deserve to know what's going on.

Now, for those unaware, the entire business somewhat started off as a running joke that you should make coffee at home for 20 cents instead of wasting five dollars at Starbucks. After all, if you just did that on a regular basis for 55 years and invested the difference in a Roth IRA, you would have 1.3 million dollars by the time you retire. From that point on, people just took to it, and it seemed like a natural segue to eventually start my own coffee company that focused on high quality and low cost.

So, when a subscriber reached out with the infrastructure and the connections to make it happen, I jumped on it. We spent months crafting the perfect brand, creating designs, selecting the best coffees from locally roasted and ethically sourced manufacturers in both Brazil and Colombia, ordering inventory, and getting it ready. Together, 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 to launch. So, all in, we had invested about eight thousand dollars each.

Now, even though there were some hiccups along the way, at first, it was an instant success. Within three days of launching, we had completely sold out of our entire inventory of ten thousand bags. Our Shopify account was flagged for suspicious activity as a brand new store that went from zero to a hundred thousand dollars in sales in 48 hours, and we had to operate 24/7 to get out more orders than we had capacity for.

But, I have to say, looking back, that was the easy part because everything that came afterward was a legit logistical nightmare. To start, let's talk about sourcing coffee. When we first launched, our overhead was actually pretty reasonable, with most bags costing between three dollars and thirty cents to four dollars and ten cents, depending on the roast. From there, we paid 75 cents a bag, 15 cents per label, 86 cents for packaging, and shipping was anywhere between five dollars and twenty-three cents on the West Coast to 8.80 on the East Coast, which increases marginally if you order more than two bags.

That left us with about a dollar seventy-five worth of profit for each bag sold, which quickly gets eaten away by all of the other miscellaneous expenses to keep a business running, like employees, warehouse storage, utilities, insurance, accounting, and a whole bunch of other things you wouldn't even expect. Now, I knew this was not going to be a wildly profitable business from the very beginning, but I believed in the concept, and I wanted to pass the savings on to the customer for the sake of continuing to grow. But the economy made that very difficult to do.

That's because Arabica coffee prices increased 76 percent in 2021. They were pushed even higher by bad weather in 2022, and because less coffee is being produced, people have to pay more to get it. In fact, coffee prices today are on par with the most expensive they've ever been in history, and that means our profit margins are completely destroyed. All of a sudden, our coffee went from being priced at four dollars and ten cents to 4.90. Even though 80 cents might not sound like a lot, when you combine that with the fact that everything else is also costing more at the exact same time, we had to raise our prices; otherwise, we would go out of business.

Second, supply chain constraints. As most of you have probably experienced, shipping is a nightmare. Even though supply chains are significantly better today than they were back in 2021, freight prices are still significantly higher. Shipping ports are still congested, and wait times have increased for businesses. This means that they have to order more product than they need to ahead of time just to avoid running out and being unable to restock. After all, imagine if a company sells a product they can't get any more of, and they lose their customer to a competitor just because things take twice as long to arrive.

Because of that, it becomes a fine balancing act of ordering too much inventory that could take a while to sell and not ordering enough of it and running out sooner than needed. So, that's been a challenge for us. Unfortunately, we've been in the financial position of being able to order more inventory ahead of time to bring down our overall costs, and they've been selling. But, we've also been in situations where we've not ordered enough and have sold out longer than we should have.

And third, everything else just costs more. Here's the thing: when you run a business, there are a lot of random miscellaneous expenses that begin to add up that most people don't even think of. Like the coffee bag today; it's 10 cents higher. The label added another three cents. Exterior boxes and packaging? That's 10 more. But wait, there's also the cost of labor. What originally was a dollar 85 per order increased to 2.45, and each additional item is now almost twice as much to include as it was before.

Our retargeted marketing campaigns also became an absolute nightmare after the iOS update, which allowed users to stay anonymous and tripled their cost of customer acquisition. So, as of this year, we've stopped advertising entirely. Shipping is also more expensive, with East Coast orders of multiple bags going from 9.52 cents to 12.67. That meant that in order to run a successful business with enough margin to continue growing, we had to raise our prices and expand with new products that had better profit margins.

And so, we began selling coffee accessories, and that went really well. We started off with bankroll coffee mugs, tumblers, and metal straws, and then eventually expanded to diamond ice molds, which are actually pretty neat, and a money shooter. These have much higher profit margins than the coffee itself, and through the various bundle offers, we've been able to make enough to reinvest into other aspects of the business.

And that is what brings us to today. After slightly raising prices in line with our own overhead costs, I'm proud to say that we're officially operating on a profit margin of roughly 30 percent per bag of coffee sold, with almost no customer loss whatsoever. We've also been able to offer complimentary shipping on orders over 35 dollars when we're able to ship multiple bags within the same box. Although instead of taking out any of that profit for ourselves, we decided to reinvest all of it back into making a brand new product that everyone has been asking for for a while now, and that is bankroll tea.

Yes, I know it's taken us forever to confirm a supplier, check quality control, and get ready for a launch, but now that we better understand demand, we could finally move forward with three new flavors: happy and free, lavender chamomile, vanilla Earl Grey, and herbs and matcha, which are officially for sale at the time you're watching this video.

This means as of right now, like they were just introduced as of like an hour ago. There's also a slightly higher profit margin on tea because it's less labor intensive to produce, and that means at retail price, we could expect the total profit margin of just under 50 percent. To me, it just makes sense to slowly expand the range of products being offered and do it in such a way that we know we're not going to have any logistical issues. After all, our first launch had a major learning curve to ship out ten thousand bags of coffee in less than a week, so this time we're fully prepared to sell out, but in such a way where we could quickly get orders out to everyone who's as impatient as I am to get them.

Although in terms of how much money we are now making, along with all the numbers throughout 2022, here's what you came for, and here's an inside look into the entire back end of the company. To start, in total, we have just over 16,000 customers, and throughout 2022, we've done just over a hundred thousand dollars' worth of sales with no paid advertising and no special shout-outs, just one video mentioning it in February along with a merchant shelf below the video, and that's it.

Now, even more remarkable is that in the last 90 days, we've had a nearly 60 percent returning customer rate, meaning more than half of the people who place an order will place another order in the following few months, which is practically unheard of. Just for some context, a good reorder rate on Shopify is about 27, and we're more than double that. Now, if you're curious what people are buying exactly, the most popular product is the 20 cent iced coffee with morning drip, total double down and diamond hands right behind it.

We also have quite a few people buying the bundle package since that's a lot cheaper than buying each item individually, and overall, the average order comes in at about 34 dollars, which is one dollar below the free shipping threshold. Now, I'm guessing that because so many people sign up for the subscribe and save option, it discounts their order by 15 and includes free shipping, so they save money, and we could better predict future cash flow, thereby leading to a slightly lower average order price.

Now, of course, keep in mind that all of those numbers are gross and don't take into account all of our expenses, but overall, we've been able to position ourselves where we could actually begin making money and reinvest those profits into expanding in new areas like tea and eventually K-cups, coffee makers, and anything else that you could think of using.

I know we're moving a lot slower than most businesses when it comes to launching new products, but for me, I'd rather take my time and launch a few very solid items that I know will run smoothly than try to over-expand too quickly for something that we're not prepared for. After all, the goal from the very beginning was to build a brand that could stand on its own without me being one to push it, and this year has been a great example that our customer base has continued to expand even if I don't mention it.

To me, that's the biggest compliment because I know people are buying it because they actually enjoy it. Even though it's the coffee that I drink every single morning, it's cool to see other people join in and support the community. So, for everybody who's made it to this point, a huge thank you for all of your patience.

Feel free to use the coupon code "birthday" to get 10 off all coffee and 15 of all bundle packages. Plus, if you make a purchase in the next 24 hours, we'll throw in an extra perk that's on screen right here. I don't know what it is yet, but I'm trying to do my best to knock off as much as I can, so whatever's on the screen here is what you're gonna get.

So, with that said, you guys, thank you so much for watching. As always, feel free to add me on Instagram. Thank you so much for watching, and until next time.