Did you know that 150 million Americans drink coffee daily? If you did, you probably understand how profitable the coffee industry can be. More so, the ready-to-drink-market (which includes coffee shops) is forecast to grow by 67% by 2022. And the global coffee shop market is presumed to be worth $237.6 billion by 2025.
Thus, if you are looking for a way to combine your love for coffee with a lucrative business opportunity, opening a coffee shop is a great idea. Nonetheless, there are certain things you should consider before taking the plunge!
Here are four things you must know before starting a coffee shop business:
1. You must have a business plan
2. Location is key
3. You need an appealing value proposition
4. Marketing is imperative for your success
Below we will go over each of these things for better understanding:
| You MUST have a Business Plan |
One of the most indispensable steps you need when starting your coffee shop is drafting an effective and plausible business plan. A business plan is the blueprint of your company. In other words, it is a map that will guide you through the whole startup process — from ‘business idea’ to brand expansion.
A business plan focuses on your goals and objectives and how to reach them, and it usually entails a descriptive document that includes:
– Executive Summary
– Market Analysis
– Business Description
– Funding Requirements
– Sales Strategies
– Marketing Actions
– Financial Projections
If you do not know where to start, do a little online research. Many case studies and coffee shop business plans’ examples can help you draft your plan.
| Location is Key |
Location, location, location! Coffee shops, like many other business endeavors, depend highly on location. Therefore, when choosing a place for your new coffee shop, consider choosing a site that is:
- Easily accessible
- Located in a high-trafficked area
- Spacious enough for people to gather
- In sync with your vision
If an area is already exhausted by the competition, the chances are that that is not the right place for your coffee shop. But, if it is too deserted, your business won’t have the visibility you want.
Thus, finding the right location takes time, and it will not happen overnight! We suggest you spend some time in the area you want your business to be before committing to a specific space.
Lastly, consider your target audience. If you want to target business professionals who buy coffee on their way to work, try choosing a convenient location close to many office buildings. But, if your target is college students who would use your coffee shop as a meeting point or place to study, you might want to choose a location near a university’s campus or school.
| You need an Appealing Value Proposition |
The coffee shop market is a red ocean, meaning that the competition is fierce and very aggressive. So, before starting your shop, you need an appealing value proposition that can set you apart from your competitors.
A value proposition can be based on price, product offering, experience, service, or more. Think about what makes your coffee shop unique — why would people want to buy your coffee and not some else’s?
For instance, in Starbucks’ case, its value proposition lies in enhancing the customers’ experience while drinking coffee; this is why they offer customers a cozy place to sit down, complimentary wi-fi, ambiance music, and personalized service.
Thus, find what makes you unique and work towards promoting that message.
| Marketing is Imperative for Your Success |
You should not wait until after you open your coffee shop to develop a marketing plan. An effective marketing plan is essential for your business’ success. Therefore, you will need to create a thorough marketing plan that includes short-term and long-term tactics.
Short-term tactics will help you pique the interest of potential customers months before opening. There are infinite strategies you can implement. However, we suggest you start small! Below a few ideas:
– Create social media pages and start posting relevant content that will catch people’s attention.
– Put up signs near your location to let people know you are there.
– Partner with other local businesses and provide free or discounted coffee in exchange for on-site advertising.
– Participate in local events, and make sure people can sample your coffee before and after the grand opening.
– Send out coupons to residents and businesses.
Once everything is up and running, you can implement more long-term strategies like airing a commercial on a popular radio station, investing in a billboard, working with local influencers and personalities, and more.
Remember, it is not what you do but how you do it! In marketing, consistency is critical.
| Other Things to Consider |
Of course, when opening a coffee shop, there are many other things to consider, such as:
– Initial Investment
Statistics show that you would need to invest anything between $200,000-$375,000 to set up for a sit-down coffee shop, while franchises can cost up to $673,700 (depending on the brand.) Nevertheless, these numbers vary based on size, product offering, location, equipment, and other specific considerations.
Know that there are other less pricey alternatives such as drive-through shops or kiosks. If you choose to open a large to medium-sized drive-through shop, the initial investment needed ranges from $80,000 -$200,000. And if you want to start by opening a small kiosk, you will need between $25,000 to $75,000.
– Coffee Beans
Coffee beans are the raw material that can ‘make or break’ your business. So, naturally, you should buy only the best coffee beans available if you want your business to succeed.
In case you didn’t know this already, coffee beans have grades. In other words, depending on their quality, grains can be categorized into several groups. The Specialty Coffee Association of America (SCAA) classifies coffee beans as follows:
– Grade 1 or ‘Specialty Grade Coffee Beans’
– Grade 2 or ‘Premium Grade Coffee Beans’
– Grade 3 or ‘Exchange Grade Coffee Beans’
– Grade 4 or ‘Standard Grade Coffee Beans’
– Grade 5 or ‘Off Grade Coffee Beans’
To start, try investing in Grade 2 or Grade 3 coffee beans. And as your business grows, aim to secure Grade 1 beans, which are, of course, the most expensive.
Learn more about what beans YOU SHOULD have at your shop, HERE!
A detailed coffee shop equipment list can set you up for success and help you avoid overspending on things you do not need. Therefore, we compiled a list of the essential equipment you will need to open a medium sit-down coffee shop:
- Automatic Drip Coffee Makers
- High-Quality Espresso Machine
- Industrial Coffee Grinder
- Industrial Blenders
- Ovens and Toasters
- Refrigerators and Freezers
- Containers, Pumps, and Storage
- Security System
You must research trends and find reliable wholesale partners that can offer the best prices and equipment that your budget allows. Thus, before buying anything, make sure you have thoroughly examined the market’s offerings.
Good employees will support your operation and help your shop grow. Bad hires, on the other hand, will increase your expenses, reduce profits, and can ultimately hurt your coffee shop’s reputation and business. Thus, you have to pay special attention when hiring staff for your shop.
In preparing to make good hiring decisions, think about the type of individual you would want to hire. Consider the personality traits (e.g., excellent interpersonal skills, team player, loyal), experience, education, and skills (e.g., attention to detail, speed, good with numbers) you are looking for in an employee. Once you have a clear picture of what you want and what you plan to offer in return, you can advertise the positions.
You must advertise job openings on the right channels. Job boards exist in many forms and sizes, including online listing options such as Indeed, Linked In, Monster, and CareerBuilder. Thus, choose the ones you feel more comfortable with and stay away from sketchy sites.
| Related Questions |
1. Is owning a coffee shop profitable?
Coffee shops can be very lucrative endeavors if you manage them effectively. The average profit margin for standard coffee drinks is 15-20%, while the medium profit margin for specialty coffee drinks is roughly 12-18%. Hence, most coffee shop owners make about $60,000 to $160,000 annually.
Furthermore, for many coffee shops, sales often double after the third year — meaning that your profits can be higher depending on how well you run your business.
2. What licenses or permits do I need to open a coffee shop?
The licenses or permits needed to open a coffee shop will vary greatly depending on location. Hence, if you open a coffee shop in a city, you should contact your city’s clerk office for licensing information. And if you’re located in an unincorporated area, you should contact your county clerk’s office for licensing information.
Nonetheless, as a rule of thumb, you will need the following legalities to operate a coffee shop:
- Business License
- Food Service License
- Health Permit
- Food Handler’s Permit
- Sign Permit
- Employee Identification Number/ Tax ID
Looking to learn more about how to start your very own coffee shop? Checkout my coffee shop startup course and documents here.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.