Dress code for Diplotamic meetings

Rules:

The suit is only dark blue or dark gray. Black is allowed only at evening events with the black-tie dress code, as well as at funerals and weddings.
The¬†jacket is single-breasted, with two or¬†three buttons. Length ‚ÄĒ up to¬†the¬†middle of¬†the¬†palm of¬†a¬†freely hanging hand. The¬†fabric is solid, dense, without iridescence (chameleon effect), and¬†gloss.
Trousers of a classic cut, with arrows. The length is up to the middle of the heel with one front fold above the shoe.
The shirt is white, plain, opaque (not transparent), and without pockets. Cuffs with one or two buttons are acceptable, but French cuffs are preferable, with medium-sized cufflinks of laconic shapes. The cuff should peek out from under the jacket by 1-1.5 cm.
The tie without glossy gloss, plain, muted colors (dark red, dark blue, dark gray, graphite). Small geometric patterns or contrasting stripes are acceptable. The tie should not be too wide, and its knot should not be too large. The length should reach the middle of the belt.
The belt is only made of smooth matte leather with a classic laconic buckle. The color of the belt matches the color of the shoes.
Shoes ‚ÄĒ oxfords or¬†derbies made of¬†smooth matte black leather. Brown shoes are only allowed in¬†the¬†heat. The¬†sole is thin, the¬†heel is 3-5 cm.
Socks up to the middle of the calf, are selected in the color of shoes or trousers. White or multicolored socks are not allowed.

These are generally accepted rules. But some politicians deviate from the rules and add their own corporate identity: Trump wears a bright red tie and printed socks; Putin most likely has higher heels. Macron sometimes wears a turtleneck under the jacket. Canadian leader Trudo wears socks with ducks and star wars. Some civilizations are also wearing traditional costumes, e. g., the Saudi Arabian prince wears a thawb (or dishdasha).

The¬†suits are meaningful. For¬†example, Marcon wears a¬†turtleneck under the¬†jacket if he expects changes from the¬†politician‚Äôs decision. The¬†clumsy oversized non-ironed costume can mean that person does not¬†care about the¬†public¬†‚Äď Trump is one of¬†them. Obama, at¬†the¬†conference against terrorists, wore a¬†beige suit, that seemed too informal in¬†a¬†context of¬†a¬†speech on¬†such a¬†serious issue. A¬†light suid is only used at¬†weddings and¬†on¬†the¬†beach.

Brands:
Putin wears Brioni and¬†Kiton (4000-8000‚ā¨). Macron wears a¬†local brand, Jonas et Cie, for¬†just 380‚ā¨. Biden wore Ralph Lauren at¬†the¬†inauguration. Hart Schaffner Marx and¬†Hickey Freeman produce suits for¬†presidents for¬†3000-5000‚ā¨. So, the¬†price of¬†the¬†suit may be any: 400‚ā¨, 3000‚ā¨, 8000‚ā¨¬†and¬†higher.

Source: RBC.ru

Crash of Russian housing sector

After the mobilization at the end of October, housing luxury prices dropped 40%. Prices stabilized at the 15% discount compared to August 2022. Why did it happen and what to expect in the future?

Theory

The housing market can’t be shorted. It is an advantage over the stock market. That means you can’t borrow a house, sell a house and buy it back when the price for this house falls. The problem is that all houses are unique, and the lender expects to get back the same house. The person to whom you sold a house will not sell you a house cheaper than you borrowed it.

The lender may give a set of houses that he will accept from a borrower. Usually, such houses are better than borrowed ones. Such practice is not popular due to the complexity and does not affect the housing market the same way as stocks shorted by institutions for trillions of dollars affect the stock market.

Low liquidity of housing. Stocks are sold fast with a low spread between ask and bid prices. This is because all stocks of a company are the same, information is open, and the stock price is affordable. Also, buying stocks requires a low commission, and the contract is created automatically (in reality it is not so easy and you don’t own shares when buying stocks through a broker, but it is a long irrelevant story).

Buying a house is a long process of finding the right prices by analyzing hundreds of parameters, negotiating, and signing documents with help of a realtor and a lawyer.

To sell a house immediately, seller agrees to sell a house for the bid price, and to buy it, the buyer pays the ask price without negotiations. The spread may be huge, moreover, if too many people sell a house, sellers give huge discounts.

What happened when mobilization started

300k people were drafted in one week. After the announcement of the mobilization, people had three days to leave the country not to be drafted. Plane ticket prices raised from an average of 300$ to 5000$. The last tickets were sold for 15000$ in the economy class. (at that time I was also leaving the country, but I am an EU resident and I paid nearly 500$ to get to Austria by carpooling, plane and bus).

People were scared to¬†get back to¬†Russia. Leavers sold everything they had. They sold houses in¬†one day in¬†exchange for¬†foreign cash. Sellers gave a¬†40% discount, which was incredible¬†‚Äď a¬†luxury house for¬†a¬†price of¬†an¬†economy-class house. Tip: in¬†crisis keep cash to¬†make the¬†best deals.

When all leavers left, the housing prices went up, because there is no need to sell the house fast anymore. That is why the prices bounced. Moreover, the demand for housing dropped, because those who needed a house already bought it, or took a mortgage if it was applicable. Some people who wanted to buy housing may be decided to keep the money in foreign currency to be ready to flee. That is one of the reasons, why the US dollar costs 67 rubbles in cash and only 57 rubles on market (because it is not possible to withdraw money from a bank account, except for SWIFT).

Why prices will continue dropping

There are two reasons for that: Mortgage restrictions and uncertainty. Since the start of the mobilization, the banks stopped giving mortgages to males, except for programmers, who have a right to a 2% mortgage by law. Programmers can’t be drafted by the law.

Due to the risk, that a person will be drafted and won’t be able to pay for a mortgage, banks are not ready to provide the mortgage.

Also, the credits and mortgages, that were taken before the militarisation on the 21st of September, will be automatically discarded if a person dies. That means, the family will keep a house without liabilities, and banks will get huge losses. As for now, the government will not support banks with money and will not compensate for losses. Small banks are f*cked (benefit for big banks).

Eventually, mortgage rates will increase, fewer people would like to take mortgages, and the demand for houses will also fall.

Signal to fall now

40% of¬†newly built houses is not¬†sold. It is bad for¬†construction companies¬†‚Äď they should pay off the¬†credits asap, but¬†if there are not¬†enough customers, the¬†manager has 2 variants¬†‚Äď sell now cheap and¬†close the¬†credit or¬†keep a¬†small debt, or¬†wait till the¬†best times and¬†pay a¬†lot for¬†a¬†debt. Sometimes firms wait too long and¬†become bankrupt. The¬†banks notice such a¬†situation and¬†increase the¬†credit rates for¬†companies.

The companies stop building new housing if the credit rates are high and the demand is low. Some companies freeze construction. It helps to meet supply and demand, and stabilize prices. If there is no risk of losing the attractiveness of a neighborhood or a city itself, it is the best time to buy housing. However, in times of events like a war, the risk is uncountable and the price may fall even higher.

Why high mortgage rate is dangerous

If the mortgage rate is high, more people would prefer renting apartments instead of buying a house. That drives rent prices up. The problem is that due to the high inflation, the price of a house also rises.

The price for housing also rises when the mortgage rate is low. Then it is much easier to take 30-year long mortgage and get your own housing instead of paying expensive rent and getting nothing at the end of the rent term. Then more people will buy a house with a mortgage. With higher demand comes higher price. So the price for housing rises.

Freddie Mac, 30-Year Fixed Rate Mortgage Average in the United States [MORTGAGE30US], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MORTGAGE30US, September 13, 2022.

In some countries, government incentivises taking a mortgage. Military servants usually get lower mortgage rates. In UK if a person above 18 buys his first house for less than 500k$, he pays only half of a house price. In Netherlands, government insures mortgages, meaning, if a person is insolvent to pay for a mortgage, government will buy a house from a bank, and return money from mortgage payments to a person. The government will also give a discounted rent for a person (I will check this information, I can be mistaken). Therefore the prices for a condo in Amsterdam tripled (if i don’t mistaken). All of these incentives drive prices for housing up.

Real estate market has a¬†huge problem¬†‚Äď it is hard for¬†prices to¬†fall. Not¬†only because of¬†scarcity of¬†land, higher price for¬†materials and¬†labor costs. There are no¬†market mechanisms to¬†make prices fall. In¬†the¬†stock market, it is possible to¬†short stocks¬†‚Äď sell the¬†stock that you don‚Äôt own, and¬†buy it back when price falls, making the¬†profit in¬†the¬†difference. Short selling works with stocks, because the¬†stocks of¬†one company are identical, their value is always the¬†same.

It is not possible to find 2 exactly the same houses, even Soviet flats have different views, neighbors, and house condition. Therefore, short is not really possible.

To¬†lower the¬†housing price, either the¬†place should loose the¬†attractiveness or¬†the¬†new technologies should make housing cheaper. That what happens in¬†the¬†US market. New housing for¬†the¬†mid-class household became simplier and¬†smaller than before. Remember the¬†housing in¬†Manhattan and¬†Brooklyn of¬†20th century¬†‚Äď the¬†red brick houses with fire stairways on¬†the¬†fa√ßade. Compare their quality and¬†design with new housing: the¬†cheap coloured ventilated panels with studio apartments.

How 9/11 affected housing prices

The example of attractiveness loss was on 9/11. Based on the Federal Reserve Bank of New York, most of the employees who worked nearby moved to other parts of New York City or New Jersey. The rent prices for an office in Manhattan dropped from 52.5$ to 50.75$ per square foot. By November 2001, 57 million square feet near Trade Center were traded on market just for 41.81$ (Pearson, Macroeconomics, page 54). but that happened with offices. What about the households?

More people started to buy one-family houses near New York. The prices went up 10-15% comparing with previous year. Even thought, the average price of one-family house in the US has fallen.

Mortgage crisis

After looking at the graph, we see that there was only one fall of housing in the Mortgage crisis of 2008-2009. The crisis basically happened, because banks gave too much mortgages to people, who had a huge risk to become insolvent.

Thousands of¬†people couldn‚Äôt pay off the¬†debts. Their houses were put for¬†a¬†sale. The¬†supply of¬†houses was so high, that the¬†prices went down. Construction companies stopped building houses, just because there were not¬†too much people who could afford houses and¬†not¬†so much banks would give mortgages. For¬†construction companies it is very bad¬†‚Äď they should sell nearly 70% of¬†housing as¬†fast as¬†possible to¬†pay off the¬†debts. Therefore, a¬†lot of¬†companies became bankrupt and¬†ceased the¬†construction of¬†objects.

Such situation lasts till the supply is covered by demand. Meaning that prices fall to a fair price. When it is happened, the construction continues.

Sep 13   english   Finance   Real Estate

How to afford the best stuff and not to loose money.

I love buying premium products. I buy everything I need and¬†I afford any hobbies I want. But¬†I don‚Äôt become poor after purchasing all of¬†this stuff. And¬†most of¬†the¬†time I only pay 20-30% of¬†the¬†item‚Äôs price. How can I afford to¬†buy an¬†iPhone for¬†300‚ā¨? How do I get money after buying an¬†expensive camera? Let‚Äôs learn about depreciation.

When you buy stuff, look at 3 things: a lifetime of a product, It is hard to break, for how much will I be able to sell this stuff in the future?

Buy 1-year-old stuff

I don‚Äôt buy new iPhones, Macbooks, cameras, or¬†bikes (i hope soon I will add cars here). Instead, I buy 1-year-old items. For¬†example, I bought iPhone 11 pro 256 GB just for¬†600‚ā¨, while the¬†12th was priced at¬†1200‚ā¨. This iPhone was in¬†perfect condition and¬†was just 6 months old. I keep it already for¬†2 years and¬†I can sell it for¬†450‚ā¨¬†(Sep 2022). However, I broke Face-Id while swimming and¬†now I have to¬†give a¬†discount and¬†sell it for¬†300‚ā¨. The¬†total cost of¬†an¬†iPhone usage was 300‚ā¨, or¬†150‚ā¨¬†per¬†year or¬†12.5‚ā¨¬†per¬†month.

Some people sell their 1-year-old phones to¬†buy new ones. They sell it for¬†50%-70% of¬†the¬†price. That means, that to¬†have a¬†new iPhone each year, a¬†person should pay a¬†difference of¬†600‚ā¨¬†between the¬†initial price and¬†selling price, or¬†50‚ā¨¬†per¬†month. But¬†if you wanna have the¬†previous model and¬†keep it for¬†2 years, the¬†monthly payment is just 12.5‚ā¨. It is 4 times cheaper to¬†have the¬†previous model. If you keep the¬†old model for¬†a¬†longer time, maybe you can even pay 10‚ā¨¬†per¬†month. To¬†clarify, it does not¬†mean that you pay someone¬†‚ā¨¬†each month, it just shows how much value the¬†phone loses every month.

Depreciation is the¬†value, that an¬†item loses each month or¬†year. It is also treated as¬†the¬†real cost of¬†usage of¬†a¬†good. In¬†theory, you should take the¬†price of¬†a¬†good when you bought it and¬†the¬†selling price after the¬†expected time of¬†usage. Then you subtract these prices and¬†divide them by¬†the¬†number of¬†years or¬†months that you plan to¬†use that stuff. For¬†an¬†iPhone 14, it will be (1200-600)/3 = 200‚ā¨¬†per¬†year if we assume that we use a¬†1200‚ā¨¬†iPhone for¬†3 years and¬†sell it for¬†600‚ā¨.

Depreciation can be counted linearly, or more complicated. For easiness, assume that in the first year the item loses the same cost as in the next 2 years combined.

Used items are Inflation-free. That means if the¬†price for¬†new models goes up, the¬†used items will cost the¬†same as¬†before. It is just a¬†rule. For¬†example, in¬†Russia, there is huge inflation in¬†cars. The¬†previous models of¬†a¬†car cost 100k‚ā¨ 1 year ago, the¬†new model cost 300k‚ā¨ due to¬†the¬†import restrictions. We could imagine, that if these cars still have the¬†same engine and¬†interior, the¬†price for¬†the¬†one-year-old car should also rise dramatically. However, it is not¬†the¬†case. For¬†example, the¬†used Audi Q7 of¬†2020 with 50k km costs 70k‚ā¨, while the¬†new one of¬†2022 costs 250k‚ā¨. The¬†only difference between them is the¬†small adjustment in¬†the¬†exterior and¬†interior.

Different countries have different prices. For¬†example, I bought a¬†used camera, Sony a7 II for¬†just 570‚ā¨. When I came to¬†Russia, it appeared that I can sell it for¬†1.2k‚ā¨. So, I can sell it here and¬†get a¬†600‚ā¨¬†profit. It is known as¬†Arbitrage. It is when you profit from the¬†difference in¬†prices without risk.

Buy high quality

Don’t buy low quality. Such items are easy to break, and their lifetime is short. You will not be able to sell it, so you just throw it in the rubbish bin after some time. Keep in mind that cheap low quality items are sometimes made with the child force and in poor worker conditions. And by buying and throwing the bad quality items in the rubbish bin, you are polluting nature.

High-quality items last long, show prestige and are beautiful and comfortable.

Also buy new

Not¬†every item can be bought or¬†used. Don‚Äôt buy used headphones, parachutes, or¬†stuff you know nothing about. For¬†example, I want to¬†buy a¬†bike for¬†2.8k‚ā¨. It is expensive. I could probably find the¬†one-year-old bike, but¬†I don‚Äôt know how to¬†check the¬†bike for¬†quality, or¬†I don‚Äôt want to¬†change the¬†details. In¬†such situations, I can either hire a¬†professional or¬†ask a¬†friend for¬†help. Or¬†just buy a¬†new one. The¬†bike, for¬†example, has a¬†lifetime of¬†7 years on¬†average, and¬†then the¬†depreciation will be 2800/7 = 400‚ā¨. Of¬†course, a¬†bike can be sold even for¬†1000‚ā¨¬†in¬†7 years, because we can change details and¬†make repairments each year, but¬†let‚Äôs assume that we do nothing. So, the¬†cost of¬†a¬†bike will be 33‚ā¨¬†per¬†month. It is not¬†too much for¬†high quality.

What about fashion

Fashion is complicated. The¬†fashion houses know that people want to¬†be trendy, and¬†the¬†style changes each half a¬†year. I don‚Äôt know if it is a¬†good idea to¬†buy used clothes, but¬†it is a¬†good idea to¬†buy expensive classical outfits. For¬†men it is easy¬†‚Äď just buy suits for¬†2k‚ā¨ each and¬†use them for¬†a¬†decade. Buy good shirts, t-shirts, and¬†8 pairs of¬†shoes for¬†different events. The¬†men‚Äôs classics change too slowly. There are also trendy casual outfits that should be changed more often.

For¬†women, it does not¬†work. Fashion for¬†women is much more important. It is a¬†way to¬†show her status and¬†prove to¬†herself that she is the¬†most beautiful. However, some brands like Burberry don‚Äôt change their fashion style too often. Gucci can also be worn for¬†a¬†quite long time. I recommend not¬†buying the¬†brand stuff, but¬†quality stuff. Don‚Äôt be a¬†crank and¬†don‚Äôt buy an¬†item with huge brand logos. Instead, buy something attractive. You will never find a¬†brand on¬†a¬†5k‚ā¨ dress and¬†suit.

When buying new clothes, remember how can you combine them with other clothes or¬†whether you already have enough outfits for¬†some occasions. Maybe you just need to¬†buy high-quality t-shirts instead of¬†20 t-shirts with cheap prints. I have an¬†excel file, where I put all the¬†wardrobe items in¬†my Austrian house. It appeared that I have items, that costs 6000‚ā¨¬†in¬†total. But¬†I have only a¬†few things that cost more than 100‚ā¨. I understood that I have too many cheap clothes up to¬†25‚ā¨. And¬†the¬†thing is that I wear such clothes for¬†1 or¬†2 years. The¬†expensive items, however, I wear for¬†a¬†much longer time. I also found out that I have 5 suits, and¬†4 of¬†them cost less than 200‚ā¨¬†each.

I hope, after reading this article, you will buy quality stuff for lower prices and will afford anything you want.

Dow Jones

Dow Jones Industrial Average (DJIA) is the most important index of American companies. DJIA index includes 30 companies, chosen by Wall Street Journal editors. These 30 companies are large and the most influential companies. The index includes Apple, Boeing IBM, McDonald’s, Disney, and Walmart.

History

In 1896 Charles H. Dow created the Dow Jones index. He included 12 industrial corporations. General Electric was one of these 12 companies and the only company that remained in the Dow Jones Index for 120 years and was removed in 2018 due to the 55% annual loss. In 1929 the list included 30 companies, such as U.S. Steel, General Motors Corporation, Wright Aeronautical, and Standard Oil.

Charles H. Dow published his index in¬†‚ÄúCustomers‚Äô Afternoon Letter‚ÄĚ, now known as¬†the¬†Wall Street Journal.
All of¬†the¬†companies are treated as¬†blue chips (the¬†most expensive chip in¬†poker)¬†‚Äď the¬†most trustworthy, influential, and¬†expensive companies, that are traded on¬†the¬†New York Stock Exchange.

Today, Dow Jones Industrial Average includes not¬†only industrial but¬†any sector¬†‚Äď Salesforce, Apple, Microsoft, Visa, Mcdonald‚Äôs, Goldman Sachs and¬†United Health are all parts of¬†the¬†DJIA. In¬†the¬†previous 10 years, 10 companies replaced the¬†old corporations.

How is Dow Jones index counted

Dow Jones index is harder than the S&P 500, where the market cap of the companies is summed up. DJIA takes the share price of each company, sums
them up, and divides the sum by the Dow Divisor. Initially, the Dow Divisor was equal to the number of companies in an index, but then the problem happened: some companies decided to split shares. The companies split because the price of one share is too high, so that investors can’t afford such shares anymore. The Dow Jones adjusts to such situations to keep the index on the same level after such an operation.

Some people think that points in Dow Jones are equal to the dollar. It is not right. Each point is a dollar divided by the Dow Divisor. Let’s see how we count the points.

As of February 2021, the Dow Divisor was equal to 0.152. Basically, 1 dollar equals 1/0.152 = 6.5 points.

Let’s sum up the share prices of each company, we get 4001$. After dividing it by 0.152 we get 26322 points. This is the Dow Jones Index.

You may ask: why the heck do we need that index if it is so complicated with points? Because it shows well the situation in the country as well as in the stock market. It shows well the times of recession, stagnation, and growth.

How to buy

Dow Jones is just an index, but you can buy exchange-traded funds (ETFs), that copy the Dow Jones Index portfolio.

Learn more about other indexes: S&P 500, Russel 2000, Nasdaq 100, and Wilshire 5000.
Source: Investopedia and¬†‚ÄúStock market 101‚ÄĚ written by¬†Michele Cagan.

Sep 13   english   Investment

Business plan: why espresso is so expensive

(the prices are being updated as well as information till 15th September) Let’s say, we open a coffee shop on the street, where we sell only espresso. How much should the price be? And what difficulties will we face when opening?

One-time purchase

  • Coffee machine¬†‚Äď 15000‚ā¨
  • furniture¬†‚Äď 5000‚ā¨
  • tools and¬†accessories¬†‚Äď 500‚ā¨
  • brand development¬†‚Äď 1000‚ā¨
  • card terminal¬†‚Äď 50‚ā¨
  • certificate and¬†legal procedures

Monthly purchase

  • Rent¬†‚Äď 1000‚ā¨
  • Electricity¬†‚Äď 1000‚ā¨
  • Employees¬†‚Äď 5700‚ā¨
  • cleaning, accountant, lawyer, insurance¬†‚Äď 500‚ā¨

Per-cup purchase

  • disposable cup¬†‚Äď 0.1‚ā¨
  • coffee beans¬†‚Äď 0.4‚ā¨
  • card commission¬†‚Äď 2%

Certification

To sell Coffee, you need approval from the state. In Vienna, it is WKO (Wirtschaftskammer Organisation, or economic chamber in English). By the way, you don’t need it if you sell beverages in cans or bottles and if you sell simple food, like sandwiches, but you can only have max of 8 guests inside of a cafe. Not our case.

Rent

We rent a¬†coffee shop on¬†the¬†ground floor of¬†the¬†shopping street. Let‚Äôs say we pay 1000‚ā¨¬†for¬†20 m2 and¬†expect to¬†have 15 customers per¬†hour on¬†average. You may also find an¬†already equipped coffee shop and¬†just pay an¬†aufl√∂sung (price for¬†the¬†furniture and¬†equipment).

If only one employee works in a coffee shop, you don’t need a toilet by the law. Baristas can work at different time and then they will be treated as one employee in WC questions.

The place should have clean water, a sink, air conditioning, heating, and low humidity. If humidity is high, the beans can become bad. If there will not be air conditioning or heating, the employee will not be able to work in a coffee shop by the law. For example, in the UK when the temperature is less than 16 degrees celsius the employee is not allowed to work. In Austria, I found only the maximal allowed temperature of 32.5 degrees. And we will have to pay the employee even though that the shop is closed.

We also need to take insurance that covers all the things inside, especially the coffee machine.

Electricity

Based on¬†https://www.statista.com/statistics/1271527/austria-monthly-wholesale-electricity-price/Statista, the¬†price for¬†1 Megawatt was 359$ on¬†July 2022, while before it was just 30-50‚ā¨. The¬†high prices for¬†electricity are compensated by¬†lower rent prices as¬†well as¬†governmental help.

Coffee machine

The¬†coffee machine is the¬†most expensive stuff inside of¬†a¬†coffee shop and¬†is as¬†important as¬†beans. There are two main brands¬†‚Äď La Cimbali, La Marzocco. both of¬†them cost from 10000‚ā¨¬†to¬†15000‚ā¨. La Marzocco is more traditional, while La Cimbali tries to¬†implement new technologies in¬†the¬†coffee machine. La Marzocco attracts coffee lovers, and¬†they are ready to¬†pay a¬†premium for¬†coffee made in¬†this machine.

read about the difference between La Marzocco and La Cimbali

Why is it so expensive? This is due to¬†the¬†pressing mechanism. By¬†the¬†way, Espresso got the¬†name from ‚Äúpress‚ÄĚ, the¬†process of¬†pressing the¬†ground coffee and¬†water flowing through it. The¬†pressure a¬†coffee machine can do and¬†the¬†boiling process is the¬†most important in¬†coffee brewing. The¬†machines are made out of¬†thick metal, which makes cleaning easy. These machines last for¬†decades (in¬†the¬†museum of¬†Salzburg I have seen the¬†model of¬†the¬†1950th that can still work well).

Therefore, the¬†price of¬†the¬†used coffee machine is still high. For¬†example, a¬†woman sells La Marzocco Ep for¬†5900‚ā¨, that she bought in¬†2017 while the¬†new costs¬†‚ā¨11900. Ps., this model is not¬†produced anymore, and¬†I found only one seller. For¬†such a¬†price, you may buy better models of¬†La Marzocco.

To¬†count the¬†price of¬†usage of¬†a¬†coffee machine or¬†depreciation, we subtract the¬†selling price from buying price, for¬†example, 15000‚ā¨-10000‚ā¨= 5000‚ā¨, and¬†divide the¬†years that we use the¬†machine. Let‚Äôs say, 5 years. 5000‚ā¨/5 years = 1000‚ā¨, or¬†83‚ā¨¬†per¬†month.

additional coffee machines

Some people like Moka, the 50$ pot with 2 separate levels: water and ground coffee on the lower level. The pot is boiling on the stove. The brown liquid goes to the higher level, which is Moka coffee. When the higher level of a pot is full, the coffee is ready to be served in cups. I, personally, don’t like such a coffee due to the lack of foam and too huge amount of water per gram of coffee. Italians love it and drink it every breakfast instead of tea.

Coffee beans

  • Price of¬†arabica¬†‚Äď 40‚ā¨¬†per¬†kilo
  • 10g for¬†each portion, or¬†0.40‚ā¨

For coffee shops, we use the finest coffee beans. Usually, they are not sold to households, but to coffee shops.
For each espresso, we need 10 grams of ground coffee.

Coffee beans can be kept 4 months after roasting, later they lose their taste.

Tip: Portuguese love espresso that is made of¬†ground coffee that is left after making the¬†first espresso. They think that there is less caffeine inside this coffee. They ask to¬†pour the¬†coffee into the¬†second cup. For¬†the¬†barista, it costs just a¬†second cup (0.10‚ā¨) and¬†hot water. The¬†used ground coffee will be anyways in¬†the¬†bin. You may either set a¬†small price for¬†such coffee or¬†even give it for¬†free to¬†get loyal customers.

We don’t count sugar and cinnamon, they cost just a cent per cup.

Cups

We don‚Äôt have sitting places. We could use the¬†bar table as¬†in¬†Italy, but¬†we have only disposable (1-time use) cups for¬†simplicity. The¬†average price of¬†bio cups is 10 cents. If you want to¬†have your cups, use 10 cents as¬†the¬†price for¬†cleaning, and¬†use of¬†a¬†cup, which includes the¬†price of¬†buying the¬†cup (e.¬†g., porcelain espresso cup for¬†9‚ā¨¬†each), the¬†risk of¬†breaking and¬†stealing.

We expect 1 customer every 4 minutes (15 cups per hour). We are open daily from 8 am to 9 pm (13 hours per day). 13 hours * 30 calendar days = 390 hours, or 5850 cups per month.

Employees

Baristas are paid hourly. They come 30 min before opening and¬†leave 30 min after closing. They clean stuff and¬†count the¬†inventory. It is 15 hours per¬†day. A¬†person can‚Äôt work more than 8.5 hours a¬†day in¬†Austria and¬†must not¬†work more than 40 hours per¬†week (I‚Äôll check this information). We need 4 baristas¬†‚Äď 2 for¬†work days and¬†2 for¬†weekends.

Tip: the less a person earns, the less % of taxes are to be paid in Austria. This is due to the progressive taxes.

First, we pay for¬†social contributions, which is nearly 18%. If a¬†person earns 18000‚ā¨¬†of¬†earnings, then an¬†employer pays 3500 of¬†social contributions, you pay 21866$ gross. We pay taxes from income¬†‚Äď contributions, 18000-3500 = 14500. Then we deduct 11000 of¬†non-taxable amount 14500-11000 = 3500 and¬†take 20% of¬†taxes which is 700‚ā¨. But¬†taxes are deducted from the¬†income of¬†a¬†person, not¬†from your payments. The¬†real income of¬†a¬†person will be nearly 17300‚ā¨.

In¬†our example, we pay for¬†7-hour work for¬†each worker. All of¬†them work for¬†the¬†salary for¬†barista, which is 12‚ā¨¬†per¬†hour. It totals 7*12 = 84‚ā¨¬†per¬†day or¬†1680‚ā¨¬†per¬†month for¬†work-day baristas and¬†672‚ā¨¬†for¬†weekend baristas.

We pay 2040‚ā¨¬†and¬†816‚ā¨¬†to¬†baristas. In¬†total, it is 2040*2 + 816*2 = 5712‚ā¨¬†per¬†month.

Count

Fixed costs per¬†month: Rent (2000‚ā¨) + cost of¬†use of¬†the¬†Coffee machine (83‚ā¨) + Salaries (5712‚ā¨) + other costs (600‚ā¨) = 8400‚ā¨¬†approximately per¬†month

For simplicity, we count furniture in rent, tools, accessories, and payment terminals in other costs

Variable costs per¬†cup = beans (0.4‚ā¨) + cups (0.1‚ā¨) + terminal use.

We also need to¬†pay VAT if we earn more than 30000‚ā¨¬†in¬†profit. The¬†VAT is the¬†tax per¬†selling of¬†an¬†item, which totals 20% of¬†the¬†final price. But¬†we don‚Äôt pay so much. We deduct 20% from the¬†goods that we have bought¬†‚Äď 20% from beans and¬†cups, or¬†10 cents. In¬†the¬†EU the¬†majority of¬†the¬†goods produced and¬†sold over EU are tax-deductible, even the¬†coffee machine is tax-deductible, it is 16.6‚ā¨¬†per¬†month. The¬†same with the¬†rent, however, if you buy a¬†place, it is an¬†investment, that is not¬†tax deductible.

To¬†get the¬†break-even, 5850cups*(price*(1-terminal commission(2%))-variable cost(0.5‚ā¨))¬†‚Äď fixed costs(8400‚ā¨) = 0. To¬†find the¬†price I created an¬†online program:

I found that with the¬†price of¬†2‚ā¨¬†we are break even and¬†even make revenue of¬†141$.
We pay pay taxes from profit, 23.1%. Our profit is 108‚ā¨.

open a program. Change the number and find the best prices and amount of cups to be sold

As¬†you have seen, the¬†coffee shop cannot sell espresso for¬†less than 2‚ā¨. The¬†next time you go to¬†the¬†coffee shop keep it in¬†mind.

Earlier Ctrl + ↓