Thursday, 11 October 2012

Gullibility and the R1 cappuccino

I heard a radio program the other day about things you know about your job that no-one else knows.  One caller stated that he knew that the cappuccino you pay between R12 and R16 for only costs R1 to make, and everyone was horrified about the profit margins and accepted the claim at face value.  He is in the industry, so he should know, right?

This is where critical thinking, as opposed to gullibility comes in.  Let's assume a standard cappuccino.  That consists of 250ml milk (give or take), 1 teaspoon sugar (4 grams), and about 7 grams of ground coffee beans.  The exact amounts can vary, but let's assume that is accurate for a first estimate.  That results in costs of R2 for the milk, almost nothing for the sugar, and about R0.80 for the coffee.  The paper cup and plastic lid are not free either - call it another R0.20 at least.  We are up to R3 for a cup already, and even if we made a mistake with some of the prices, we are never going to reduce that to below R1.

Of course you need to pay the barrista, pay for the machine (lease/buy, cleaning, repairs, various consumables) and rent the location to sell the coffee from.

While I do not deny that large profit margins can be made from selling cappuccinos, they are most definitely not on the order of 1000%, but probably between 100% and 200%.

What this exercise illustrates though is how few people are able to apply a bit of critical thinking and some quick mental arithmetic to blanket statements made by "experts".  No wonder people keep falling for pyramid schemes and offers that are too good to be true.

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