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Many people drink coffee on a daily basis, often having multiple cups per day. A coffee shop offers both convenience, as people can quickly get a cup of coffee rather than making it themselves, and a place to enjoy coffee. Although coffee is usually the main product sold, most shops have offerings for people who don’t drink coffee.
Who is this business right for?
People who love coffee, food and other people are well-suited for working in or owning a coffee shop. The business involves plenty of hands-on work making beverages, and business owners regularly interact with both employees and customers. Most people drink coffee in the morning, so most coffee shops are open during morning hours. Shops can also be open the afternoon or evening, but owners should at least expect to be working almost all mornings. Some owners close their shop one day a week so they can have a day off, and many either close their shops or have limited hours on holidays.
What happens during a typical day at a coffee shop?
In a coffee shop, day-to-day activities center around making and serving customers coffee. When not brewing coffee and ringing up customers, downtime is filled by restocking supplies and ordering more inventory (e.g. milk, coffee and cups), scheduling employees (if a shop has multiple employees), washing dishes, cleaning, and prepping more coffee and food for sale.
What is the target market?
An ideal customer is someone who has discretionary income and enjoys food and beverages. Customers with little discretionary income are less likely to purchase higher-priced beverages and food items.
How does a coffee shop make money?
Coffee shops charge their customers based on what beverages and food items a customer orders. Some coffee shops have problems with people “camping out.” These customers may purchase one beverage, but then remain at the shop (typically on a computer) for several hours without spending any additional money. To combat this, a few coffee shops in higher-traffic areas ask customers to make a purchase every hour or two. Other coffee shops don’t offer Wi-Fi, but this can also deter customers from coming at all.
What is the growth potential for a coffee shop?
A coffee shop business can be as small as a single drive-thru or as large as a national, or even international, chain. Starbucks, for example, has more than 24,000 stores around the world. Many successful coffee shops are local or regional, having a few locations in a relatively small area.
What are some skills and experiences that will help you build a successful coffee shop?
First and foremost, coffee shop owners should be familiar with coffee. They need to know much more than the average drinker. In addition to knowing about coffees and coffee beverages, owners also need to be proficient in inventory management and managing employees.
Many coffee shop owners get the initial skills and knowledge they need by working in a coffee shop for several months before opening their own shop.
Alternatively, coffee expertise can be learned in just a few days by hiring an experienced barista or coffee roaster to serve as a consultant. Managing inventory and employees can be learned on the job, although not having these skills will make the startup phase much more hectic.
What are the costs involved in opening a coffee shop?
The startup costs for a coffee shop business can vary widely, depending on the size and type of coffee shop you want to open. A small kiosk in the corner of an existing building can be opened for as little as $5,000, although many cost between $25,000 and $75,000. Free-standing drive-thrus can cost between $80,000 and $200,000 to start up, and shops with their own seating can be more than $200,000. The main expenses that contribute to these costs include rent, staffing costs, taxes, cash registers and espresso equipment. Espresso equipment alone can run $20,000.
There are several ways to minimize startup costs. Running a small kiosk yourself will keep rent low and eliminate any staffing costs. Focusing solely on high-quality brewed coffee, rather than espresso, will eliminate the need for expensive espresso equipment and reduce how much milk you use.
Read our coffee shop purchasing guide to learn about the materials and equipment you'll need to start a coffee shop, how much to budget, and where to make purchases.
What are the steps to start a coffee shop?
Once you're ready to start your coffee shop, 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 coffee shop 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 coffee shop 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. Save 15% when you create a business website with Weebly.
Select your state below for an in-depth guide on completing each of these steps in your home state.
Should you consider joining a franchise?
Joining a coffee shop franchise can be a good option for entrepreneurs who prefer to use a proven model rather than start from scratch. While joining one can mean slightly higher initial costs and less control, a quality franchise offers great benefits such as initial and ongoing support, marketing assistance, and brand recognition.
Opening a coffee shop franchise typically requires $200,000-$700,000. Larger coffee shop franchises like Biggby Coffee and Dunkin' Donuts typically cost more, while more niche favorites like Sertino's and Classic Rock Coffee often have lower startup costs.
Interested in joining a coffee shop franchise? Check out our favorites.
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.
How to promote & market a coffee shop
Coffee shops serve a small area, and marketing efforts should be focused on reaching the people who live and work in the neighborhood. Signs can help attract attention, but going out into the community with freebies is often a much more effective way to initially get customers in the door. You can hand out free samples or coupons for free beverages at local schools, fire stations, police stations, businesses or churches. Even if an establishment doesn't want you soliciting the establishment's patrons, many organizations and businesses will be happy to share coupons for free coffees with their volunteers or employees.
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How and when to build a team
While running a coffee shop yourself will keep operating expenses low, hiring at least one employee as soon as the business can afford it has multiple benefits. With an employee, you can take an occasional day off and focus on marketing efforts that grow the business. You’ll also be able to serve customers faster during peak times when working with someone.
Depending on how big your coffee shop is and how many customers it serves, you may want to hire additional employees. Coffee shops may have anywhere from one to a couple dozen employees who work on rotating shifts.
Coffee shop employees are called baristas. Baristas earn an average annual salary of $22,000, which includes tips. Hourly wages tend to be between $8.80 and $13.20 per hour.
Read our coffee shop hiring guide to learn about the different roles a coffee shop typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a coffee shop business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
In particular, most states require a coffee shop businesses to obtain a seller’s permit. A seller’s permit allows states to record and collect taxes from the sale of goods and services.
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.
In addition, certain local licensing or regulatory requirements may apply. For more 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.
How much can you charge customers?
The average cost of a cup of plain, brewed coffee at a coffee shop is $2.70. Brewed coffee accounts for 51.5 percent of the beverages sold in coffee shops. Espresso-based beverages, such as americanos, cappuccinos and lattes have an average price ranging from $2.62 to $3.94. The food products sold at coffee shops often are in a similar price range.
How many customers can you expect your business to serve in a week?
How many customers a coffee shop will serve in a week or day varies widely. Busy shops centrally located in cities may serve more than a thousand in just one day, while shops in rural areas may see only a few hundred a week.
What are the ongoing expenses for a coffee shop?
The ongoing expenses of a coffee shop are labor, which shouldn’t exceed 35 percent of sales, rent, which should be kept below 15 percent of sales, utilities, and the costs of good sold. Costs of goods sold includes the costs for coffee (~$7.50 per pound), milk (~$3.00 per gallon), syrups ($4.50 per 25.4 ounces), and cups, lids and sleeves ($0.20 per beverage served).
How much profit can a coffee shop make?
A coffee shop's net profits are directly tied to how many cups of coffee and pastries a shop sells. A shop that is in a higher-traffic area and sells more coffee will usually have higher profits than one with little traffic. When run well, a coffee shop's profits are typically between 10 and 18 percent of its gross revenue. To see how much volume increases profits, consider coffee shops that are open every day of the year and have average tickets of $3.00. A shop that sells 100 beverages a day would grow $109,500 annually, and hopefully bring in a profit of $10,950 to $19,710. One that sold 300 cups a day would gross $328,500, and hopefully have an annual profit between $32,850 and $59,130.
How can you make your business more profitable?
Upselling customers is the easiest way to increase the profitability of a coffee shop. Customers can be offered larger sizes, additional shots of espresso, flavored syrups or baked goods