If you’re starting a coffee shop business or already operating one, it is important for you to know the average amount you will spend monthly on running your business. This will enable you to know how feasible your coffee shop business idea is and how long it will take you to cover your start-up costs. Also, you can quickly determine your profit margin, and make projections for the growth strategy of your coffee shop business if you are already operational. Knowing your average coffee shop monthly expense will go a long way to help you in pricing your products competitively and effectively to get the profit margin that you desire.
Your average coffee shop monthly expense is the average total monthly costs associated with running your coffee shop. They include labor costs, rent, utilities, interest on loans, coffee costs and condiments, delivery costs, etc. The value of these expenses depends on the scale of your coffee shop and a number of other factors. They are largely sub-divided into fixed and variable expenses.
Fixed expenses.
Fixed expenses are expenses that do not change regardless of an increase or decrease in the number of products made for a specific period of- which in this case is a month. They make up the bulk of your monthly expenses. These costs are constant for each month regardless of changes that may happen in your coffee shop business activities. Fixed expenses only changes as a result of a change in agreement or contract with the relevant stakeholders that define these costs.
The major monthly fixed expenses of running a coffee shop include:
Rent and utilities.
As a rule, the monthly cost of your rent and utilities should not be more than 15 percent of your average monthly sales. Your rental costs is determined mainly by your location and the scale of your coffee shop. The scale of your coffee shop also determines how much you will spend on utilities for the month. If your coffee shop is located in a prime area, for example, it is expected that you would pay more for rent than in other areas.
The advantage, however, is that you can expect to charge more for your products in a prime location and make up for the higher cost of rent.
Labor costs.
Labor costs include salaries, benefits, bonuses, and payroll taxes, accounting services related to payroll. Labor costs should also include your salary. According to Crimson Cup Coffee and Tea, labor costs should be less than 35 percent of total sales for the month.
Cost of staffing can easily eat deep into the coffers of your business. Every coffee shop owner wants the best baristas and to pay them well. While this is a good thing, critical attention should be paid to how much this costs in relation to how many sales you make on the average.
Interests on loans.
Most times, start-up costs are made up for by taking out a loan. In some cases, the loan is necessary to keep the coffee shop afloat. Include the cost of paying back such loans into your operation costs.
It is generally a good idea to factor in start-up costs into your running costs. This helps you have a firm grasp on the financial situation of your business and can help you track how your coffee shop is doing.
Variable expenses.
Variable expenses are directly related to the amount of products made in the month. This means if you made more cups of coffee in a certain month, your variable costs may be more for that month than for the month when you made fewer cups of coffee. This is because you would use more milk or cream, coffee, and sugar. Because of this, it can be a little difficult to predict the variable cost for each month.
Variable expenses for your coffee shop include bags of coffee, milk, disposable cups, paper bags, pastries, and other condiments.
It is advisable that the cost of the ingredients and condiments you use in production does not exceed 40 percent of your sales. This should normally account for the bulk of your expenses. Also, the cost of supplies such as disposable cups, paper bags, and other things that go into making your products, and are of single-use should account for not more than 5 percent of your sales.
Other costs.
An upgrade of equipment may become necessary as your coffee shop business evolves. This may not necessarily be an expense that is planned for or factored in as a part of your running costs. Your coffee shop may also experience a sudden surge in customer visits due to a holiday or season. This may make it necessary for you to employ one or more people on your team. Look out for events that trigger these happenings, so that you can adequately account for them.
Other costs to factor in are marketing, maintenance of equipment, and general upkeep of your coffee shop.
Calculating your average coffee shop monthly expenses.
To calculate your coffee shop’s monthly expenses, make a list of the different costs associated with running your coffee shop. Not all expenses are immediately obvious. Pay attention to hidden costs that you may easily omit and make sure you add them too. For things like rent that may be paid on a yearly basis, divide the amount by 12 to know your rent per month. The total of these costs per month makes up for your monthly expenses.
Profit margin.
Making profits is a very important part of any business. It is the purpose of starting any non-profit business. After calculating your monthly coffee shop expenses, you also want to calculate your profit margin. Your profit margin is the difference between your total sales and your running expenses. Ideally, your profit margin should not be less than 10% of your total sales.
How to reduce your coffee shop monthly expenses.
If you are in a situation where you are not making enough revenue to make up for your monthly expenses and have a healthy profit margin, you need to take necessary measures to reduce your running expenses. This is very important because the sustainability of your business depends on it.
Calculating your monthly expenses is the first step towards adopting measures that reduce these costs. Here are a few other measures you can adopt:
Reduce staffing costs.
For many coffee shop owners, staffing, or labor costs usually turn out to be one of the things that make up the bulk of the monthly expenses. This is usually in a bid to provide good products and quality customer service. One way to reduce this without compromising on quality is to fill in for some shifts by yourself. Another option is to cut back on the number of employees you have during slow periods. Having your employees operate on a shift basis makes it easy for you to do this. This way, you can have fewer employees during slow hours of the day, ultimately reducing your staffing costs.
Identify your regulars and acknowledge them.
Perhaps one peculiarity of coffee shop customers is their sentimental nature towards their favorite coffee shop. A first-time visitor soon becomes a loyal customer to a coffee shop they like. Identifying customers who have become regulars and appreciating them can turn them into loyal customers. Pay attention to their needs and try to make adjustments as long as it aligns with your business values.
Use technology.
Using systems such as a POS (Point of Sale) system can help you reduce the costs of inventory. It helps prevent order error, waste, and theft. To ensure its effectiveness, make sure to keep the system updated.
Using a POS system also helps save time by helping your employees work faster, thereby improving your customer service and ultimately increasing your bottom line.
Need some suggestions on POS systems? Check out our article with the top 5 best systems.
Embrace digital marketing.
Advertising using online means can save you a lot of money. Although it demands more time, you can beat this by automating certain tasks. For example, you may decide to create a line-up of posts for a week and schedule them to get posted every day. It also has a wider reach and can potentially increase your bottom line too.
Having a firm grasp of what you spend every month to run your business helps you to be accountable and to easily track the progress of your coffee shop. This will help you to make timely decisions that are important to improve your coffee shop when necessary. Ultimately, you will be on track to building a sustainable business.
Frequently Asked Questions
Although the price of a cup of coffee can be dependent on several factors; according to Café Coach, the average price of a cup of coffee is between $3.50 to $4.50. Apart from the cost of what goes into making a cup of coffee, your coffee shop brand identity should be a major determinant for how much you charge your customers for your products. One way to do this is to leverage how your customers perceive your brand and set your prices accordingly. The most important thing is to set your prices with your target customers in mind.
One of the ways to get more customers to buy coffee from you is by paying attention to pricing. Lower prices do not always mean more customers. Make sure that your prices are competitive and can attract the type of customers you want. Also, make sure that your coffee shop layout is convenient to be in. Using comfortable furniture can go a long way to help you achieve this. Consider giving periodic discounts, special offers and loyalty schemes for your customers. Be active on social media too.
To learn more on how to start your own coffee shop checkout my startup 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.
Hi! I’m Shawn Chun
My adventure in coffee began when I first launched my first coffee shop back in the early 2000s. I had to figure out so many things on my own and to make it worse within 2 years of opening two large corporate coffee chains moved in just blocks away from me!
As I saw smaller and even some larger coffee shops in the neighborhood slowly lose customers to these giant coffee chains and slowly close up shop, I knew that I had to start getting creative…or go out of business.
I (like you may be) knew the coffee industry well. I could make the best latte art around and the foam on my caps was the fluffiest you have ever seen. I even had the best state-of-the-art 2 group digital Nuova Simonelli machine money could buy. But I knew that these things alone would not be enough to lure customers away from the name brand established coffee shops.
Eventually, through lots of trial and error as well as perseverance and creativity I did find a way to not only survive but also thrive in the coffee/espresso industry even while those corporate coffee chains stayed put. During those years I learned to adapt and always faced new challenges. It was not always easy, however, in the end, I was the sole survivor independent coffee shop within a 10-mile radius of my location. Just two corporate coffee chains and I were left after that year. All told the corporate coffee chains took down over 15 small independent coffee shops and kiosks and I was the last one standing and thriving.
Along the years I meet others with the same passion for coffee and I quickly learned that it is not only “how good a barista is” that makes a coffee shop successful, but the business side of coffee as well.
Hence why I started this website you are on now. To provide the tools and resources for up and coming coffee shop owners to gain that vital insight and knowledge on how to start a coffee shop successfully.
Stick around, browse through my helpful blog and resources and enjoy your stay! With lots of LATTE LOVE!
Shawn
