It is no secret that starting any business from scratch isn’t easy. If you dream of owning a coffee shop, however, with hard work, solid experience, analytical skills, and a well-designed business plan, you can succeed.
Understanding the economics of owning a coffee shop is a vital step in making your dream a reality. Most importantly, you need to take into account the initial, fixed, and variable costs as well as the ergonomics of the business.
Before you get discouraged at seeing the big numbers below, don’t forget that startup capital is available for small business entrepreneurs with a plan.
- Starting a coffee shop typically begins with the completion of a business plan.
- Licenses and permits are required to form and operate a business.
- Operating from an ideal location is critical for attracting customers and securing a solid workforce.
- Costs for starting a sit-down coffee shop can cost up to $275,000.
- In addition to startup costs, new coffee shop owners should consider fixed and variable costs to operate their business.
Licenses and Permits
The time has come for you to turn your dream into a reality; you’re starting a coffee shop. However, before you brew, you should begin with a plan. A business plan outlines the goals, objectives, and strategies for operating and growing your business.
The type of business plan used depends on the purpose of the plan. For startups and businesses seeking traditional financing, a comprehensive traditional business plan is preferred. Businesses that primarily want to quickly communicate startup plans favor the lean startup business plan.
To legally operate your coffee shop, you will need licenses and permits from governing authorities. Business licenses and permits establish your business as a legal entity and allow you to offer goods and services to customers and operate within specific jurisdictions.
When applying for a business license, your business name will be validated for use—a step likely executed by you during the planning phase. You will also select the type of entity (e.g., sole proprietorship, limited liability corporation (LLC), corporation, etc.) your business will operate as.
You’ve conquered planning and organizing your business, and now its time to source your products. Your products should match the tastes of your target audience and should come from a reliable source. The coffee, additives, and other related products should be of good quality and competitively priced.
The supplier should have a good reputation and a history of quality service, be consistent with deliveries, and respond quickly to inventory needs. Before selecting, conduct a comparative analysis of several suppliers to find the most accommodating ones. Ask for references and research reviews to verify their standing.
Location, Location, Location
A key real estate principle critical to the success of a business is “location is key”. Where you operate is just as important as how you operate. Therefore, your company should be within reach of your target audience. In addition to attracting customers, you also want to attract and retain good employees.
An important factor to consider is costs. The costs to start are largely dependent on where the business is located. Choosing a popular, trendy spot may be attractive, but it may also be cost-prohibitive. If expenses are too high, it may be difficult to pass on savings to customers and generate profits.
Other important considerations are the proximity to competitors and whether the location allows for your company to grow. For example, will competitors squeeze you out of the industry, or will you create a new experience unrivaled by competitors? Also, will the location allow your company to grow?
Initial costs will vary significantly depending on the coffee shop’s location, size, and equipment needs. Here are some rough estimates:
- A sit-down coffee shop typically costs between $80,000 and $275,000 to set up.
- A large drive-through shop can cost between $80,000 and $200,000.
- A small kiosk may cost between $60,000 and $100,000.
- A franchised sit-down coffee shop can cost up to $650,000.
- A licensed brand-name store may cost $315,000 to open.
That last number is the estimated cost to open a licensed Starbucks store. Starbucks does not sell franchises to individuals. Instead, it sells licenses to use its products and branding in a store setting.
Understanding the initial costs is the first step in deciding if you can start up a new coffee shop.
Business licensing and permit fees are usually the first costs incurred to establish a coffee shop. Costs range from the hundreds to the thousands, depending on where the business is located and the type of entity is it categorized as.
Other significant outlays of cash will be for equipment like espresso machines, which can cost up to $23,000 each. Many coffee shops roast their beans, requiring coffee roasting machines. Industrial coffee roasters can cost upwards of $15,000.
Then, depending on what kind of shop you’re opening, you’ll need to head to a restaurant supply store for tables and chairs, a serving counter and a bakery case, and all of the miscellaneous things that go into a fully-outfitted coffee shop.
Fixed costs make up the bulk of the monthly expenses of any for-profit company. These include rent, which should not exceed 15% of sales, and staff costs, including salaries, payroll taxes, and benefits.
Note that fixed costs stay constant from month to month, and the retailer must pay them irrespective of the sales for the month.
That said, you need to cover your bottom line each month to pay these expenses.
Variable costs are proportionate to the products or services a business produces. In this case, costs depend on how many cups of coffee and how much milk and sugar are used, so they can be hard to predict from month to month.
Marketing costs range between 3% and 6% of sales.
As the owner, you want to increase revenue as much as possible to cover fixed and variable costs. That means promoting multiple sales, preferably of higher profit margin goods.
Fancy coffee drinks are more profitable than plain coffee. Bagged coffee beans are a natural extension of the business. High-quality baked goods and other snacks can bring in more customers more frequently.
Efficiency and productivity are vital in running any successful business, especially coffee shops, which need to sell large quantities of low-priced items to cover their costs.
Ergonomics can make or break your coffee shop. Managers need to ensure that the layout of the workstation allows baristas to work efficiently and get people in and out the door quickly.
The workstation should be designed perfectly with easy access to the fridge, cups, coffee grinder, accessories, storage supplies, and sink.
Understanding ergonomics can greatly increase your revenue by making your workers and workspace more productive.
Where Do You Find Investors For the Opening of a Cafe?
Friend and family are the primary source of funds for startups and may provide the quickest access to funds. In addition, angel investors and venture capitalists are other types of investors available to fund startup cafes.
What Problems Are There With Neighbors When Opening a Cafe?
Neighboring businesses and residents may find the opening of a cafe undesirable due to increased traffic and noise. Also, the influx of customers may compromise other businesses’ parking or obstruct business access.
How Do You Plan a Restaurant Grand Opening?
Restaurant grand openings require significant planning and funds. Staff must be adequately trained to greet, serve, and accommodate customers. Before the grand opening, conduct a dress rehearsal with staff, and hold a soft opening with select guests who can spread the word and give valuable feedback to benefit the grand opening. For the grand opening, make sure you present a menu that features all offerings. Also, have sufficient coffee products and supplies to meet demand. Partner with other businesses to promote the opening, and provide incentives, such as giveaways and exclusive offers.
How Much Does Opening a Cat Cafe Cost?
The average cost to open a cat cafe is between $50,000 and $300,000, with the bulk going to overhead costs.
The Bottom Line
Starting a coffee shop can be the realization of a lifelong dream. But before you fire up the roaster, consider what it takes to begin. A successful business often begins with proper planning. Outline your goals, objectives, and strategies for successfully operating your business.
Also, starting a coffee shop can be an expensive venture; so, consider and budget for the costs. Despite expenses, running your own coffee shop can be rewarding and lucrative.