If you find yourself stopping into your local coffee shop several times a week—or a day—you may start to ask yourself if owning your own coffee shop is profitable. While it can be a great undertaking, owning your own business can be both challenging and rewarding, but how much can you expect to make?
How much does a typical coffee shop make?
A standalone, independently owned coffee shop can make an average annual gross revenue of about $500,000 per year, based on the average receipt being $7 and serving about 250 customers per day, six days a week, 52 weeks a year. This number does not account for expenses, however—after expenses, including the owner’s salary, a coffee shop can expect to make a profit margin of two percent or $10,000 per year. After four years, a typical coffee shop owner can pay off their original investment, opening up a twelve percent profit margin at about $60,000 annually.
According to the National Coffee Association, seven in ten Americans drink coffee every week, while 62 percent drink coffee every day. Even the average American coffee drinker drinks over three cups a day.
It’s also important to know that older coffee drinkers typically consume theirs at breakfast, while younger drinkers are almost twice as likely to drink theirs at lunch.
They also drink more espresso-based beverages.
American coffee drinkers also focus on getting gourmet coffee—nearly 60 percent served is made from premium coffee beans.
So how do you get started on planning your own coffee shop, and how much are you going to have to spend to do it? Read on to find out.
Terminology to Know
Especially if you’re just starting out, you may be overwhelmed by the amount of legal jargon that you see or may expect in your business plan. Don’t fret—these terms are easily defined, and when you know their definitions, it will become much clearer as you plan.
Your average ticket price is determined by taking all your receipts in a certain time period (a day should give you enough information) and dividing it by the number of transactions. That will give you the average amount spent per customer in your coffee shop.
Your balance sheet records all your business assets, liabilities, and equity over a period of time, usually on a month-by-month basis.
Fixed costs are the expenses you can expect to be the same from month to month, including your building rent, any updates to machinery, etc.
Your gross profit margin is your profit of the items you sell compared to overall sales or gross profit divided by net sales. It considers all expenses—labor, inventory, taxes, etc.—because it divides net income by net sales. You want this number to be higher than zero, as that means your business is in the black and making more money than it uses. The total gross profit margin for a coffee shop is typically around 75 to 85 percent.
Gross revenue, on the other hand, only looks at the cost of goods sold—if you sell a coffee for $5, your gross revenue on that item is $5, not subtracting the cost of the supplies it took to make it.
Net revenue is the cost of goods minus the gross revenue. So, if it took you $2 to make that $5 cup of coffee, you would have $3. From there, all other costs are subtracted (such as rent, wages, packaging, etc.), and the final number is your net revenue.
Your number of sales is the number of customer transactions you have on any given day. If there is a single receipt, that is a single transaction.
Your profit and loss statement breaks down all your costs, expenses, and revenue over a period of time, usually on a month-by-month basis.
Your receipt totals are simply the amount of money a customer pays on a single receipt. This can range widely from person to person, depending on what they order.
Your return on investment, or ROI, is the comparison of how much money you have invested compared to how much you have made. This number can help you determine where you need to reinvest your money to make the best profits.
Variable costs are the expenses that vary from month to month, like your labor or food and supply purchases.
Deciding Factors on Your Income
Now that you know the terminology, what factors contribute to your coffee shop’s income? Before you even open your doors, there are several factors that could make or break your business.
Your coffee shop’s success is based on your receipt totals and your number of sales, but all those are affected by several deciding factors, including:
- Your business location.
- Your type of coffee shop.
- Menu items and prices.
Your location is the most important decision you will make early in the creation of your business. It will help determine how much you will need in your initial investment, including any construction or renovation costs, along with any utilities or rent payments.
Your business location also determines how much foot traffic you get into your shop, the type of customer you are serving, and your menu.
Also, consider your competition when looking for a location—you don’t want your independent coffee shop opening up next to a popular, already thriving franchise.
Type of Coffee Shop
There are different types of coffee shops to consider when you are looking at possible income.
The smallest option for your business is a coffee kiosk. These are usually found in larger locations, like office buildings or shopping centers, functioning as a small cart with one or two employees. Foot traffic would be consistent, and you would not have the expenses of a building’s rent or needing seating for customers, but your reach would be limited.
Similar to this is the food truck shop, where your entire business would be contained within a mobile unit. While these are more cost-effective to start and could go anywhere, there are more licenses that you would need to have to conduct business.
The next option is owning a franchise—pros here include having an already established, branded name, but you would have less choice on certain things, like what equipment you can use. This can also cost at least three times more to open, based on the rules the already existing company sets up for new franchisees.
You also may have the opportunity to purchase an established coffee shop. This would come with an already-trained staff, a built customer following, and all the established records and licenses—but also all the problems that may come with it, including issues with equipment, poor staffing, a failing business model, or debt.
The last option—and the option discussed at length in this article—is the independent, standalone coffee shop. You have complete control over all the decisions made in this business venture, from the way the shop looks to its location to what kind of decorations you would include inside.
Menu Items and Prices
As you start your coffee shop, it’s important to note that the more you have on your menu, the more equipment you are going to need. The more you have on your menu, the more you can charge, and the more items you can sell.
A way to make sure your profit margin is high is by offering special drinks, especially at set seasons. Halloween and fall drinks—think the pumpkin spice latte—can drive new and returning customers into your business. Christmas drinks—anything with peppermint—can do the same thing around the holiday season.
Understanding how much money goes into starting your coffee shop is key before you even consider how much money you would make per month. It may take months for you to recoup your startup costs, but that will be included in your monthly numbers, as discussed later in the article.
When you’re just starting out, it’s important to note the varied costs of getting into your physical space. You could be purchasing a space that already is set up for a coffee shop, or you may need to renovate it completely before you can move in, and those can be two vastly different numbers.
Renovation costs can include new lights, seating, cabinets, appliance installation, all the way up to the painting, and putting in new floors. When hiring an expert, like an engineer, interior designer, or architect, you could be paying upwards of $5,000, along with any materials you may need, which vary based on location and type.
You will also have to pay utilities each month, including gas, electricity, and water, along with your monthly rent. Before you open, you will also need to purchase furniture—seating arrangements, tables, lamps, trash cans, supply tables, décor, etc.
Here, it’s feasible to purchase used furniture versus new, at least until you are making a profit. After you’ve seen enough success, then you can turn your profit into an investment in new furniture.
Your rent and utility costs should be no more than 15 percent of your projected sales.
Your coffee shop relies on the equipment you have at hand, and many of your pieces of equipment will be used from open to close. When purchasing your equipment, keep both efficiency and durability in mind. Note that you should avoid buying secondhand equipment as your primary equipment—but, if necessary, they can be useful if your primary equipment breaks down.
The following are some items that you will need to start your business:
- Commercial Coffee Grinder. To make sure the coffee you serve is the freshest it can be, you will need to purchase whole beans and grind them in-house. That’s where the grinder comes in. You can either use a burr grinder or a blade grinder. While blade grinders are cheaper, their work can sometimes be uneven. The burr grinder crushes beans between two surfaces, and while they can be more expensive, they produce a more even grind. For our estimations, we will be putting the cost at $1,500.
- Commercial Coffee Roaster. If you’re interested in doing all of your work in-house, consider getting a coffee roaster. While the process is extensive, you can change the flavors of your coffee just by experimenting with your coffee roaster. Consider the volume of beans you would like to roast and your size of batches, along with any features you may want in a roaster. While this item is not required to start your business, you may want to invest in one later down the road. This item is not included in our estimations for your startup costs, as it can cost anywhere from $26,000 to $130,000 for a commercial roaster.
- Commercial Coffee Brewer. This piece of equipment should be your main concern. It is as essential as the espresso machine and will be running all day, so consider spending more of your budget on this item. As your main selling point, consider a higher quality piece of equipment where you can focus on providing the best taste and quality. Our estimation will include a dual brewer at $1,500.
- Commercial Grade Espresso Machine. Most of your menu items will include espresso, so this piece of equipment is necessary. Industrial espresso machines, though, can cost an incredible amount—upwards of $25,000. When looking to purchase an espresso machine, make sure you consider both cost and function. Consider how skilled your baristas are, whether you want a specific type to maintain a certain image, whether you want a super-automatic or semi-automatic, and your budget. A super-automatic machine does all the work for your barista, while a semi-automatic would have to handle the espresso at every step. Most independent coffee shops use semi-automatic espresso machines. For our purposes, we will be estimating the cost of your espresso machine at $6,000.
- Water Filtration System. This is your key piece of equipment. All your products will have some sort of water in them, so making sure you have the cleanest water in your coffee is more important than any other piece of equipment. Some systems can cost upwards of $10,000, but for our numbers, we will be estimating it at $5,000.
- Refrigeration System. As many of your espresso drinks will contain ice, dairy, or dairy substitutes, a refrigeration system is vital. A basic setup would be around $1,750.
- Storage and Supply Cabinets. To keep your brewing area efficient, you will need a place to store your supplies. Costs will vary depending on what you use, so we will estimate that cost at $2,000.
- Point of Sale (POS) System. Consider how you will make transactions in your business. If you intend on using a more modern system than just a cash register, the cost will be about $2,750 to start and around $150 per month after.
- Industrial Blender. If you are making espresso-based drinks, many will require a blender. For our purposes, we will estimate that cost at $750.
Consumable Supplies. These will be all the items you need to make your coffee, like the coffee beans, milk, and dairy substitutes. You will also need napkins, paper cups, lids, straws, etc., before you open. These estimates should be no more than 35 percent of your projected sales.
If you also intend to bake and sell food items at your coffee shop, you will also need equipment for that purpose, including ovens, toasters, microwaves, etc. You can also purchase additional coffee-making equipment for specific techniques, like a pour-over system or a French press, but they are not required. For our budgeting purposes, those numbers will not be included.
Marketing is the main way to get new customers to your business, and repeat customers are coming back. Your name, logo, and overall branding are going to help bring people into your shop. While you can seek out professional help in the form of a graphic designer, you could theoretically do this in-house. If you seek out a graphic designer, it could be $500 to $2,000 for that design work.
Having an online presence is also a cheap or completely free way to get the word out about your business. While social media is free, owning your own website, if you make it yourself, will incur about $250 a year for your own domain name and set up on a web creator like Wix or WordPress.
For more expensive options, consider physical marketing in flyers, newspaper articles, posters, etc. For our purposes in calculating the coffee shop income, it is suggested that you spend 5 percent of your revenue on marketing.
Payroll Costs and Legal Fees
When determining the amount, you will need to spend on the payroll, you will have to look at your wages for employees, including taxes and processing W-2s, benefits, processing, and workers’ compensation.
This will also include any ongoing fees for accountants or attorneys and insurance costs. Your start-up costs will include getting your business license, your employee identification number, certificate of occupancy, food service license, and any other local licenses you may need. Legal intervention can cost between $1,500 and $5,000.
Do not forget to also pay yourself—this does not include you paying back your initial investment; this is your salary for the work you do managing your business.
According to ZipRecruiter, a barista makes about $12 per hour, and a coffee shop manager makes about $15 per hour. You should only need three employees to start—one to make the coffee, one to manage the shift, and one to manage the register.
Your monthly costs should not exceed 35 percent.
This final section involves paying back your initial investment, whether it be personal loans, bank loans, or yourself. Note that this section also considers maintenance, repairs, or anything else you might need to upkeep your coffee shop—including any growth opportunities.
This should be about 10 percent of your monthly budget.
Crunching the Numbers
So how much does an average coffee shop make? The actual income is dependent on your profit and expenses, but the following is a rundown of how to find that information for yourself.
One thing to remember is to build in realistic margins. Typically, the profit margin for a coffee shop is around 75 percent—meaning if it costs you $1 to make a drink, you should be charging $4. With the average cup of coffee—not espresso drinks, just your typical cup— hovering around $3, according to MarketWatch, this number is surprisingly competitive.
Still, with this high-profit margin, the typical operating profit for coffee shops still remains around two percent.
The typical coffee shop serves about 250 customers per day, giving you your number of sales. The typical customer spends about $7 per receipt—the average ticket price—which means a typical coffee shop could be bringing in $1,750 per day.
If your shop is open six days a week, that means you would be bringing in around $10,500 per week, $42,000 per month, and $504,000 per year, giving you your annual gross revenue.
Based on that $42,000 per month, the following chart is a breakdown of how much you should be spending for your fixed and variable costs.
Fixed and Variable Costs
Rent and Utilities
This leaves the coffee shop with a two percent profit margin.
To determine your profit margin, follow these steps:
Determine your revenue for the period—add up your number of receipts in a given time frame.
Subtract your expenses from that total from the same time frame.
Divide the number from step two with the number from step one.
Take the number from step three and multiply it by 100.
For example, take the $42,000 our hypothetical coffee shop made in one month and subtract all our expenses from the chart above, which equals $41,160.
Total Revenue: $42,000
Total Expenses: $41,160
$42,000 – $41,160 = $840
$840 / $42,000 = 0.02
0.02 x 100 = 2%
This means the coffee shop’s profit margin is 2 percent, which is an industry average. If this number is negative, your business spent more than you made during that chosen time frame.
Other numbers that may be helpful as your business grows understand your average receipt totals for your lowest sales and highest sales week.
Estimating that lowest sales week at $8,000 and the highest sales week at $13,000, you then can determine what your lowest and highest income can be per month or annually without changing any prices, offerings, or personnel.
With those numbers, your business’s lowest monthly income could be $32,000, while your highest could be $52,000.
These numbers outline your month-to-month profits. Remember that you also must pay back your initial investment—all the equipment you need, along with any construction costs and legal fees, branding, and consulting work. According to Investopedia, those upfront costs could be around $200,000, meaning if you’re setting aside ten percent of your monthly profits to pay yourself back, it will take four years to completely pay it off.
Increasing Your Profits
You’ll find that there are a few issues that come with your profit margins. Holidays may increase or decrease during the holiday season, so consider having some sort of promotion to bring business in or simply close early to give your employees time to spend with their families. You can save money by not having to run your appliances or use inventory during that time.
Weather can also be a factor—while uncontrollable; you can use those situations of either extreme heat or extreme cold to promote your cold and warm drinks, respectively. If you have a warning about weather reports, consider marketing your promotions ahead of time.
Competition is going to be the biggest issue in your revenue. Competition is good for your business—it can push you to provide better prices, customer service, and new products. Without competition, business owners can get lazy, so if you aren’t suffering from pressure from the competition, make your own by constantly educating yourself and your employees in best practices to make your business that much better.
Another way to increase your profits is to reduce your waste. Keep track of what you use and what you get rid of, along with the expiry dates on your perishable items.
Overstocking and then throwing unused items away is not going to help your bottom line. This can also be mitigated by training your staff on exactly the right portions for each drink.
Overstaffing can also be an issue—adapt your schedule to work for your business, and make sure you revisit scheduling as needed. Consider predicting your busiest times and schedule around those times, allowing flexibility as needed. But remember, when creating a schedule, make sure your employees are in the loop—communication is key.
Shopping around for suppliers can also lower your costs, along with buying in bulk. Increasing your advertising can also help bring in new customers, and using your social media pages is free—as long as you stay consistent with your message and your timing, this can be a very effective way of marketing.
Charging more for additional items may not be popular, but it’s an easy way to get some increased profits. Consider increasing the price for extras such as non-dairy substitutes, syrups, or extra shots of espresso.
Check more information on increasing sales HERE.
While opening a coffee shop may be overwhelming, it all comes down to planning. Sitting down and sorting out your business plan and finances will only help set you up for success, not just months down the line but years. Don’t be afraid to enlist some people to help, whether it’s trusted family or friends, legal advisors, or even people in small businesses that may be going through the same issues. For additional resources, check out the U.S. Small Business Administration website, and they can assist you with decision making or by pointing you in the right direction. Having a great base in which to start your business is key and within the realm of possibility.
What is the coffee shop failure rate?
Almost 50 percent of coffee shops that open will close within the first five years. The biggest issue when it comes to coffee shops is business owners not sitting down and making a plan—within that plan, make sure you’re getting the best managers and staffing. Other issues can include a poor location, bad leases, and high costs. Knowing that these issues exist and finding ways to combat them is the best way to make sure you have the best odds at survival.
Where can I find the money to start up my coffee shop?
Some options include bank or credit union loans, personal funds, loans from friends or family, or finding an investor. Confer with your accountant or legal advisor about which is the best for you. Typically, a mixture of several choices is the most effective and will leave you the most whole in the end.
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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.