Coffee shops are often more cost-effective than other businesses models, with higher margins. Small coffee shop owners earn an average of $60-$160,000. The coffee industry is responsible for about 70 billion dollars in annual sales.
Coffee shop owners can maximize their sales and profits by offering high-margin drinks and expanding their offerings.
To calculate profitability and set menu prices, tracking milk prices and coffee costs is a must. By offering craft beers, wines and cocktails, coffee shops and cafés can take a first approach to help them make their business more lucrative.
How much does it cost to open a coffee shop?
You’ll need special equipment for your coffee shop, whether it is a small grab and go counter or cozy cafe. This guide will help you budget for your cafe’s initial costs such as labor, freshly roasted coffee beans and food.
Startup – $500,000 – $1,500,000
Equipment – $80,000 to $300,000
Permits/licenses – $500-$3,000
Marketing – $300 to $3,000
Contingency Funds – $20,000 – $700,000
Do Coffee Shops Make Money?
The first year is crucial – but also costly. The first year of business is crucial – and costly.
Your coffee shop will run smoothly during the first few months until you start making money. Liquid assets, such as savings, loans and credit lines, can be used to pay for unexpected expenses and workers. Murphy’s Law can affect even the most successful businesses.
Average coffee shop costs
Your monthly revenue will be 75-85% of the monthly costs of running your coffee shop. In the first few years of your business, you may have to invest to compensate for lost labor costs, food expenses, or marketing. Even if you have the best cold-brew in town, a solid financial plan will ensure your shop’s success.
- Operating Costs – $13,000 to $65,000
- Insurance – $500 – $8,000/month
- Utilities – $1,000 to $1200 per month
- Marketing – $500 – $5,000 (3 – 6% of sales).
- Food Costs – $5,000 to $25,000 (30-35% of sales).
- Work $2,500 – $25,000 (24-40% sales)
How to Forecast Your Coffee Shop Sales
It’s hard to predict how your restaurant is going to grow in the first 12 months without sales data. Key performance indicators (KPIs), such as seasonal peaks or the launch a new marketing strategy, can help predict growth.
Calculate your daily capacity. How many customers can your coffee shop accommodate and serve in a shift? You can then calculate the amount of money your coffee shop could make based on how much it will earn on food and coffee costs.
It’s unlikely that you will be working full-time every day – or even the majority of your shifts in your first year. You can calculate the average of each shift if you have the sales data for a whole month or even a full week.
Coffee Shop Average Revenue
Nationally, the average revenue for coffee shops is 75%-80%. This is higher than many restaurant business models. Your coffee shop’s revenue depends on a variety of factors, including its location, the menu, and labor costs.
Coffee Shop Profit per Month
The average profit margin for a restaurant is between 3% and 5 percent, but there are places that make as little 0% as well as others who earn as much as 15 percent. Use the equation below to calculate your coffee shop’s profit margin:
Profit = monthly sales x margin of profit
If you sell $16,000/month on average and your profit margin is 4% then the profit would be $640.
Salary of a Coffee Shop Owner
The owners of small and medium-sized coffee shops earn anywhere between $60,000.-$160,000. The owner’s pay is usually between 2% to 6% of sales. If you work hard in a small business, your salary could be higher than the average. You can pay yourself more if you’re the roaster, bagger and accountant.
The average salary of a business owner is usually less than half the total profit. You are the one who has to decide how much you want to pay yourself, while also investing the profits in the growth of your business. It can be a difficult first year, but marketing and technology will help you to improve your sales.
Breaking Even Timeline
Depending on the cost of food and other KPIs, most coffee shops are profitable in their first few years. By year five, coffee shops can expect to see their sales double.
Budget carefully for contingency, startup, and your first year in business. You can now estimate the time it will take your business to break-even and predict your first profitable month.
Here is an example of a timeline for a coffeeshop to break even:
Authenticity Coffee, a neighborhood coffee shop in Cleveland, Ohio, is a small business. Their Business Plan reflects this. They start with $300,000 lines of credit and $300,000.00 in owner investments.
| Categories | Cost |
| Coffee Shop Equipment | $175,000 |
| Permits and Licenses | $1,800 |
| Contingency Funds | $423,200 |
In the first year, the coffee shop is able to maintain a steady flow of customers from its neighborhood. In a large city, the labor costs for operating a coffee shop are higher than other restaurant models.
| Categories | Cost/month |
| Restaurant Rental/Mortgage | $6,000 |
| Insurance | $3,000 |
| Utilities | $2,000 |
| Food Costs | $7,000 |
| Labor | $14,000 |
| Marketers | $1,500 |
| Loan repayment | $5,300 |
| Total: | $38,800 |
Authenticity Coffee’s annual operating costs are $537,600.
The shop is open from 6:30am to 2pm, Monday through Saturday. On their best days, they can serve 600 customers and make an average profit of $2.50 per cup of drip-brewed coffee, which is their best seller. 95 of those 600 customers order espresso beverages, which generate a profit of $3.00. Authenticity purchases baked goods at a local artisanal commission, which adds an average of $1.25 per transaction. At full capacity, Authenticity Coffee can sell $1,782.5/shift, which is $10,695 per week, $42,780 per month and $513360 annually.
| Categories | Earnings |
| Monthly Sales | $42,780 |
| Operating Expenses | $38,800 |
| Profit | $3,980 |
| Profit margin at 100% capacity | 9.3% |
Authenticity Coffee will not operate at full capacity all year round. Authenticity Coffee operates at between 35% to 60% capacity for the first year due to a good location, and a marketing campaign for its grand opening. The sales then plateaued and began to slowly increase at the end the third year. The restaurant is profitable with an average of 90% of sales. This is what the shop will achieve by the beginning of the fourth year.
| Quarter | Performance (average) | Earnings |
| Q1 | 37% | $47,485 |
| Q2 | 42% | $53,902 |
| Q3 | 52% | $66,736 |
| Q4 | 60% | $77,004 |
| Q5 | 55% | $70,587 |
| Q6 | 57% | $73,153 |
| Q7 | 62% | $79,570 |
| Q8 | 77% | $98,821 |
| Q9 | 83% | $108,522 |
| Q10 | 90% | $112,806 |
| Q11 | 87% | $111,655 |
| Q12 | 91% | $116,789 |
How to improve your coffee shop’s sales
Coffee shop owners can improve their sales and profitability by taking concrete steps.
Your menu is your most valuable asset. Budgeting for success can be achieved by carefully calculating your food and drink costs. To increase your sales, train your employees to sell your most profitable items. You could even design your menu in a way that highlights some of these items to guests.
Marketing is another way to increase sales. In today’s digital age, having a site and social media pages are almost essential. Don’t be stubborn when it comes to marketing costs. A digital marketing strategy that works is the best way to increase your customer base.
Choose the Right Technology
The technology can provide your coffee shop all the tools needed to maximize its efficiency and profitability. Use financial, inventory and time-tracking software to set your business up for success. The right technology will keep your business on track and organized when you are ready to expand.
Success One Cup at a time
You may think that running a coffeeshop is a risky business, but your passion, enthusiasm, and business knowledge will pay off. Do not slack off on the numbers. This step is crucial to your success.
Now is the best time to open your dream coffee shop. The latest How to Start a Coffee Shop Article from On the Line has all the advice you need to start the best coffee shop in town.