Coffee shops had come a long way since 1971, when the first Starbucks opened in Seattle, Washington. Since then, coffee shops have seen an explosion in popularity. According to Daily Coffee News, there is now 35,616 coffee shop in the United States alone. According to the website disturbmenot.com, 64% of adult Americans drink coffee daily. Millions of people in the United States are drinking coffee every day. Many of them are purchasing their coffee from their local coffee shop. This begs the question, “How much money do coffee shop owners make on average?”
Coffee shops make an average annual income of approximately $215,000 per year. Monthly, coffee shops take in an average of $18,000 in revenue. Coffee shops take in $600 per day on average.
In this article, I will examine a few key factors that can dictate what type of income the average coffee shop takes in annually. A few of these factors include the rise in popularity of coffee, whether to buy into an existing franchise or go the independent route, the operating expenses of a coffee shop, and the average profit margin for coffee shops.
Coffee’s Rise In Popularity
Coffee has been around for centuries upon centuries. According to Wikipedia, evidence shows coffee being drunk or people having knowledge of the coffee tree from the early 15th century. The earliest use of coffee was found in the Sufi monasteries of Yemen, spreading soon to Mecca and Medina. By the sixteenth century, coffee’s popularity reached the rest of the Middle East, Karnataka, India, Persia, Turkey, the Balkans, Europe, Northern Africa, and Southeast Asia.
After coffee’s use became prevalent in the Catholic Church, it didn’t take long for the coffee to become quite popular in Northern America. According to the National Coffee Association, independent coffee shops sell anywhere from 300 to 500 cups of coffee per day. Larger coffee franchises sell upwards of 700 cups of coffee per day, per the website Start My Coffee Shop. With all of this coffee being consumed, you could say that coffee is quickly becoming the national beverage of the United States. That’s good news because the more popular coffee becomes, the more money your coffee shop will make.
Buy Into a Franchise or Open an Independent Shop
Along with the rise in popularity of coffee, chain the rise in popularity of the coffee shop. One of the most important decisions you will have to make is whether to open an independent shop or to buy into a franchise. Opening an independent coffee shop will require a significant amount of work, but it is a rewarding feeling to know that you built your business from the ground up. Buying into a franchise might require a significantly large initial investment, but most of the work has been done for you.
According to the website How To Start an LLC, the average cost to open an independent coffee shop is around $80,000 to $250,000. A few variables that factor into this cost are location, size, and what type of shop you’d like to open. The average independent coffee shop sells about 250 cups of coffee per day, which amounts to approximately $215,000 per year.
Starbucks is probably the first name that comes to mind when you are thinking of a coffee franchise shop. However, according to Fit Small Business, some of the best coffee franchise opportunities include:
- Corner Bakery Cafe – $10,000 – $1,935,000 initial investment with 5 percent royalty fee
- Maui Wowi – $73,900 – $1,492,500 initial investment
- Dunkin Donuts – $95,200 to $1,691,200 initial investment with 5.9 percent royalty fee
- Scooter’s coffee – $103,000 – $468,500 initial investment with 6 percent royalty fee
- Cafe2U – $109,146 to $154,621 initial investment with royalty fees of $175 per week
According to Scooter’s Coffee, the average coffee franchise owner will take home around $66,000 per year. Of course, there are a few factors that can have an effect on the profit a franchise owner will see. Two of these factors include your location, oh, and the particular franchise brand you are buying into. More established brands may see larger profits, while startup franchises may take a while to become established. One of the perks of buying into a startup franchise is that the initial investment required is usually significantly lower than buying into a more established brand. Starting an independent shop for buying into a franchise is a decision that only you can make regarding your business, but it will affect your bottom line.
Operating Expenses of a Coffee Shop
Any business, whether it is a large or a small business, we’ll have operating expenses. So, what is an operating expense? Operating expenses are usually defined as the cost of running a business. A few of the normal operating expenses of your coffee shop will include rent or mortgage, staffing costs, equipment costs, advertising or marketing costs, and insurance premiums. The website agdirect.com states that the average operating cost for a small business is between 60% and 80%, typically. If you can keep your operating cost at 70% or below, you are doing well.
If your coffee shop’s operating costs are too high, there are a few things that you can do to improve cost efficiency in your business. One of the most significant things that you can do is to take a look at your fixed and variable costs. For example, land costs are one of the fixed costs that can have a tremendous impact on your operating expenses. In other words, if your operating expenses are too high, you may want to take a look at changing locations to lower your rent. Another measure you can take to lower the operating expenses of your coffee shop is to reduce your purchases or to seek other vendors with lower prices. High operating expenses will have a direct impact on the net profit of your coffee shop, but several things can be done to dramatically lower your operating expenses.
Average Profit Margin of a Coffee Shop
Before we take a look into calculating profit margin oh, let’s make sure that you have a clear understanding of what profit margin is. Your coffee shop’s profit margin is the percentage of revenue it retains after outgoing expenses. According to Patriot Software, there are three different types of profit margins. These types, along with how they are calculated, include:
- Net profit margin – the total amount of revenue left after all expenses are deducted. Net Profit Margin = (Net Income / Revenue) X 100
- Gross profit margin – the income left over after accounting for the cost of goods sold (COGS). Gross Margin = [(Total Revenue – COGS) / Total Revenue] X 100
- Operating profit margin – takes into account all overhead, operating, administrative, and sales expenses necessary for day-to-day business operations. Operating Profit Margin = (Operating Income / Revenue) X 100
According to the Houston Chronicle, the average profit margin for a small coffee shop is 2.5 percent. However, large coffee shops tend to have a much higher profit margin. Direct costs for a coffee shop average around 15 percent. This means that most of a coffee shop’s expenses go directly towards overhead. Most small coffee shops make their money in sales volume, which means that they must sell more cups of coffee than larger franchises to turn a profit. Knowing how to calculate profit margin, and keeping an eye on your profit margin, will give you a great idea of how much money in your coffee shop is making.
Check out more on starting your coffee shop HERE.
Conclusion
As you can see, there is a good living to be made from opening and running a coffee shop. The rising popularity of coffee is a key factor in making your coffee shop a successful one and profiting anywhere from $66,000 to $160,000 per year. Whether you choose to open your shop or buy into a franchise can also factor into the income you can make from owning a coffee shop. Your net profits will also be affected by your operating expenses. Finally, you can determine how much income your coffee shop has brought in through the profit margin of the shop. The higher your profit margin is, the more successful your coffee shop will be. After all, isn’t having a successful business the ultimate goal of opening your coffee shop?
Frequently Asked Questions
Buying into a coffee shop franchise may be a smart decision, as most of the research and the work has been done for you already. However, there is a cost associated with buying into an existing franchise. According to Investopedia, these are the average costs of buying into a coffee franchise:
Sit-down coffee shops – Between $200,000 and $375,000
Drive-through shops – Between $80,000 and $200,000
Small kiosks – Between $25,000 and $75,000
Franchised sit-down coffee shops – Up to $673,700
Licensed brand-name stores – Around $315,000
Just like with many other businesses, coffee shop owners start with the ambition of being a successful business. Unfortunately, many businesses do not end up being the success that they originally envisioned. According to the website Coffee Shop Startups, a few of the reasons that coffee shops may end up failing are poor management, lack of sales to cover costs, bad employees, and service, as well as having too much debt.
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
