Think you’re saving a small fortune making coffee at home? Do the math.
Posted by TheShot on 27 Aug 2008 | Tagged as: Home Brew
We previously wrote of our annoyance with the old and ever-popular yarn spun by wannabe personal finance gurus who constantly tell us we can become millionaires by quitting our daily coffee habit — or by replacing it with home-brewed coffee. For the record, we have a lot of coffee both out (as evidenced by CoffeeRatings.com) and in the home. But we’ve always thought that home-brewed coffee is hardly the magic path to champagne wishes and caviar dreams. This time we do a little of the math to show why.
Many of these personal finance hacks first fail to recognize that coffee, for at least some people, is one of life’s small pleasures. The idea of giving it up entirely makes about as much sense as giving up other “superfluous” things in life — such as haircuts, your child’s dance lessons, and cable TV. Once you get past that logic, the debate then becomes about the private jets you’ll be able to afford by making your own coffee or espresso at home instead of paying Starbucks each time for the mythical $32 coffee beverage. (Hey … inflation. OK, so we’re exaggerating about the $32 beverage to make a point. But then again, so are they.)
We recently came across a blog post, similar to the thousands of others just like it, where a “home savings tip” savant posted on how she saved a “small fortune” by switching from her thrice-weekly Starbucks habit to a stove top Bialetti coffee maker at home.
Let’s do the math
Small fortune, eh? Let’s do the math. A $4 bucket of Starbucks’ pumpkin-pie-flavored Cool Whip, purchased three times a week, will set our home-savings-tip heroine back about $12 a week — or about $600 a year.
A new Bialetti will set her back about $20 — which is nice and cheap compared to some of these ridiculous $1,200 hulking piles of home espresso machine plastic that typically produce shots inferior to even Starbucks’ dubious standards (Jura, anyone?). Then add a chop grinder for about $30, and her capital outlay comes out to be about $50.
Now since fresh roasted coffee is like fresh baked bread, the supply needs replenishing every couple of weeks before it goes stale. So if she’s buying Starbucks’ coffee (and it is pretty much already stale when you buy it), that should set her back about $6 for a half pound. Then add some incidental charges for milk, pumpkin pie flavoring, and tubs of Cool Whip — but for the sake of argument, we will consider it negligible (which it isn’t).
That comes to about a $50 capital outlay plus $6 every two weeks = about $200 in the first year.
Labor costs: because your time isn’t free
Now let’s factor in labor costs. Starbucks’ costs are dominated by labor, not coffee. To say that your labor comes out in the wash is deceiving yourself: your time is money. The federal minimum wage is $5.85 per hour (in SF, it is $9.36) — and let’s say her time is only as valuable as the lowest fry cook at McDonald’s at $6 an hour. And let’s say that making these coffee drinks at home takes about 15 minutes of her time — between grinding, watching the stove, steaming milk, washing dishes, cleaning the espresso machine, etc. All the work that Starbucks pays someone else to do for you. Three times a week for a year comes to about 40 hours of labor a year = $240.
So in her first year, you compare her $600 Starbucks habit to $200 + $240 = $440. So she saved maybe a whopping $160 in the first year — minus her additional expenses for milk, pumpkin pie flavoring, and Cool Whip. And her coffee wasn’t probably nearly as good as the kind and variety she had buying out: the coffee supplies were probably more stale, the consistency wasn’t right, and she was using equipment and skills that were a fraction of what the pros have. (After all, a moka pot doesn’t even technically make espresso to begin with.)
Add that she had to put up with this inferior coffee for a whole year. Then add that she just valued her own time at the lowly wages of a fry cook working a burger joint fronted by a clown.
A small fortune? Indeed.
But what if you buy a $1,200 home espresso machine?
But at least she didn’t buy some $1,200 Jura (likely without a decent grinder, we might add) that will require her to grin and bear hundreds of inferior espresso shots before she breaks even on the purchase price alone. Or worse…
Home espresso machines, for most buyers today, are the home exercise treadmills of the previous decade. She could easily tire of the inferior shot quality she gets at home, and she could tire even more of doing all the labor herself. After all, we live in a society that can’t even be bothered to slice an apple or toss a salad because it’s too much effort. This means that not only does she return to her regular Starbucks habit, but she does so with an additional $1,200 hole burned into her pocket — now that her home espresso machine is gathering dust in the kitchen corner.
This is why we generally recommend a home espresso setup for less than five percent of the people who ask about one. Unless you’re in it for the pursuit of higher quality shots, you’re going to be gravely disappointed. Don’t even think that you’re going to save much money with a home espresso setup unless you can make the time commitment — and if your taste buds can’t tell the difference in quality.
Sipping a double espresso at Blue Bottle Cafe earlier this afternoon, I felt like a million bucks. In fact, that espresso shot of single origin, dry-processed, Ethiopian Sidamo was so good, it deserved its own post. (To be continued…)
UPDATE: Dec. 30, 2008
As dependable as an SF Muni bus crashing into a corner storefront, someone regularly exhumes another post of home espresso machine personal finance quackery: When a $945 espresso machine makes sense – Smart Spending Blog – MSN Money.
All this talk about “doing the math”… You know who has done the math several times over, before any of us even considered it?: Starbucks’ marketing department, that’s who. You can bet your double-tall, four-pump vanilla caramel macchiato that they know the lifetime value of their customers. And if Starbucks is devoting expensive retail space to selling home espresso machines in their cafés, how naïve does one have to be to think they’re doing it at a known net loss of customers and profits?
15 Comments »
on 29 Aug 2008 at 8:50 am +00:00T 1.Anonymous said …
Including labor costs is just silly. Most people can’t simply choose to do slightly more work to pay for coffee in the way that they can choose to make coffee every morning. However, even if they could this wouldn’t be a legitimate argument since for many people it will take them the same 15 minutes to go to Starbucks and get coffee. Perhaps you should also add that $240 to the $600 figure?
on 29 Aug 2008 at 10:49 am +00:00T 2.TheShot said …
Most people devalue their own time at a ridiculous level. I know people who have struggled for two hours getting their oil filter off, their oil pan drained, and replacing it all just to save the $10 (once you subtract the cost of replacement parts) versus having their oil changed down the street.
When you spend $4 on a bucket of Starbucks’ pumpkin-pie-flavored Cool Whip, you’re mostly spending money to cover Starbucks’ labor costs. People whine and lament that Starbucks is ripping people off because you can get a cup of coffee for a mere $1 down at the diner — but the diner need only have an untrained monkey take 3 seconds to dump a Bunn warmer coffee pot into a styrofoam cup: there’s no timing for an espresso shot, no preparation of milk frothing, no pumpkin pie and Cool Whip mashing. The big difference is labor, but nobody seems to recognize that. All coffee is just “coffee”, right? Wrong.
You’re fooling yourself if you think your time is free and therefore worthless. Any 15 minutes you spend making your own bucket of pumpkin-pie-flavored Cool Whip is 15 minutes you’re not answering customer service calls working for The Man, 15 minutes you’re not making millions off online stock trades, or 15 minutes you’re not writing that hockey-stick growth business plan for your new start-up. The economics of making coffee at home versus having it out is a primarily question of labor costs, not materials. Analyzing it any other way is a false premise.
For the people who drive special to get coffee, it’s not like they were probably going to play shut-in for the day. Or that their steady home supply of coffee, milk, pumpkin pie flavoring, and Cool Whip comes out of the tap. Of course, where I work, a Peet’s is just down the stairs…
on 29 Aug 2008 at 2:49 pm +00:00T 3.Shawn Person said …
In my wayward youth I was a manager for Starbucks Coffee Co. Over my tenure I sold thousands of dollars worth of at-home brewing and espresso gear. The novelty of at-home coffee and espresso wore off within months (if not weeks) and time after time those customers were back in our line… every morning.
on 30 Aug 2008 at 5:26 am +00:00T 4.Skip said …
At some point you recommended thinking about this in an email to me and it was 100% right. Small World espresso isn’t perfect, but it costs less than $2 and I don’t have to do any cleanup. I can also french press good beans at home in under 10 minutes and without the four-figure investment in a grinder and espresso machine that wouldn’t fit on my counter.
That said, if I had a couple K floating around, I’d probably go for a home setup.
on 09 Sep 2008 at 6:40 pm +00:00T 5.JM said …
Just came up on this website and came up on this post. I’m a coffee lover and really into personal finance.I agree that we need to consider personal enjoyment and convenience as part of the coffee experience and it’s hard to judge that against dollar and cents.
However, from a personal finance point of view, that “small pleasures” costs can add up, especially for those who can rationalize the cost and want things now and are unable to save long-term. Also, who has coffee 3 times a week? It’s more like 3 times a day!
Plus, you should consider that the $600 is money spend after taxes. You’d need to work say $850 unless you could somehow write those off as business expenses.
You should also not consider factoring your working hourly wage when making it at home unless you would have used that time to be working and making money as opportunity costs. Chances are at home, you’d be reading a newspaper or checking your email. Might as well take some personal enjoyment in making your own espresso … perhaps by saving that $400 (more if saved in a tax deductible investment) a person could open their own small cafe when they are financially free to do anything they want.
on 10 Sep 2008 at 12:48 pm +00:00T 6.TheShot said …
Thanks, 5.JM. While I understand your points, I don’t agree with them at all for the same reason I don’t churn my own butter to save a few bucks. “Free time” is a myth.
Not to mention that I don’t buy into the deconstructed, non-integrated, superpositional microeconomic thinking upon which these hypothetical debates rest. If you applied the same principles to weight loss in isolation, they would suggest that we should be a nation of emaciated supermodels instead of tragically obese ever since the public wholly embraced diet soft drinks 20 years ago.
on 08 Jan 2009 at 4:42 am +00:00T 7.Mac said …
Have you ever considered the labor costs (lost) by watching cable TV? Oh, maybe that’s not a good analogy because you need to do something to “unwind”. Perhaps engaging in activities that you enjoy is “priceless”.
on 08 Jan 2009 at 5:26 pm +00:00T 8.TheShot said …
Mac, I understand that some small subset of people will willingly perform certain types of labor for free. But the number of Ben Rogers who will happily paint Tom Sawyer’s fences for free are in the clear minority.
To your example, just how many people really get paid to watch cable TV? Then contrast that number with the over 100,000 employees at Starbucks alone who are paid to be Verismo jockeys.
I just don’t foresee news headlines about cable TV viewers trying to unionize. And it’s not like Starbucks has to turn away a volunteer army that wants to operate their stores.
Though I wouldn’t put it past these personal finance fraudsters, with their bogus financial assumptions, telling us we could put our kids through college just by watching cable TV.
on 16 Jan 2009 at 3:16 pm +00:00T 9.bizwhizCPA said …
TheShot – Sloppy analysis:
-Most people already own a coffee machine. For them, its a sunk cost and should be excluded from the analysis (anyone with biz knowledge would agree). Same for grinder. Although owning a grinder isn’t as common, one can also use the machine at the grocery store.
-15 minutes labor is overstated. I spend less than 5 minutes every morning (start machine, clean thermo, fill with hot water, hit the shower, fill thermo, flip machine off) and use a thermo that lasts all day ($30 investment). Also, I save TIME AND GAS by not going to Starbucks. The cost for time and gas going to the grocery store is a sunk cost (except maybe the 30 second diversion to the coffee aisle). Furthermore, I think you should measure the OPPORTUNITY COST of spending time brewing coffee, not the LABOR COST. Thus, I think your minimum wage is overstates the cost. Regardless, I think its fair to say (even conservative) that the time and gas saved from avoiding the trip to Starbucks = approx. opportunity cost of brewing at home.
-I am not sure why you included flavoring for the coffee (and why you picked the Coolwhip). You picked an expensive flavoring, probably on purpose to support your claim. One could easily buy flavored coffee or flavored cream and save $$$.
In sum, I agree that making coffee at home results in a materially different product, but it clearly saves money. Also, I was buying 3 cups a day ($2+$1+$1 = $4). That’s approx $88 a month or $1,056 per year and doesn’t count the times I bought some kind of breakfast sandwich or bread on the side.
In my mind, someone should crunch the numbers in accordance with their own preferences (flavored, w/ or w/o cream, etc.) and subtract from the approx cost of Starbucks and then ask: is getting Starbucks everyday worth $XXX.XX dollars to me? I did so for myself and quickly realized it was not…
Side note: I sense some serious motivated reasoning going on here…do you have a financial interest in Starbucks or are you just economics-illiterate?
on 16 Jan 2009 at 3:40 pm +00:00T 10.bizwhizCPA said …
Another point:
Not all time is equal. For instance, time during my lunch break is FAR more valuable than time cut out of my sleep (at least for the first 15). One needs to ask, what would I do with the time I spend making coffee? For most, its probably watching the news or sleeping. Quick fix: switch to online news and get the info much quicker (no commercials, faster delivery, and ability to select only relevant news).
Also, I do agree that making coffee at home is not going to save a LOT of money…its not going to make you a millionaire. However, for most Americans during these tough economic times, coffee should be the first thing to go from the budget (along with eating out).
I just crunched the numbers for a client and found that cutting out Starbucks and switching to at-home coffee would allow them to save $100 in interest payments on their car loan AND finish their payments 4 months earlier. Once the loans repaid, they can reduce their insurance coverage and save another $50 a month.
A little goes a long way when it comes to $$$…
on 16 Jan 2009 at 5:24 pm +00:00T 11.TheShot said …
For years now, overly simplistic economic analysis in the absence of human factors has tried to smugly promote itself as financial wisdom. When in fact, it’s these very human factors that lack direct numerical measurement (human laziness and convenience, taste preferences, etc.) that make or break the equation. The fact that no one even mentions these human factors in their analysis constitutes personal finance malpractice, because they are the key difference between a consumer saving and losing money. If people were really just automatons ruled by simple mathematical platitudes, we’d have a supermodel problem instead an obesity one.
Case and point is Starbucks itself. Starbucks sells home espresso machines in their stores. And they’ve been doing it for years. If you take this half-baked economic analysis in isolation to be entirely valid, you have to believe that Starbucks is selling home espresso machines because either:
a) They’re marketing idiots and don’t realize that they lose lifetime customer profits with every sale — pretty much the same profits that a home espresso machine user would expect to keep for themselves.
b) They’ve recognized that enough of the general public will buy their home machines and yet still end up back in line, resulting in higher profit margins overall than if they didn’t sell home espresso machines to begin with.
From what you’re saying, you have to believe (a) to be true. We believe (b). Some people do come out ahead going their own route. But just as in Las Vegas, Starbucks knows that despite the few who might go home with extra cash in their pockets, overall the house wins in the end.
Unlike many of these armchair analysts, we’ve spent years living in the detailed economics of home espresso versus retail. But if you believe we’re somehow fans of giving money to Starbucks, it’s pretty pointless to continue. You clearly don’t know what this Web site is about — and can only muster a blogging drive-by because you’re offended that someone with first-hand experience questions your incomplete math.
on 20 Jan 2009 at 8:15 pm +00:00T 12.bizwhizCPA said …
TheShot –
It’s a long post, but you should enjoy:
You have said nothing about my “incomplete math”, please be specific.
Your point regarding “human factors” is unclear. Are you saying that someone will fail to only drink home brewed coffee because they can’t kick the habit of buying at coffee houses? If so, you are presenting a very different argument than you were previously. In fact, I would agree that COMPLETELY kicking the habit is probably unreasonable (especially given the addictiveness of caffeine). However, even drinking some home brewed coffee will save money.
The two possibilities you give for Starbucks are not collectively exhaustive. For instance, consider the below possibility:
a) Starbucks sells the machines because they know that people willing to buy expensive machines do so for status, and continue buying Starbucks. Or, that customers buy the machines for some reason but do not buy because they plan to stop buying from Starbucks(I find this reasonable).
b) Starbucks sells machines knowing that it will loose SOME profits, but that its better to sell the machines themselves as opposed to letting customers buy the machines elsewhere. This conclusion is consistent with game theory. A good example: notice how online retailers will sometimes allow competitors to advertise or sell on their website. They would rather keep the traffic (or monetize traffic leaving the site) by including competitors than loose the traffic.
c) Starbucks makes MORE money selling the machines because they anticipate users buying Starbucks coffee beans after buying the machine (similar to a razor-blade model). Even loyal customers still make coffee at home. My guess, that’s the reason Starbucks started selling coffee in the first place: they never expected coffee drinkers to buy EVER cup from Starbucks and found a way to monetize at loyal customers’ home brewing.
Furthemore, even if the “house wins in the end”, that doesn’t mean that the consumers can’t make BETTER buying decisions and save money (i.e., make coffee at home). I don’t see how Starbucks winning means the consumer is losing. Bad inference.
Also, yes, it was a drive by blog. No, I don’t know what the site is all about. However, that says nothing about my claim: your objection is a fallacy of irrelevance.
Finally, I think your original post has some merit. Namely, at home coffee is not the same quality as coffee house coffee. Even with the correct equipment, coffee making (especially espresso making) is an art, not a science. But to say that people are better off FINANCIAL by buying at a coffee house is misleading.
SIDE NOTE: My questioning your working for Starbucks was purely rhetorical, much like most of your post. However, I left it for my footnote…
on 20 Jan 2009 at 8:37 pm +00:00T 13.TheShot said …
The “incomplete” part is the human factors: laziness and our avoidance of labor, the personal preferences for the qualities of one form of coffee versus another, etc.
To tell people that they are better of financially by doing it themselves at home is entirely misleading, because every example of this I’ve seen presumes:
To keep it brief and less of a complete bore (my Starbucks espresso machine sales example seems to have just sent this off on a tangent): this is what it boils down to.
And if there’s one thing you should come away with about this site, it’s that we’ve documented reviews of over 2,000 shots of espresso served at over 800 cafés worldwide. And we’ve made at least as many shots at home ourselves — including roasting our own coffee beans for the past 7 years. So, when we point these issues out, we believe we have a bit of actual first-hand experience with this home-vs-out coffee business over the years.
Which is why we are dumbfounded that every single brain-dead “make your own coffee, save millions in cash” mantra posted weekly on this topic presumes human behavior can be effectively modeled by a simple spreadsheet. It’s as if these platitude articles are written by people who really don’t know much of anything about decent coffee.
on 21 Jan 2009 at 8:39 am +00:00T 14.bizwhizCPA said …
Well, I agree (to some extent) with your conclusion (namely, kicking a Starbucks habit is not easy) but its very different from saying “making coffee at home doesn’t save money”. I agree that habits are difficult to change, but this says nothing about what one COULD save by making coffee at home. Same for the quality of coffee.
For the time considerations, I showed you in my analysis that I don’t spend 15 min every morning making coffee. I spend 5 minutes. That’s 1/3 your calculation.
For the value of time, one should either take the opportunity cost of the 5 minutes they spend in the morning OR place a SUBJECTIVE value on their time. Then, they can crunch the #’s and decide (as I said earlier): is saving X amount of dollars worth not getting Starbucks? Also, one can easily calculate how many times they would need to “slip” before breaking even.
Finally, I would like to add that I brew my own coffee at home and roast my own coffee. I also have experience buying coffee: I was drinking 3 triple shots a day for the last few months (last year was my first in a PhD program). Roasting at home does not save money because of shipping and the “water weight” you pay for when buying green coffee beans. Nevertheless, i do it because I enjoy it and find it worth the money, even though I COULD save money doing otherwise.
I enjoyed our discussion. Please share a good website to purchase green coffee beans as you probably have more experience than I do.
on 21 Jan 2009 at 1:01 pm +00:00T 15.TheShot said …
You spend 5 minutes making coffee because apparently you’re not one of the many people who order a double-tall, four-pump vanilla caramel macchiato every day (i.e., people who think they like coffee, but drink anything but — e.g., the $4 bucket of Starbucks’ pumpkin-pie-flavored Cool Whip). That and your standards may be a bit low.
It may take a pro a mere minute to make one of these milkshakes in a cafe, but much of the set-up, warm-up, take-down, clean-up, etc., that happens every day at a café must now happen for one customer: you. Just last week, I had a barista spend 10 minutes tuning his machine and getting his shots right for my single espresso, as I was the first customer of his business day.
As for time, we’re always forced to make choices to do x or y as an opportunity cost. Because what wouldn’t be cheaper if we did it ourselves? Heck, we could be building our own cars from kits if that’s the ultimate criteria here — and most of us own cars. So simply saying “it’s cheaper to do it yourself” offers zero additional useful information. That’s a moot point without the additional context.