Between Starbucks, Dunkin Donuts, Dutch Bros. and so on, coffee has become an integral part of American culture. Perhaps you’ve been toying with the idea of starting up your own coffee shop that pops with your own flair. However, the terrifying thought of competing with coffee giants has stalled action, until now.
To help things get rolling again so you can share your love of the perfect brew, we’ve got five stellar tips on how to start up a coffee shop.
1. Formulate a plan.
2. Understand and plan where all your money needs to/will go.
3. Pick the best location.
4. Execute a powerful marketing plan.
5. Create the perfect menu that gets people hooked from their first visit.
Formulate a plan.
It’s been said before: If you fail to plan, then you plan to fail. The same goes for any business. We’re not saying you need a business degree before you get started, but you do need a plan. This will help you think out all the details and form a clear action plan, yet be flexible enough to adapt if you hit any snags along the way.
Pro tip: always be ready for the unplanned to happen, even when business is running smoothly.
Key parts to plan out:
- Business model
It’s three aspects of business encompassing myriad details BUT but doesn’t have to be a monster of a project. Bplans.com has a great breakdown with examples you can read here. The best part is you can see how other coffee shops have done it and learn how to imitate their success without reinventing the coffee grinder.
Finance – Ideas can get expensive, so it’s wise to plan out the upfront cost, along with monthly cash flow. It will help you stay realistic, yet enable you to act on a clear plan.
If you want a shop that’s strictly beverages, you’re looking at needing roughly $50,000 to $100,000 to get you going. And yes, banks can help you here.
Marketing – You have to research the best ways in your area on how to get the word out. This can be local newspapers, radio stations, sending out stationery to targeted neighborhoods, etc.
Business Model – The ultimate goal is to have you own a business, not run a business. The most successful businesses run themselves. If you enjoy making lattes and seeing your customers smile, there’s absolutely nothing wrong with that, but your coffee shop needs to be able to run like clockwork regardless if you’re present or not.
Again, you don’t need a business degree to run a business. There are a ton of books that can help you succeed on to of your own drive and determination. One of our favorites is The E-Myth by Michael Gerber.
Understand and plan where all your money needs to/will go.
That upfront bill may look intimidating, but it can be just one step in your coffee shop journey that helps you achieve your dream.
If you want to rent out a location that’s perfect as is, then it’s going to be fairly inexpensive. However, if you find a place that needs a lot of fixing up, then you’re going to fork over extra cash to bring out your shop’s full potential. To give you an idea, here’s a quick breakdown of where your money goes when it comes to coffee shops:
Up front costs:
- Decorations & Furnishings
You can save money on the type of equipment you want to buy by shopping around for deals or even getting help from donors. Ultimately, it depends on how big the shop is and if you know how to wield a paintbrush and such.
- Rent & Utilities
- Repairs/Replacing equipment, furniture, etc.
- Variable expenses (paper cups, food, coffee beans, etc.)
You absolutely have to know where your money’s going every month. A successful coffee shop has a profit margin that falls between 70-85% of your revenue. An accountant who will help you stay on top of your numbers is worth the investment.
You also want to be prepared to invest the money into keeping your shop looking new and shiny, and running efficiently year after year.
Equipment wears out over time and you don’t want to put you, your employees or your customers in a situation where they can’t get a certain food or beverage because something broke. Malfunctioning or broken equipment frustrates everyone.
The core of any business is the emotional experience you give them. If they associate your business with joy and relaxation, then they’ll keep coming back for those feelings. If they associate your business with frustration and disappointment, you’ll be hanging up that “Closed” sign for good. You can avoid the latter by always being financially prepared for equipment to break.
Pick the best location.
Location, location, location. Even if you have the best product in the world, no one’s going to buy it if they can’t find your location, or it’s too much of a hassle to reach it. The most popular shops have learned how to pick the best locations for the highest traffic.
Are you looking to pack up and move, or do you want to throw roots down in your present location? Do the people in either location make good potential customers? You don’t want to open a vegan restaurant in steak-lover central. No one’s going to want what you’re offering.
Here are four things to consider when picking a location:
- Surrounding Businesses
- The Building Itself
Demographics – You want your coffee shop to be a desirable convenience. The best locations are near hotels, schools, colleges, and commuter routes.
Continental breakfasts are often lackluster. So if you’re within an easy walk or ride from the hotel, then you’ve already made the decision for the tenant. College students need that pick-me-up to get through tough exams and ungodly long research papers, and commuters traveling to and from work can often become regular customers if your shop is on the way.
Surrounding Businesses – They can work both for and against you. It’s wise to pick a location among other food-related businesses. You’re right there in a location proven to sustain the food and beverage industry. However, if there are other coffee shops and such that offer similar fare, then they’re also your competition.
Pro tip: Offer something customers can’t get anywhere else, be it a signature food or beverage, a quiet space, customer service no one else can match, etc. Whatever it is, make it unique and memorable.
Visibility – Have you ever noticed a location that houses a new business every few years or so? There’s this one business lot that company after company keeps passing through. Pick a spot where customers can easily see and find you. Main roads, sitting close to exits or along the fringes of campuses make for some of the best visible locations.
The Building Itself – Instead of letting you fall in love with a prospective location only to find out that they don’t allow food, let’s equip you with prerequisites that’ll simplify your search.
What to know before signing a lease:
- Food permit allowance (if you wish to sell food)
- ALL the lease terms
- Insurance needs
When you draw up a budget, the cost of your lease is a part of it. You need to make absolutely sure your chosen location is profitable and the lease terms don’t contain any nasty fiscal surprises. Make yourself an expert before you sign.
Execute a powerful marketing plan.
Like movie trailers build anticipation of a film’s release and commercials get you pumped for one event or another, you want to start marketing well before your grand opening. The sooner you plant your business in people’s conscious thoughts, the sooner they crave your cup of Joe.
Places to get the word out about your coffee shop:
- Local magazines
- Travel centers
- Social media
- Postal service (mailers)
- Radio stations
- Sponsor local sports teams and events
Offering free stuff or even a modest discount to get people in the door are good tactics. Just make sure the giveaways don’t hurt your profit margin. The goal is to get people in the door, try your products and love them so much that they keep coming back.
Barista Magazine conducted a survey that found out almost 70% of coffee shops spend less than $100 per month on marketing. Now, the thing is, that survey garnered only about 1,200 responses considering there are over 30,000 coffee shops in the United States alone.
Here’s the kicker: nearly 40% of those shops don’t spend any money on marketing.
Sometimes a coffee shop’s storefront draws people in. Other times–and perhaps the best marketing strategy ever–is word-of-mouth. Just like viral videos and cute cat photos, humans love to share what they enjoy, including good coffee stops.
Other passive marketing includes being searched on the internet and having a social media presence. Times have changed. Facebook, Instagram, Twitter and so on are valuable tools in the business world.
Create the perfect menu that gets people hooked from their first visit.
A lot of food and beverage businesses fail because they create too large of a menu. In addition, business psychology shows that customers enjoy fewer options to choose from. It makes the emotional decision process behind a purchase that much less stressful.
Remember, you want every last customer to have a positive emotional experience.
If you’re worried about not offering much, then let those worries ago. The simpler your menu, the better it is for both you and customers. The more complex it is, the higher the risk of losing money due to loss via perishable items.
Besides, if you’re doing well, you can always add more items to the menu or even cycle to reflect the seasons. And if those items don’t work, then you already had the money to spare, instead of playing catchup to recoup losses.
Popular beverages to consider:
- Hot coffee
- Hot tea
- Iced coffee
- Iced tea
- Hot espresso
- Cold espresso
- Bottled juices
- Bottled water
You may want to stick with just coffee, tea, and water at first, and that’s okay. Dunkin Donuts didn’t start selling espresso drinks until 2018, and the first shop opened all the way back in 1950.
Popular foods to consider:
- Lunch sandwiches & paninis
- Breakfast sandwiches
- Snacks (nuts)
The full list of food companies have paired with signature coffee is far larger, but again, demographics play a huge role in these decisions.
If your location has a lot of fitness buffs in the population, smoothies and fruit are a great option. However, if you’re close to a college, breakfast-friendly foods or being able to cure that sugar craving might be a better sell.
It takes time to learn your demographics firsthand. You can do research but often reality will surprise you. Business will boom if you’re flexible and ready to serve people what they want.
We have some quick answers to two of what are probably your most burning questions at the moment.
How do I approach a bank for funding to start a coffee shop?
While the safest approach is to save up liquid assets, it’s not uncommon to reach out to banks for a small business loan. Here’s what a bank wants to see before they hand over any money:
- Have a clear, detailed business plan that explains where all the money will go
- Have a good credit score
- Outline a prospective repayment plan
- Have your tax documents with you
- Have your business documents with you
From there, it’s just an application process, be it in person or online.
What does a coffee shop business plan look like?
This takes wearing a few hats, but remember: start off simple. Do not try to plan every last detail from the getgo. Follow the KISS rule (Keep It Simple, Stupid). Here are the elements of a simple, one-page business plan:
- What value you deliver to customers
- The problem you solve for customers
- Your unique niche inside the competition
- Describe your target customer
- How you’re going to sell your product(s)
- Budget and sales goals
- Outline some long-term goals, even if they feel impossible or unrealistic at the moment
- Who are the people that run your company
- Funding needs
Each of these should be only one to two sentences long. Find out how to write a business plan for your shop here.
So, can you smell the hazelnut yet? See people munching on coffee cakes between snippets of conversation? A full dining space with a busy avenue outside your glass windows?
Yes. Yes, you can.
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.
For more information on starting your own coffee business, simply click here.