The marginal cost for Starbucks to make a cappuccino is $1. The full cost, however, is over $10 when you sit for a while in parts of Manhattan.

1. 1
The full,
and
marginal
cost, of a
cup of
coffee at
Starbucks

2. George Benaroya
Finance for Marketing Decisions
G Benaroya Lecture
2
Cost to rent office space for 3 hours in Manhattan: $100+
Per hour
3 hours
+fees
10 Grand Central, 155 E 44th St, 5th floor 65.00 195.00
125 Park Avenue, 25th Floor 20.00 62.50
Midtown 90.00 295.65
Midtown 55.00 180.68
Average cost $183.46
While office space in terms of “hot desks” which more closely resemble a spot at
Starbucks are available at a cost of $21 per hour, they are typically not available in short
notice. The only properties available for the coming week are the ones listed above.

3. George Benaroya
Finance for Marketing Decisions
G Benaroya Lecture
3
Starbucks’ cappuccino. Cost to make at home: $0.36
Unit Per Unit Cost $ % Sales
Coffee pound 8.40 0.26 6%
Milk gallon 3.05 0.09 2%
Sweetener pound 0.36 0.01 0%
Cost at home 0.36 9%
Size: 8 ounces (short)
Coffee: 15 grams at $8.40 per pound. While Starbucks’ own cost may be
lower, we used Costco's retail price as a proxy for Starbucks inter-company cost.
Milk: 4 ounces at $3.05 per gallon
Sweetener: based on price of sugar
Cost at home: total out-of-pocket cost to make a cappuccino at home. The cost
to wash a cup at home is less than $0.01, but the depreciation cost of a
professional machine can be up to $0.05 (not included).

4. George Benaroya
Finance for Marketing Decisions
G Benaroya Lecture
4
Starbucks cappuccino. Total Direct cost $1.00
Unit Per Unit Cost $ % Sales
Coffee & milk 0.36 9%
Cup, lid, stir 100 7.88 0.08 2%
Labor hour 16.67 0.56 13%
Total Direct Cost 1.00 24%
Direct Labor: $12 per hour. The rate per hour is based on the information reported by 250
Starbucks Baristas on Glassdoor. To that, we added $4.67 for:
Health care: based on cost data for self-funding companies.
Taxes: Social Security Taxes, Medicare Taxes, Federal Unemployment Taxes (FUTA Tax),
State Unemployment Taxes (SUTA Tax), Disability Taxes, Worker Compensation Tax
Benefits: approximate cost of tuition reimbursement, stock sharing and other benefits
received by Starbucks front line employees.
We used Google maps data to calculate the approximate number of coffees a barista will
make per hour, as well as the number of transactions by the cashier and support staff.

5. George Benaroya
Finance for Marketing Decisions
G Benaroya Lecture
5
Starbucks’ overhead cost per cup of coffee: $0.64
% Sales $ Million $/cup
General Administrative expenses 7% 1,759 0.30
Other operating expenses 5% 1,247 0.21
Depreciation/Amortization 2% 539 0.09
Restructuring & Impairment 1% 224 0.04
Overhead 15% 3,769 0.64
Source:
Starbucks 2018 Annual Report. Net Sales: $24,719 Million
Sales price of a short cappuccino used for allocation: $4.19

6. George Benaroya
Finance for Marketing Decisions
G Benaroya Lecture
6
Real estate cost is the most expensive ingredient
Cost/feet $878
Feet used 15 13,170
Utilities/fees 20% 2,634
Cost/seat/year 15,804
Days open 365
Hours open 15
Hours per year 5,475
Cost per hour $2.89
Cost per feet: $878, based on similar
properties in 42nd Street. Other
properties, such as the one at Trump
Tower, likely to be more expensive.
Feet used: visual inspection of the site
and space used for the entrance,
corridors, storage space, and, lack of,
restrooms. While other properties, such
as the one at 25 Astor Place uses more
space per seat, 15 sq. feet is the
national average.
Utilities/fees: includes set-up cost,
equipment depreciation, security, all
regulatory fees, insurance and utilities.
Cost per hour: cost per seat ($15,804)
divided by # of hours (5,475). A person
staying 1 hour will cost Starbucks
$2.89, for 3 hours $9.

7. It costs
Starbucks $1
to make your cappuccino.
Or over $10 when you sit.