Evaluating the costs involved in starting a coffee shop is one of the first ways that you will determine if starting a cafe business is viable for you. Whether or not you can afford to start a business is obviously a huge part of that decision and it will take some serious thinking to determine if that is an option. Quite often, aspiring coffee startups are intimidated by the numbers they see given for how much it costs to start a cafe. However, each coffee shop is unique so the number you reach could be vastly different based on the defining features of your particular shop. So don’t be discouraged right away if the perceived costs you come across while researching are larger than you imagined. If you are really dedicated to starting a coffee shop, at least look into the costs that your situation would dictate, they will probably look more promising than you would have expected.
So what do you need to know before you can tell how much your coffee shop will cost?
- What Type of Shop You Are Opening
- Where You Will Be Located
- How Many Employees You Will Have
- Product and Materials
- What Kind of Equipment You Will Need
- Account for Waste
Let’s talk about how these factors translate into real costs depending on your particular business.
Type of Shop
The structure and function of your coffee shop will have a lot to do with what costs are associated with starting up and maintaining your business. For a first example, let’s say that you are picturing a classic sit-down shop with a menu that includes basic coffee and espresso drinks and maybe a few snack items. Just as a start, the characteristic costs for this model will include rent/mortgage, some furniture, the necessary appliances for drinks and food such as refrigerators, and utilities like power and plumbing.
You could also be renting space as a kiosk in a mall, food center, marketplace, or other public space. Rent for this model will be considerably lower than that of a brick-and-mortar store, and you won’t have the expenses involved with renting or owning your own building space. While it has the drawback of not being its own entity, it may be worth looking into if other options aren’t affordable at the moment. If you have your heart set on a store of your own but just can not swing it yet, the kiosk has the potential of earning enough to move to its own location if it does well on this small scale.
The location you choose will have a lot to do with the type of shop that you want to open. But what I want to focus on for this consideration are real estate costs and amount of traffic. There is a delicate balance between finding affordable locations for your business and finding one that gets you enough exposure to sustain yourself. Since rent is a recurring cost, the location you choose should be in a space that you can continue to afford for an extended period of time. Typically spaces that are located in areas with a lot of foot traffic or clustered with other businesses will have higher rent prices than others, but they also bring more potential for sales in the long run. The best way to deal with this paradox is to do research about how other, similar businesses in the area have fared. Is there a considerable amount of turnover of restaurants and cafes in that particular neighborhood? Are there a lot of similar shops to the one that you want to open that are a short distance away? If so, then it may not bode well for you should you choose to put down roots there. On the other hand, if you find a spot where retail or food businesses are thriving but there isn’t much direct competition, this is a much better sign for your shop.
Number of Employees
No matter how big of a business you are going to have, you will have to think about how many employees you will need to hire as well as how much you can pay them. You do not want to have too many employees, for both financial and logistical reasons. It costs money to hire people. More than just paying each person an hourly wage, the time and money involved with frequently training new employees can become a huge leak of money. It’s also not advisable to hire too small a number of employees either since you run the risk of being short-staffed. Researching the ideal number of employees for a business of your scale will help you make sure that you will be efficient, and then you calculate how much you can afford to pay them. Keep in mind that although it may seem more affordable to pay baristas a lower wage, there will probably be less turnover over time if they are compensated well. It is so much more cost-effective to keep the same employees than it is to continually hire new ones. Don’t forget to think about managers or other leadership positions and how their pay will differ from entry-level baristas. It is typical for these employees to receive a few more dollars per hour for their leadership and other additional tasks.
Product and Materials
There are so many types of coffee out there, and almost as many prices that you can pay for it. And that is only one of the products you will be ordering each month to keep up with demand. Your food products, the cups, boxes, plates, and bags they will come in, and additional necessary items such as coffee filters or stir sticks, are recurring costs and as such, it’s important that you plan efficiently for them. Sometimes there will be a tradeoff as to where to put that money. If you pay for the best and most expensive roaster to supply your coffee, unless you have a great savings cushion, you might find that it is better to use less expensive paper goods. Or, if you opt for more pricey items just know that it will result in a higher price point for your customers who may or may not be willing to pay for it. You may be making those decisions to give the best possible service, not everyone will find it worth it to shell out an extra buck for a better disposable lid.
The equipment you require for your coffee shop will largely depend on what is on your menu. Obviously, if you are a cafe that makes its own pastries in house, industrial-grade ovens and the related supplies are necessary to meet demands. For just about every coffee shop, though, some of the basics that you will need are an espresso machine, a large drip coffee brewer, several coffee grinders, and hand and dishwashing sinks. After that, you will likely find that there are more types of equipment that need to be installed to make the business run smoothly. Luckily, even though most of these machines are big-ticket items, it will probably be a considerable amount of time before you have to replace them so they are essentially a one time cost. They will need repairs every so often that you will have to budget for, but if you take good care of them you should be able to get your money’s worth.
Marketing, while being a pretty big chunk of costs when you are first starting your business, will also be one of the biggest moneymakers. This means that you should not feel apprehensive about putting money into this endeavor. After all, marketing is a lot more than just handing out flyers or putting up signs. It has to do with developing your brand, targeting the right customers, orchestrating customer experience to encourage repeat business, and so much more. Making the mistake of getting your marketing wrong could be the one thing that puts your shop out of business. That being said, there is no need to spend time worrying about this if you have someone knowledgeable helping you navigate the process, so do not be afraid to invest in hiring someone to head up that part of the opening. A professional can give advice on area statistics that provide insight into your neighborhood audience. They can tell you what visual cues customers respond to best and how to adjust your packaging, social media profiles, signage and interior to fit your brand. There are tips and tricks you may never have thought of that can make a huge difference in how long it takes your shop to make a profit, so do not skip this key ingredient to launching your business.
Waste is one of those costs that is largely avoidable but can sneak up on you if it goes unregulated. There will always be spills, mistakes, and breakages that you will have to pay for. Customers may be unhappy with their order and ask it to be remade, or cups may be dropped and broken, and those are little costs that add up that will just have to be paid for. There are other types of waste that are easier to stay on top of which, if avoided, can save you a considerable amount of money long term. For one, be clear with your employees about what they can and can not consume from the shop. Setting expectations that they may only make themselves one drink per shift and banning sampling of other items for free will go a long way. No matter how vigilant you are with waste, there will always be some unexpected expenses you will need to deal with, so overestimate how much these types of things will cost you so that you do not end up being unable to cope. Just making employees aware of how they use the shop’s resources and having leadership give reminders about this takes care of much of the carelessness that causes waste. Another way that you can stay on top of waste is simply to stay organized. Keep track of how quickly you use perishables and do not over order. Also, know how much of everything that you use so that you don’t end up with tons of product that you will not use before it goes bad. If you are able to keep a running log of what you have and how quickly it gets used, you can develop an ordering system that is matched with your shop’s specific needs.
Frequently Asked Questions
Before you do anything else, thoroughly planning and researching your purchases and other moves will greatly reduce needless spending and lighten the effects of starting the business on your wallet. You can also always reach out to investors to help you generate the funds needed to get off the ground so that the financial burden isn’t entirely on you.
Ideally, the most important things to look for in a location are lots of foot traffic, access to your target customer, and affordable real estate. Some other considerations are nearby competition and whether the buildings in the area are such that they can accommodate the necessary space for equipment for your shop.
To start, reach out to family, friends, and peers who might be interested in being a part of your business. People who know you may feel more comfortable investing their money because they have a personal connection with you. Beyond that, research agencies and advisors who seek out promising startups like yours. No matter who you want to recruit, make sure you have a thorough and well-researched business model to show them so they know that you are legitimate.
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!