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In operating a bubble tea business, you’ll bring the Taiwanese drink to the attention of customers in a retail environment. The drink is incredibly popular throughout much of Asia, but still in the introductory stage in America. Here, it’s finding increasing acceptance with a trend-seeking millennial audience, particularly in university settings. Among its many other names, bubble tea is sometimes called boba tea or boba juice, pearl milk, or bobi.
Who is this business right for?
If you have retail or food service experience, you might be a natural for this business. You should also have the ability to creatively market a new concept, since many of your prospective customers will be unaware of what bubble tea is.
What happens during a typical day at a bubble tea business?
Your typical workday could consist of a range of activities including:
- Taking orders and payments
- Crafting bubble tea drinks for your customers
- Cleaning your business
- Promoting and marketing your business in the community
- Meeting and serving customers and cross-selling other food or non-food items in your store
What is the target market?
Depending on your location, one major segment of your audience is likely to include early adopters. These are people willing to try new products or experiences. Their word of mouth could be very valuable to you. If you’re establishing your business in a location where most prospects will be familiar with bubble tea, your customer base might consist of people who want to judge your tea and overall product mix against the competition.
Regardless of your location, customers will expect a pleasing and relatively low-cost break from their day.
How does a bubble tea business make money?
You’ll make a bubble tea drink for a cost of roughly 75 cents and sell the drink for a few dollars. Depending on your competition and pricing sensitivity, you could make a markup of 350 percent or better on the drink. Additional revenue might be derived from the other foods, drinks, or merchandise you sell.
What is the growth potential for a bubble tea business?
As of this writing, the bubble tea business is still in its youth in America. It’s particularly popular in young-adult setting such as Austin, Texas and parts of California and the Southeast, but it’s unknown in significant portions of the nation. As word gets around on social media, your audience will find you if you’re based in a location where millennials are predominant. College campuses are among the best locations to open a bubble tea business.
What are some skills and experiences that will help you build a successful bubble tea business?
You must find a location with ample foot traffic and a young, educated population. It’s also important to find competitively priced ingredient vendors so you can maintain the highest possible margins. You should also have a strong customer service outlook. Your customers will return for you and the atmosphere you provide as much as for the bubble tea you sell.
What are the costs involved in opening a bubble tea business?
Depending on your location, and the product mix involved, you could spend as little as $15,000 or as much as six figures on startup costs. The low cost can involve adding used equipment to a section of an existing store that might sell pastries, cookies, smoothies, coffee, books, gifts and souvenirs, etc. Here’s how your costs might break down.
Rent -- $50,000 a year, or more - Remember, you’ll want to find a location where your audience hangs out. That might be a college campus environment or a similar young and vibrant setting. Rent tends to be pricey in such locations. Do you want a kiosk or a pick-up or sit-down setting? Will you be serving other foods or beverages? All of this will impact your rent.
Equipment -- $10,000 or more - The basics include gas or electric stove, blender, stirrers, shaker cups, sealer machine, refrigerator and ice maker. Most of this equipment can be bought online at sites such as Boba Tea Direct. Or search online for used equipment.
Ingredients -- $2,000 or more for a starter supply - This includes tea, milk and fruit and flavor powders. You’ll pay additionally for whatever ingredients or supplies are necessary for sale alongside bubble tea, if any.
Logo development, signage and marketing materials -- Up to $10,000 or more - This might include everything from creating your logo to buying store signage and producing business cards, fliers and other sales and marketing literature.
Licensure, certification and liability insurance -- $750 or more, est. - Depending on your location and products sold, you’ll probably have to have a business license and a health permit at the very least. Visit the U.S. Small Business Administration (SBA) website to find out the licensing requirements in your state.
Staffing -- $25,000 or more - Initially, this might simply reflect what you -- as your sole employee -- need to take out of the business. You’ll spend less than this if you have a working mate, savings or second source of income. And you’ll spend more as your staffing needs increase.
It’s also possible to buy a bubble tea franchise and get most of your startup needs supplied as a package. However, you could spend well into six figures in franchising fees and costs. You’ll find examples of such opportunities here and here.
What are the steps to start a bubble tea business?
Once you're ready to start your bubble tea business, follow these steps to ensure that your business is legally compliant and avoid wasting time and money as your business grows:
- Plan your business. A clear plan is essential for success as an entrepreneur. A few important topics to consider are your initial costs, your target market, and how long it will take you to break even.
- Form a legal entity. Establishing a legal business entity prevents you from being personally liable if your bubble tea business is sued.
- Register for taxes. You will need to register for a variety of state and federal taxes before you can open for business.
- Open a business bank account. A dedicated checking account for your bubble tea business keeps your finances organized and makes your business appear more professional to your customers.
- Set up business accounting. Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
- Obtain necessary permits and licenses. Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
- Get business insurance. Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
- Define your brand. Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
- Establish a web presence. A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Where can I find a business mentor?
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a bubble tea business?
Get the word out. Especially if your market is relatively unaware of bubble tea. Let people learn what the beverage is, how it’s made, and how great it tastes. Also, try to pair bubble tea with at least one other complementary product. This will help you bring customers in the door and cross-sell.
How to promote & market a bubble tea business
The product’s novelty can work to your advantage. A certain market segment is always on the search for new products and experiences. Share with local customers and local media this story of how bubble tea might have been invented. Also, be sure to make free samples available. The drink could be such a novelty in your location that the media will run stories before you open for business.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Your marketing efforts might be as simple as the distribution of fliers in your marketing area. Begin a Facebook page for bubble tea aficionados, and show the beverage and your store on Instagram. Film a video on YouTube or Vimeo showing how to make bubble tea. Consider serving the drink at city festivals, fairs, and other occasions when you can spread the word. If you do so, be sure to distribute fliers and business cards to invite customers to your primary location.
How and when to build a team
While you’ll probably start as a sole employee or with family and friends, you’ll see the need to hire as soon as you can. The last thing you want is for customers to warn others away because of long lines or order mixups due to understaffed operations. Begin by hiring part-time crew members and addinig hours to meet traffic flow and revenue gain.
Federal Business Licensing Requirements
There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a bubble tea business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Maintain Personal Asset Protection
Don’t think that just forming an LLC, or any other type of business, will save your personal assets in case of a lawsuit or other matter by itself.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Two of the simplest steps that will protect your business, and yourself, are to:
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
Certificate of Occupancy
A bubble tea business is generally run out of a storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a bubble tea business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your bubble tea business will be in compliance and able to obtain a CO.
When selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspections
How much can you charge customers?
What do the coffee houses in your geographic location generally charge for premium drinks? This is a good indication of what you might be able to charge It’s likely to be in the range of $3 to $5. Set a price point and see what the response is. And be sure to keep an eye on the pricing of direct (other bubble tea retailers) or indirect (coffee houses, smoothie shops, etc.) competitors.
What are the ongoing expenses for a bubble tea business?
Once you’ve established your presence, your ongoing costs will include ingredients and store staffing and operational costs. These variable costs will follow and reflect the amount of business you do at your store.
How much profit can a bubble tea business make?
A 350 percent markup on a beverage is not unreasonable. Gross profit margins in the 75-80 percent range are not rare in the food and beverage retail industry.
How can you make your business more profitable?
Think what else you can make with the same or similar equipment purchased for bubble tea. You might also consider adding smoothies, coffee or ice cream to your menu. Or buy cookies, pastries or other dessert items for resell from nearby vendors. How about adding t-shirts, mugs, posters, music or other merchandise that might appeal to your same customer base? Try additional products for a while and see if they sell. If they don’t, adjust your mix.