Thinking of opening a coffee shop? It is an exciting venture; many coffee shops are very profitable enterprises. You probably have great ideas about the décor of the shop, the types of coffee you want to sell, and a terrific location in mind. Now you need to consider the nuts and bolts of money.
Coffee shops forecast sales by investigating and projecting traffic flow and the average dollar transaction of each customer. In addition, to know if the sales will be sufficient to stay in business, coffee shops must also calculate expenses.
With some research, a calculator, and a spreadsheet, you can estimate your profitability. Include your forecasts with your business plan. Then you can investigate areas of potential growth for your business as well. Continue reading for some ideas. Grab a pencil and some paper, let’s get started.
Number of Sales Transactions
Your first step in forecasting your sales is to estimate the number of customers that will enter your shop. There will be a couple of approximations that you need to perform. First, you need to count how many seats you have. This determines your seating capacity. If you are not certain what the capacity of your shop is, contact your local fire department. They set maximum occupancies for facilities. Then, you can arrange the tables and chairs accordingly.
To estimate the number of people that will go in and out of your shop, you will need to spend time near your shop’s location or in a similar spot. Find a coffee shop nearby and count the customer traffic. You will need to do this during different hours of the day to find peak and slow times. Depending upon your location, the day of the week might vary as well.
If you are planning on delivering, you will need to explore what other businesses are near you that might purchase from you. Also, if your location has a drive-thru, you will need to find a similar location at which you can count the number of cars. Again, go during different hours and days of the week. You need realistic numbers to estimate the number of sales transactions to use in your forecast.
Consider grouping your numbers as follows:
- Morning rush
- Mid-morning, which will be slower
- After work
These can be used as your averages. Create a spreadsheet. The most accurate method would be to enter hourly segments. Then enter the number of people for each hour; this is your estimated number of transactions. This is one part of your sales forecast.
Average Dollars Spent per Transaction
The next number you need is the dollars spent per transaction. A number of variables need to be considered when calculating this estimate. Envision your shop and what you intend to sell other than coffee. You can start with a survey. Friends, family, and social media can be used to gather this information.
Ask participants about their habits when purchasing from a coffee shop. Below are some suggestions:
- Do you purchase only coffee?
- What different types of coffee do you purchase?
- Do you buy coffee throughout the day?
- Does your purchase vary by time of day?
- Do you buy breakfast food with your morning coffee?
- Do you buy other drinks with your coffee?
- Do you purchase a sandwich for lunch?
- In the afternoon, do you get a snack with your coffee?
You now need to take this information and group it by times of the day. Using your forecasted price lists, calculate what each person’s average bill would be. Then take all your responses and average the sales receipt by the time slots in the day.
These numbers are then added to your sales forecast spreadsheet. The average sales transaction is your next column. This number is multiplied by the estimated number of transactions.
Expenses to Run the Coffee Shop
Now, you need to list all the expenses that will be incurred to operate your coffee shop. Some of these will be determined by how busy your shop is expected to be. The number of cashiers will vary throughout the day depending upon traffic. If you are offering specialty coffees that require preparation by a barista, consider that in your labor costs as well.
A new spreadsheet to track your estimated and actual expenses is a good idea. For your sales forecast spreadsheet, you can enter the average monthly costs from your detailed expenses spreadsheet.
Costs to include:
- Loan payments – if you borrowed startup money, you need to budget a repayment plan.
- Inventory – costs for coffee, paper goods, sugars, food, bottled beverages, etc.
- Air conditioning
- Payroll – make sure you include your salary
- General or routine maintenance – including snow removal
- Emergency funding
- Accountant and/or bookkeeper
These numbers can be averaged together. Depending upon your location, there could be significant seasonal cost variations. Be sure your calculations take this into account. It is always best to forecast higher expenses than to be negatively surprised. For tips on mitigating other risks, be sure to read our article on this topic.
In your forecasting spreadsheet, calculate your average number of transactions by the average dollar amount of each sale. Have the spreadsheet set up to give you the number by each month. This number is your revenue. From your monthly revenue, subtract your monthly expenses. The remaining amount is your profit.
Other Financial Thoughts
Ways to increase your sales is your best means to increase your profit. One way to boost sales is to operate for more hours. However, for all the hours you are open, you need to pay employees. Also, when you are open, you incur other costs such as using more of your utilities.
Another means of growing your sales is to increase the number of customers who enter your shop. This might take more advertisement, which can cost money. However, through social media, there are less expensive ways to let people know about your business.
You could also implement a customer loyalty program. This will encourage current customers to come in more often and acts as a means to attract new customers. (We also have some great ideas for winning over new customers here.)
Additionally, you can offer more menu items. In adding to your offerings, you are looking to have your customers spend more money on each transaction. You can also look at your store’s layout. Locate your cooler near your register, so people will grab a bottle of water with their order.
Make sure your display cases of pastries or sandwiches are fresh and appealing. It also needs to be located where customers have to view them and be enticed. Offer weekly or daily specials to encourage the purchase of new items for a customer.
Frequently Asked Questions
To open or start a new coffee shop, you need to budget for the following items: local permits, business license, insurance for your shop, first and last month’s rent, purchasing or leasing equipment and furniture, and inventory needed to open. You should also have sufficient cash to pay your first month’s operating costs, such as electricity, water, salaries, and internet. For a more in-depth look at the costs associated with opening a coffee shop, take a look at this article.
If you want to open your own coffee shop but you do not have enough money, you can borrow the money from a bank. Another source of funding can be investors. With investors, you need to decide if they will be part-owners, if they will share in the profit, or how you will return their money.
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!