Many of us start our days with an eye-opening cup of coffee at home or on our way to work, school, and other activities. Want to know something eye-opening about this group of people? According to the National Coffee Association USA, three-quarters of coffee drinkers report having not changed their coffee intake at all since the pandemic hit. What’s more, those who reported a change mostly just started making more coffee at home but missed going to coffee shops when they couldn’t. This means that anytime is a good time to start a coffee shop.
Starting a coffee shop begins with finding an entry point and planning your funding. Next, get the legalities worked out—permits, licensing, and applicable certifications. Design your menu. Think about things other coffee shop owners have overlooked and build that into your shop design. Finally, work out your marketing road map, including how you may expand in the future.
This article is going to cover, in detail, all of the steps just mentioned so you get a good understanding of what you need to do to get your coffee shop started. Whether you already have some plans or you’re in the process of determining if this is a good route for you, this guide is meant to help you. We’ll wrap things up with some final thoughts and even a bonus section about some coffee business alternatives to a full-fledged coffee shop.
Finding Your Way In—An Entry Point
The coffee industry is a strong one that is very lucrative. Research shows that coffee is second on the list of commodities that are most sought-out for purchase by consumers across the globe. There are around 500 billion cups of coffee ingested all over the world every year. All of this means there is room for you and your new coffee shop in this industry.
What this doesn’t mean is you can just open a coffee shop anywhere and expect it to do well. Your first step is to figure out where your entry point is. You’ll do this by looking for a great location. That’s not going to be next to your neighborhood Starbucks. Nor will it be in the middle of nowhere. You need to be strategic about where you choose to open a coffee shop. Here’s how.
Know the neighborhood where you’re wanting to set up shop. You’ll want to look into the type of consumers that spend time in the area. Is this somewhere that you’ll have mostly locals stopping by or will you see a lot of tourist traffic? Is this where the older crowd hangs out or is it mostly college kids or even younger? Will you be servicing mostly business folks or the artsy types? The people who spend time in that area are your potential future customers, so that will help you in making many of your decisions about your business.
Know the competition in the area. You need to know who is already servicing the neighborhood. If there are already six coffee shops within three blocks of each other, chances are another one is going to have a tough time breaking into the scene. There’s nothing wrong with having some competition but you don’t need to make things harder on yourself than they need to be. Don’t plan for opening your coffee shop in an already saturated market space.
That being said, you do need to familiarize yourself, as much as possible, with the competition in the neighborhood where you’re going to position your business. Check out what they offer and what their prices are like. Look for gaps in their offerings. This will help you set your menu and your prices so you can stand out by offering something that no one else is.
Depending on the extent of service you plan on offering, your competition may be more than just other coffee shops. Restaurants may also compete with you. Make sure you look at what restaurants are nearby and again look at a gap in the items they’re offering. You can set your coffee shop up for success by putting items on your menu that customers may be looking for but are unable to find.
The traffic in an area can help you choose a location, also. Is this somewhere that people can easily stop off to grab a coffee on their way to and from work? Are there schools nearby that parents will be dropping their kids off at? Does the area have a lot of shopping, so you could be seeing a lot of foot traffic? Your coffee shop has to have customers to succeed and it’s easier to get customers in an area that already has people coming through it.
Once you’ve found a good location, you can build your business plan around that, and then it’s time to look at finances.
Finding Your Funds—Financing
You’re going to need money. You know that much. How much you need might still be undetermined, but you know you need some and can get a rough idea of how much you’ll need by considering the different things you’ll need to pay for. Let’s start with a list of expenses that you can expect to have when you’re opening a coffee shop.
Building or rent costs – This will likely be a very substantial cost. If you’re purchasing a space and you’re going to be building it out, you’ll have all of that cost included in your startup costs. If you’re going to rent, you’ll usually have to come up with more than just a month’s rent, as well as a deposit.
Licensing fees and permits – You’re going to have to pay for any of the legal documents required by governing agencies before you can open your coffee shop.
Equipment – This category will include your espresso makers, other coffee makers, grinders, blenders, ovens, and more. This isn’t a good area to go cheap in.
Contracting fees – These could be for accountants, consultants, lawyers, builders, and designers.
Coffee and other supplies – This is all of the beans, grounds, milk, ingredients, syrups, and food items.
Dishes – You may or may not be going with reusable dishes. You’ll have to pay for that upfront if you are. Otherwise, you’ll be paying for the disposable cups and plates, anyway.
Furniture – If you’re going to open a full-service coffee shop with a sit-down area, you will have to purchase the furniture to accommodate your guests.
Payroll – You have to have money to pay your new staff.
Training costs – This can come in the form of paying staff members to train others, or you can hire trainers from outside. Either way, you have to budget for training time.
Other expenses – This includes the utilities, the cleaning supplies, the office supplies, the insurance bills, your marketing budget, and anything else that doesn’t already fit into a category.
If you’re planning to open a full-service, sit-down coffee shop, then know that you’re going to be looking at anywhere from about $200,000 to $375,000 to get started. Other types of coffee businesses can be opened for less, but we’re going to use the full-service shop as our baseline for this article.
Now that you have an idea of how much money you need, it’s time to talk about how you can secure those funds.
Many entrepreneurs are unsure of when they should start trying to raise the money they’ll need for starting their business. Our answer to that is the sooner the better. Also, once you’ve raised some money, that doesn’t mean you need to stop there. Having extra funds handy is never a bad idea when you’re trying to open up a shop.
There are several ways you can acquire funds for starting a business. Here are the most common.
Self-funding means you’ll be coming up with the money you need through your resources. Some of the ways entrepreneurs fund their businesses themselves are with their savings, borrowing off their 401k plans, tapping into the equity on their homes, or even by asking for help from friends and family.
The benefit of self-funding is the business is completely within your control. You don’t officially owe anyone. The ownership is still entirely yours. You get the only say in all of the important decisions regarding your business.
Another way to get the funds you need is through investors. The most popular form of investor funding is through venture capital. You can get a lot of money this way, but you’ll likely have to give up some control. Usually, venture capitalists will ask for an equity stake in the company and some decision-making authority. At the very least, they’ll ask for a board of directors’ seat.
The process for finding an investor like this can be lengthy, sometimes. You’ll want to do a good bit of research when you’re looking for one. There are, both, venture capital firms and individuals who may invest on their own. Your job is to seek out the ones that have had success with startups and who have some kind of knowledge of your industry. You can find out what businesses they’ve invested in previously to see how those investments turned out.
Once you get a meeting, you’ll be showing them your business plan, which needs to be in tip-top shape. There will be a review with the others in the firm if you’re going that route, and then an offer of terms will be made, should they decide they’re going to put money in. You can counter the offer if you feel the need, and once an agreement is landed on, you’ll receive your funds.
Crowdfunding is a good source of funds and one that is potentially a very good idea for a coffee shop. Coffee shops often become beloved spaces in the community. If you get the news out to the community that you plan to open a coffee shop for the members of the community to enjoy, there may be individuals and other business owners who want to help you gain the funding to open. You’ll still maintain total control over your shop, but you should offer those who donate some sort of gift. This is building your necessary funds off of many small investments, rather than getting one large investment from one venture capitalist.
You can also apply for a small business loan. However, these aren’t easy for startups to get approved for. You’ll have to have a very detailed business plan, along with an overall expense sheet, and a 5-year projection sheet for finances going into the future. You should look into loans from more than one financial establishment so you can comparison shop for the best terms.
Finding the Necessary Documents—Legalities
Virtually every industry has governing agencies they have to answer to. Those agencies set the standards you’ll have to adhere to and the documentation requirements that you’ll have to follow.
Your first step for finding the necessary legal documents you need is to find out who all of your governing agencies are. We say agencies because often there will be more than one.
At the top of the chain is the Food and Drug Administration (FDA). From there, the authority trickles down into the communities. You may have state laws to abide by, county laws, and city laws. It’s up to you to look into what the rules are in your area, as they can differ from region to region.
Once you’ve contacted all of your local governments to find out what licenses or permits you’ll need, then you should start working toward acquiring those as soon as possible. Sometimes, these processes can get delayed for a multitude of reasons, so you should move forward quickly with your applications. Below is a list of some of the documents you may be required to obtain.
Employer Identification Number (EIN) – This is, essentially, a social security number for your business. This is how the government will track taxes your business owes.
Business license – The requirement for this differs from state to state and from business type to business type.
Building permit – This is sometimes referred to as a Certificate of Occupancy. If you’re doing any building out for your shop or renovations, you’ll have to have your building permit displayed somewhere on the premises.
Department of Revenue Retail Sales Tax License – This will cover you for selling consumer items that have sales tax added on the bill. You’ll also go through this agency for setting up your state tax withholding and some of the employment insurances.
Retail Food Establishment License – This is needed for businesses that are going to be serving food or drinks to customers in a public setting. It’s issued by the health department and requires inspections to keep current.
Liability – You may be required to carry liability insurances or licenses by one or another entity.
This is not an exhaustive list, nor is it one where you’ll be required to get all of these, however, it’s to make you aware that there are several that you could be expected to have. You need to find out what your required documentation is and apply for them. Keep in mind that most, if not all of them, will have a fee associated with acquiring the applicable document.
Some aspiring coffee shop owners ask if they need to have a college degree to open a coffee business. No, you do not. There is no legal requirement for education when it comes to owning your coffee shop. That being said, it could help you with acquiring funding. Investors will want to know about your background, so if you have a college degree or some formal education that is relevant to owning a business, you should disclose that information.
Finding Your Niche—Your Menu
The key to success for many businesses is to find a way to stand out. You can’t be just like all the other guys. You need something that makes you shine and gives you an edge over your competition. This is what we call your niche. What is your niche? What’s the gap you’re going to fill for the people of the community where you’re positioning your business?
A coffee shop can offer customers different items on their menu, lower prices, better service, and an ambiance. You can choose to stand out in one of these areas or all of them. That’s up to you. Some businesses find huge success just by offering an amazing item that can’t be found anywhere else. Others maintain the lowest prices in the neighborhood. Still, others offer consumers a better customer experience. An example of this would be Chik-fil-a. Their drive-thru experience is one to be applauded. They have the ideal recipe for getting customers through the line quickly and efficiently, all while providing that service with a smile and absolute politeness. You have to find a way to set your coffee shop apart from the competition.
Let’s start with your menu. During your research phase, you were checking out the competition. Did you find that anything was missing from the menus in those other shops? Were there flavors that you didn’t see anywhere? What about the food items? Were there shops that had any healthy food options for their customers? Did any of the competitors serve actual meals or were there only bakery items and snacks? If there are no other health-conscious coffee shops, be the one that is. That can be your niche.
Here are our tips for what you NEED to serve HERE.
Don’t go so far into your niche that you alienate the other type of customers, though. As an example, with our health-conscious coffee shop idea, you don’t want to leave out the customers that like the creamy espresso drinks topped with whipped cream and chocolate. You can still offer what’s popular, but also emphasize your healthy options.
When you start building your menu, make sure you offer what’s always popular. You want to be able to make all of the espresso-based drinks. You’ll want lattes, cappuccinos, mochas, and macchiatos on the menu. You should also offer brewed coffee and decaf drinks. Iced and cold brew coffees should be included, as well as some form of Frappuccino-like drinks.
The flavors you offer should go the same way. Include all of the most popular flavors like vanilla, hazelnut, white chocolate, caramel, and peppermint mocha. After that, though, it’s ok to get creative with some of your flavors. You can use your imagination and come up with anything, as long as it sounds good. You’ll want to test it out on some folks before making it part of the menu, but finding new flavors can be fun.
The food on your menu should be broad enough to give those who are more health-conscious something to choose from but also include some sweet treats that pair well with coffee. If you’re going with a full-service coffee shop, like a café, you’ll need to have a wider array of foods to choose from. Put some foods on your menu that will suffice as a meal.
The last thing to consider here is whether you want to sell merchandise in your coffee shop. Many shops sell coffee mugs or travel coffee cups. Some of them sell clothing items with the business logo on them. There are even shops that sell coffee makers, grinders, espresso makers, and other equipment. There are plusses and minuses to this option, but if you feel it will help you increase your profits, then, by all means, do it.
Finding Your Style—Shop Design
This part of your process should be pretty fun. This is the part where you decide what the style of your coffee shop is going to be. We recommend that when you embark on this piece of your journey, you try to consider things that other owners of coffee shops may not have thought about.
You may be asking yourself, well, what does that mean? We mean, think about the little things that will make a big difference to your customers. For instance, you could think about setting up a “home office away from home” corner. Many people are working from home now, which, let’s face it, isn’t always the easiest thing to do. If you have the room to do it, you could set up a space that is comfortable to work in and includes conveniences like desk-level outlets, table space for laptops, comfortable office-style chairs, and even office supplies or equipment such as a printer. If you give working people a place to do business while sipping their favorite coffee drink, you’ll likely get multiple purchases out of that kind of customer in one visit.
The furniture you use to accommodate customers who come in to have their coffee will say a lot about your shop. If you want people to come in, order a coffee and some baked goods and sit for a while, then you need to have furniture that invites those people to stay. You can certainly mix it up and do some table and chair sets that are more of the standard in a café, but make some comfortable sitting areas with big cushy chairs and couches, too. If you’re in a locale where there are a decent number of cold and wet days, consider having a fireplace installed. Look for decorative pieces that are welcoming.
Your furniture will help to set the stage for the ambiance you want within your coffee shop. What exactly is ambiance? This is the feel of the place you’re in. It’s the character that customers will describe to others. Think about how you want people to feel when they come to your coffee shop. There are some different ways for you to set the ambiance in your shop.
- Decorative pieces
- Mood setters, such as fireplaces, aquariums, televisions, water features
- Store aroma
You want to build your ambiance with each of the factors just mentioned. You’ll try to appeal to your customer through each of their different senses. You want the factors to match each other, though. Don’t send mixed messages if you can help it. For instance, you wouldn’t want to have soft calming music playing in the background, with a fireplace, the smell of freshly baked muffins permeating the room, and then some bright fluorescent lights up on the ceiling. The lighting would be in contrast to everything else that’s being taken in by your customers. Inconsistency like that would only lead to discomfort.
The final design feature we want to mention is your sign. This is something that many new business owners overlook as being very important. It’s more important than you may think. Your coffee shop sign can be either an invitation to passersby to come on in or a deterrent. Or, in some cases, it can even just go completely unnoticed. You want something that will be seen, is inviting, is memorable, and isn’t over the top.
Remember that you have the desired ambiance. The sign you decide to put on the outside of your shop needs to be in line with that ambiance. If potential customers like your sign, chances are they’ll want to come in and see what things are like on the inside. Here are a few critical notes about what your sign needs:
- Your company logo (should you have one, which you should)
- Color matters (use it to elicit emotion)
- Something to draw the eye in
- A clear implication of what the business is
- A quality match to the quality of your coffee shop (Ex: high-end coffee shop should have a high-end sign)
- Better signage than the competition gives you an edge
The design of your store should send a message to all of your customers and potential customers about what type of service they can expect and what kind of business it is. In most cases, people who visit the shop will likely see who you are through the impression they get from your business. Make sure that all aspects of your shop design are on point with the image you want to portray to your customers. Even just the consistency of everything will go a long way toward building lasting relationships with your customer base.
Looking for the perfect name? Check out our list of the best name generators HERE.
Finding Customers—Marketing Strategy
One of the biggest challenges business owners face is in how to bring in customers. How do you go about building your clientele? It can sometimes be a very big expense, too. However, if you’re already thinking about marketing every step of the way toward opening your coffee shop, you’ll be able to make the most of everything you’re doing.
Let’s start by talking about when you should start marketing. Should you wait until you’re ready to open the doors? Not! You should be getting the word out about your coffee shop as soon as you know you’re going to do it. Now, that doesn’t mean go shout about it when it’s just an idea. But, once you’ve started the process and secured a location, it’s safe to start letting the community know that you’re coming. And that being said, you may want to already have your logo made up. Why? Because the better you do at getting that logo out in front of people, the more familiar it will look to them when they see it on the sign of your shop. They’ll already know what you’re about and may be intrigued enough to try your coffee shop out.
So, when do you stop your marketing campaign? Answer—you don’t. Unless you want to fail with your coffee shop, you should never stop marketing. It doesn’t mean you have to continue to go as hard as you did in the beginning. Some of your marketing strategies will change because you’ll have more to build off of. You’ll start benefiting from the advertising some of your customers do for you by word of mouth and bringing others with them. Marketing is something that builds and mutates over time. You can go with the flow of it, but don’t ever just stop.
Now let’s get into how you can market your coffee shop. You’re not going to choose just one method. Well, you can but it’s not the best way to generate the most business. Unless you’re only targeting one type of consumer, which doesn’t make sense, then you’ll want to initiate various kinds of marketing that will speak to the broadest audience you can reach.
- Establish your online presence. This means you need a good website so people have somewhere to land when they go searching for you on the internet. Your website needs to be your online hub and, thus, needs to be in line with the rest of your branding efforts. Don’t portray your business online any different than you do at the actual shop.
The same goes for your social media pages, which you must have. The more platforms you are on, the more people you will reach. It’s a good idea to have someone on your team who can manage your social media accounts for you. You’re a business owner so you’re going to be busy. It will be to your benefit to hire someone who can tend to your business online so that your accounts don’t go stale. Both your website and your social media pages need to stay updated at all times.
Make sure that anyone looking for information for your coffee shop can find it online. Give the shop information in a place that is front and center when customers go to your website. Include your shop address, phone number, and the hours of operation right on the home page. Make your menu easy to find with only one click. You may want to put some actual photos of the inside of your coffee shop, too, so people can see more of what to expect.
- Go live. One thing that is becoming more popular when it comes to online marketing is live video. What’s been discovered is that the typical consumer who is going online is more apt to watch the video for longer than they are to stay on a page of written content. You can capture your audience for longer and more effectively with a live video. Show your potential customers what they want to see. Let them see the coffee and how it’s made. Maybe let them meet the baristas in a video. This is an easy way to get some personality into your marketing strategies.
- Build an email list. Email campaigns are still very effective for building a customer base. You can capture emails to put on your list through the use of a landing page. Once you start sending emails, think about what you’re putting in them. It’s great to get coupons and store information in emails, but some people won’t even see those if they don’t feel it’s worth their time to open the message. You can use the email space to address issues your target audience has regularly. Maybe some questions have been asked on your social media platforms. Use the email space to answer those. This is also the way you could let existing customers know about new menu items and flavors, and about exciting expansion news.
- Get on Instagram. Jump on the hashtag train. You’ll want to make sure you’re using Instagram. It’s the social media platform that is growing at the fastest pace right now. Using popular hashtags is a way to get your coffee shop seen by more people quickly. It’s super important that with Instagram and any of the online platforms that you are responsive, though, because people want to know you’re listening and engaged.
- Interact with your audience. Find ways to engage your audience more. It’s a good idea to start a blog and to make social posts on your pages regularly. However, you can take things further than that, even. You can design surveys, fun games, or little quizzes that are tailored around your business and the coffee industry. The more interactive you can be with consumers, the better.
- Build on feedback. Encourage customers that you already have, once things are up and running, to write a review about your coffee shop somewhere. People want to know that others like businesses they’re thinking about trying out. They’ll want to know what the hype is all about if you get some customers to generate some. This is known as user-generated content and it sells products and services well, without your having to spend tons of money on advertising.
While you should budget some money for marketing, you should see that there are many ways you can advertise your coffee shop for free. Essentially, most of what we’ve just discussed won’t cost you anything but time. That’s except for hiring someone to manage your social media platforms. Digital marketing takes away the need to build large advertising budgets for print and TV ads. There are better ways to get your coffee shop in front of the eyes of thousands of potential customers with little to no money.
You Found Your Passion
You are almost certainly passionate about coffee. Most people who want to start a coffee shop are. You found your passion so why not turn that into a lucrative business and share your passion with others. You’ll have to follow a process to take things from an idea that you’re excited about to a real business, but it can be very worth it in the end. Make sure to build a business plan starting with where you will open. Assess your financial situation and how you will secure funds. Get all of your legal ducks in a row. Choose an awesome menu and design your actual shop. Make sure to let the community know who you are and that your coffee shop is coming. Then, watch your dreams take shape right in front of your eyes with every cup poured.
Check out unique ideas for coffee shops HERE.
Bonus Section—Other Coffee Businesses
There are a few other ways you can open a coffee business. It’s not all about full-service, sit-down coffee shops these days. Here’s a look at some other ideas that may not cost you as much to get started.
Coffee cart – A coffee cart is a great option for someone looking to start a coffee business but not wanting to manage a complex operation with many employees. Depending on your operation hours, you may not need any employees. There’s a flexibility that comes along with this type that you won’t find with a coffee shop because of its mobile nature.
Split spaces – This type is similar to having a full coffee shop, but you share the space with another business. Thus, you share the expense of the lease with another business. Your business and another or more than one other operate within the same building. It could be anything from a bookstore to an optical shop, to a salon, and more.
Traveling coffee business – This has the type of flexibility the coffee cart has, but even more of it. You can make your coffee business one that can be rented out. There’s a trend toward these for weddings or events surrounding weddings, school events, parties, conferences, business meetings, and more.
Drive-thru – Your coffee business could be drive-thru only. You won’t need much space for this. You’ll see these set up as if in a tiny house with a drive-through window on one or both sides.
It’s up to you how extensive you want your coffee business to be. There are certainly also some other options, but we wanted to briefly mention some of the most popular.
Some Related Questions:
How much does it take to open a coffee shop?
The most expensive type of coffee shop to open is going to be a full-service one with a sit-down area inside. You’re looking at a minimum of probably about $200,000. If you’re wanting to buy into a franchise, it will cost you more than that. You’ll be paying for a business plan that has already been developed and already works so it will be pricey. If you’re looking for a less expensive alternative, consider a drive-thru coffee shop that starts around $80,000 or a coffee cart that could be anywhere from about $25,000 to $75,000.
Is a coffee shop a good investment?
A coffee shop can turn out to be a very good investment. The market is lead by a few major heavy hitters, but there is still room for small, privately owned coffee shops. Most small coffee shops will make money if you manage your business the way you should.
Why do coffee shops fail?
If a coffee shop fails, it could be due to several things. It may have had too much competition from being poorly positioned. It could be that it was poorly managed. It also could be due to bad employees who give poor service.
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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.