It is no secret that starting any business from scratch isn't easy. If you dream of owning a coffee shop, however, with hard work, solid experience, analytical skills, and a well-designed business plan, you can succeed.
Understanding the economics of owning a coffee shop is a vital step in making your dream a reality. Most importantly, you need to take into account the initial, fixed, and variable costs as well as the ergonomics of the business.
Before you get discouraged at seeing the big numbers below, don't forget that startup capital is available for small business entrepreneurs with a plan.
Initial costs will vary significantly depending on the coffee shop's location, size, and equipment needs. Here are some rough estimates:
- A sit-down coffee shop typically costs between $200,000 and $375,000 to set up.
- A large drive-through shop can cost between $80,000 and $200,000.
- A small kiosk may cost between $25,000 and $75,000.
- A franchised sit-down coffee shop can cost up to $673,700.
- A licensed brand-name store may cost $315,000 to open.
That last number is the estimated cost to open a licensed Starbucks store in 2019, according to the company website. Starbucks does not sell franchises to individuals. It does sell licenses to use its products and branding in a store setting.
The importance of location cannot be overstated. A shop on a main drag that gets plenty of foot traffic will vastly out-sell a similar shop tucked away on a side street.
Understanding the initial costs is the first step in deciding if you can start up a new coffee shop.
In this case, they include equipment such as an espresso machine, which can cost up to $20,000. Many coffee shops roast their own beans. Industrial coffee roasters can cost upwards of $10,000.
Then, depending on what kind of shop you're opening, you'll need to head to a restaurant supply store for tables and chairs, a serving counter and a bakery case, and all of the miscellaneous things that go into a fully-outfitted coffee shop.
Fixed costs make up the bulk of the monthly expenses of any for-profit company. These include rent, which should not exceed 15% of sales, and staff costs, including salaries, payroll taxes, and benefits.
Note that fixed costs stay constant from month to month, and the retailer must pay them irrespective of the sales for the month.
That said, you need to cover your bottom line each month to pay these expenses.
Variable costs are proportionate to the products or services a business produces. In this case, costs depend on how many cups of coffee and how much milk and sugar are used, so they can be hard to predict from month to month.
As the owner, you want to increase revenue as much as possible in order to cover those fixed and variable costs. That means promoting multiple sales, preferably of higher profit margin goods.
Fancy coffee drinks are more profitable than plain coffee. Bagged coffee beans are a natural extension of the business. High-quality baked goods and other snacks can bring in more customers more frequently.
Efficiency and productivity are vital in running any successful business, especially coffee shops, which need to sell large quantities of low-priced items to cover their costs.
Ergonomics can make or break your coffee shop. Managers need to ensure the layout of the workstation allows baristas to work efficiently and get people in and out the door quickly.
The workstation should be designed perfectly with easy access to the fridge, cups, coffee grinder, accessories, storage supplies, and sink.
Understanding ergonomics can greatly increase your revenue by making your workers and workspace more productive.