Let’s get straight to it! Is a coffee shop a good investment?
Why, yes it is!
A coffee shop is a good investment because:
While startup costs are a little high, the return on your investment is grandiose once you open your doors.
Average Americans continually frequent the coffee shop market.
Coffee shop statistics show an upward trend in the market.
Your coffee shop equipment can show you the positive nature of return on investment.
Brew your favorite cup of java and let’s learn why a coffee shop is a great investment for you, your family, and your community!
What are the startup costs for a coffee shop?
Startup costs for a coffee shop include the initial cost of the first month’s supplies, the first month’s rent, equipment costs, and maintenance costs to get your leased building to code.
Startup Equipment and Supplies Costs
How to Start an LLC outlines the cost of various supplies that are needed to successfully operate a coffee shop. This includes:
- $1,000 or more of coffee for one month. The average cost of coffee is about $7.50 per pound purchased. This cost will depend on the wholesaler from which you purchase your coffee supplies.
- You need cups, lids, sleeves, and straws to package your coffee products to sell to customers. Say that all of these supplies cost about 40 cents per cup of coffee sold. Ultimately, this price will also depend on the price per unit of each packaging item you need. If you sell coffee to about 12,000 customers per month (400 customers per day), you can expect to spend about $4,800 on packaging supplies.
- A drip coffee grinder costs about $1,000 for a high-quality brand.
- Sugar packets will run you about $75 for a one-month supply.
- Say that your budget for making different pastries on your menu for the month is about $1,250.
- Your Point-of-Sale (POS) system will average about $700 in cost between software.
- Amongst other calculations.
In all, you are looking at about $22,000 on the lower end just for startup equipment and coffee supplies.
To check out the full details of the startup costs breakdown, visit this How to Start an LLC link.
Startup Lease Costs
The amount you have to pay for your monthly lease will depend on the location and nature of the real estate market. Make sure that your monthly lease cost does 10% of your net sales.
According to Small Business Chron, retail locations such as coffee shops benefit more with a lower percentage of rent versus your monthly sales. The suggested range is 5% to 10%. For example, if you have to pay $1500 per month for your lease and you make about $20,000 in monthly net sales, this means that rent is 7.5% of your coffee shop’s income.
If the percentage goes a little over this range, you do not have too much to worry about. Just look for ways to increase your monthly income, so that you can keep the percentage as close to the range as possible.
However, if your rent is 20% or more of your coffee shop’s monthly income, you may need to think about changing locations or negotiating a lower lease payment per month with your landlord if you pay upfront a few months in advance.
Startup Utility Costs
The utilities you will need to successfully run your coffee shop include electric, water, sewer, and gas (if you have a gas stove to cook pastries and hot meals). Don’t forget the cost of Internet and/or cable tv. At the very least make sure that you have Internet available so that customers can enjoy the perk of free Wifi as they enjoy their coffee.
The following are projected utility costs for your coffee shop’s first month of business. The overall cost will depend on your utility providers, the service packages you select, and how much of the type of utility you are using in your coffee shop. For this calculation, we will leave out cable because that is an extra service.
Electric: $250
Water: $60
Sewer: $30
Gas: $120
Internet: $70
Total Utilities Cost: $530
Maintenance Costs
Unfortunately (and fortunately for the safety of you, your employees, and your future customers), maintenance will have to be done to get your building to code.
If you have leaky pipes, you will need a plumber to come and fix them.
If there is an electrical issue in your coffee shop, an electrician will have to visit to be sure that your electrical wiring is secure and does not cause shorts or wire warping.
For sake of calculation, say that you may need to spend about $1,500 to get your building to code and in safe operating function.
To figure out if your building is up to code, check out this building codes website that gives you resources based on the state in which your coffee shop will be operating.
Startup Business Fees
To begin your coffee shop, you will need to pay certain business fees to make your shop legally operable including business insurance, business registration, marketing fees, interest on business credit, and more. For sake of calculation, let’s say you will have to spend about $1,000 on registration and startup business fees.
Final Startup Calculations
Just by the calculations shown in the examples above, startup costs can go at the lower point of $25,030 for a very small coffee shop with the base equipment and necessities to make it operable.
However, according to Crimson Cup, a coffee shop can take an average of anywhere between $80,000 to $300,000 to start depending on the size, location, and other fees needed to begin the business.
How much does the average American spend at coffee shops yearly?
How much the average American spends at a coffee shop yearly depends on their age range. According to The Simple Dollar, millennials aged 25 to 34 spend about $2008 per year on coffee alone, and a study found that they spend more on coffee than healthcare costs.
Office workers who are young to middle-aged have been reported by Hamilton Beach to drink an average of 20 cups per day.
It’s been reported even as of 6 years ago that at-home coffee preparation may be popular in the 78th percentile, but it is still slowly fading in popularity as more people frequent coffee shops for a more “convenient” cup of java.
Let’s say that an American worker gets a coffee and a pastry or sandwich to go with it every morning during the weekdays and spends about $5. That’s $25 per week, $100 per month, and $1200 per year.
If he or she loves coffee and does not feel like brewing it at home, he or she may stop for another cup of java on the way home from work before dinner. This will increase that base projection of $1200 per year to about $2400 per year if they stop for coffee and a snack or meal for a second time each day.
What coffee shop statistics show an upward trend in the market?
You will be astounded at the many coffee shop statistics to show that the market is in an upward trend. Take advantage of this continual upward trend to capitalize on an investment into a coffee shop of your very own!
About 50% of the American population which equates to 150 million Americans enjoy coffee beverages. They drink about an average of 3 cups of coffee daily. This could mean a stop to their favorite coffee shop for almost every meal unless they brew a cup at home for one or two meals.
Since you will be an independent coffee shop, you will enjoy a portion of the yearly total of $12 billion in sales. That’s amazing!
The average drive-thru coffee shop will sell about 200-300 java-based beverages per day. Even if you got 250 coffee clients per day with an average transaction of $5 per person, that’s just $1,250 in sales in one day just with java beverages alone!
You will make the most coffee sales during breakfast hours as 65% of coffee in the United States is consumed in the morning.
Check out more coffee statistics from E-Imports.
Final Calculations on Your Coffee Shop Investment
So now that you have this information, you may be wondering how these factors all play in the final calculations of your coffee shop investment.
Say that your startup costs for your coffee shop total $50,000 and that you project annual revenue to be about $200,000. This means that your startup costs are only 25% of your annual revenue, which is a great return on investment.
You do not want to break even on revenue versus your startup costs because then that would be a waste. As long as you continually market your coffee shop and listen to the desires of your customers, you will make a great return on investment with your coffee shop even in the first year as you build your popularity in the community.
Check out what your profits could be HERE.
How does Return on Investment (ROI) on equipment show that owning a coffee shop is a good investment?
Owning a coffee shop yields a high return on investment (ROI), especially because the business itself is so lucrative. While you will have to put out a couple of thousand dollars or so per coffee machine that you purchase, the markup charge of coffee and other additives such as flavoring, syrups, and shots will make for a substantive ROI.
Say that you found a professional drip coffee machine for about $2500 and it will last in your shop for about 5 years. Your equipment will depreciate each year that it is in your shop. If this drip coffee machine lasts for 5 years, that means that you essentially spent about $500 per year before you end up getting a new one.
Think about an espresso machine that costs you about $3,000 and lasts you 6 years. That’s another $500 per year for that machine that you are “spending”.
Say that your annual sales are about $240,000. For that small $1000 that you spent for that year on the drip coffee machine and the espresso, that’s not bad at all for the return on investment that you earned from using this machine to make your coffee products.
If you have more than these two standard coffee machines, take into account the depreciation of each piece of equipment and compare it to your annual sales to figure out the nature of your ROI.
Frequently Asked Questions
Operate your coffee shop in a high-traffic downtown location or within a shopping plaza or mall. Compare and contrast the customer traffic patterns amongst all possible location choices to be sure that your coffee shop has exposure to the utmost number of potential customers.
Well, you not only need the Internet to input your sales reports and balance your books, but you should also have the Internet at your cafe so it can turn into a community hangout.
Not every person has the Internet at home in your community. You could be helping a school-age or college kid be able to do their homework while enjoying your coffee and pastries. Business professionals also see the coffee shop environment as a relaxing place to get extra work done out of the office.
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
