Do you find yourself living for your gourmet coffee habit?
Many entrepreneurs in your position consider opening their own coffee shop. Coffee shops are one of the fastest-growing concepts in the restaurant industry, with a global market expected to reach $237.6 billion by 2025. Does this mean coffee shops are an expanding opportunity or one thatâs nearly reached full saturation?
This article explains how much it costs to open a coffee business (including benchmark coffee shop startup costs) and the steps it takes to do so, so you can decide whether itâs a smart move for you.
What is the total cost to open a coffee shop?
The price varies, but a reasonable estimated total cost is between $75,000 and $350,000. Thatâs a wide range because it depends on location, size, services, equipment, staffing, insurance requirements, whether you buy, build, or rent a space, and more.
Write a coffee shop business plan
The first step to starting any small business is creating a complete business plan.
A business plan is often required to secure funding. However, itâs far more critical than that. Itâs a way to plan the steps youâll need to take to open your business. Once youâve completed the planning process, you should know whether opening a coffee shop is a smart move for you.
A business plan can help you figure out:
- How much money you can expect to earn operating your coffee shop
- What it will take â and how long it will take â to build a solid and dependable customer base.
- The types of equipment youâll need and how much it could cost.
- How many people youâll need to hire, the positions youâre hiring for, and your payroll.
- Marketing plans, including social media, signage, email, digital ads, flyers, and other tactics.
- How many locations you plan to open, size, and whether you plan to rent or own them.
- The products you plan to serve and how youâll serve them.
- Cash flow projections.
- How you plan to fund the business: personal funds, loans, or equity.
- Business bookkeeping and accounting plans.
By the end of the business planning process, youâll have a strong sense of whether it makes sense for you to do the hard work and move ahead and open a coffee shop.
Tip: If you’re not sure how to write a business plan, you can find all types of proven templates online.
Find, develop, and customize a coffee shop location
Once you finalize your business plan, itâs time to purchase or rent a space to run it out of. The cost of space is one of the most significant variables when operating a coffee service business. It depends on location, size (total square feet), and space availability in the community. A sizeable full-service coffee shop in downtown Los Angeles, California, will be far more costly than a small take-out operation in the suburbs of Mobile, Alabama, or a kiosk or coffee cart at a small mall. Owning a coffee-focused food truck costs slightly less than a brick-and-mortar one with a starting price tag of approximately $60,000.
Here are some location-related costs youâll have to cover in the earliest stages of starting your new business:
- Rent or commercial real estate loan payments for the space. You must pay for the space while youâre renovating it and as the business gets going. You will have to pay property taxes if you own your location.
- Utility bills. While you set up your new store, youâll have to pay for the gas, electricity, and water it will take to launch your operation.
- Insurance. Youâll likely be required to carry commercial property insurance and other coverage while setting up your space.
- Renovation and build out costs. It will take money to turn a generic space into the coffee shop of your dreams. You may need to pay for new light fixtures, cabinets, decorations, coolers, freezers, ovens, and refrigerated display shelves.
Tip: Always include a contingency fund in your renovation budget. Itâs rare for a coffee shop to open without unexpected emergencies happening.
Purchase coffee shop equipment
The equipment you must purchase for a professional coffee operation isnât the same as your home coffee machine, even if what you have is top tier. You need to buy items that make the kind of quality coffee people will be willing to pay for, bring efficiency to the operation, and can stand up to extreme wear and tear. This type of equipment is costly, and you will need more of it depending on the size of your operation and the number of customers you expect to serve at peak periods. Here are a few pieces of equipment that no coffee shop can go without:
- Water filtration system
- Commercial coffee grinder
- Coffee roaster
- Drip coffee maker
- Some form of refrigeration to keep milk and other things cold.
- Espresso machine
- Blenders for specialized drinks.
When you add up the high-quality equipment it takes to run a coffee shop, equipment costs can come to $10,000 or more. Itâs a good idea to buy only the equipment you need to operate your shop on opening day and scale up over time. It doesnât make sense to invest precious start-up dollars on things you may not use.
Secure inventory and other supplies
Of course, youâll need coffee, cups, and other supplies to open your coffee business. Here are some benchmark start-up costs for different items.
- Coffee beans: $1,000
- Tea: $1,000
- Paper cups and lids: $1,250
- Other containers: $1,000
- Plastic cups for other beverages: $500
- Napkins: $1,000
- Stirrers and straws: $500
- Various types of milk and cream: $500
- Sweeteners: $500
- Flavorings and syrups: $250
- Other foods and drinks: Cost depends on offerings.
Your coffee shop is only as good as the things you serve. You donât want to skimp on consumable products.
Get a POS system and financial software
Another relatively high start-up cost for coffee shops is transaction technology, typically a point-of-sale system. POS software for a coffee shop can cost between $50 and $200 per month. The hardware to run the system will likely be a one-time payment of between $1,200 and $4,000.
POS software might seem expensive for a start-up coffee shop. However, it will pay for itself over time because it will make inventory and transactions easier to track.
Protect your business
Youâll likely need to purchase insurance and a security system. Most landlords and lenders will require these things. Insurance costs will vary depending on what it covers, business size, location, limits, insurer, property value, and more.
Security system prices have fallen in recent years, and you should be able to find a basic one for under $500 plus a minimal monthly monitoring fee.
Find staff and vendors
In the food service industry, food and labor expenses are referred to as prime costs. These costs, taken together, shouldnât exceed 60 to 65 percent of total operating expenses. This is a more manageable goal for coffee shops to hit than other food service businesses because they typically serve a more limited number of things.
For coffee shops:
- 60 to 65 percent of prime costs should go to labor, including a barista and servers
- Food and beverage costs should average 28 to 35 percent of total sales
- Regular coffee drinks should have an average margin of 15 to 20 percent
- Specialty coffee drinks should target an average margin of 12 to 18 percent.
These are benchmarks. However, theyâre common in the restaurant industry, so it makes sense to stick as close as possible to them, especially during these inflationary times.
Market your coffee shop
Marketing is critical to attracting customers to a new coffee shop, especially in todayâs crowded marketplace. You may be able to handle simple marketing tasks like posting on social media or setting up a Google Business Profile or managing some Google Ads. Still, it could be a good investment to spend some money on professional branding and marketing support, especially when youâre trying to attract people already frequenting all those crowded coffee houses in your community.
If you decide to go the professional route, you should expect to spend approximately $2,000 monthly for part-time, limited professional marketing support and direct marketing expenses.
Finally, before you set your grand opening date, youâll be required to get permits and licenses to run your business, serve coffee and food, play music, hire employees, and more.
The first permits every business must acquire are a business license and Employer ID Number (EIN). These allow you to operate a legitimate business with employees. To legally run a restaurant, a certificate of occupancy and food service license are also required. If you plan to serve alcohol as part of your coffee shop concept, which is becoming popular because it extends business hours and revenue possibilities, youâll also need a liquor license. All of these permits carry application costs that vary among the states and municipal authorities that could be involved. Expect to budget several hundred to a few thousand dollars for permits, based on the size and complexity of your business, where itâs located, and the types of food and service you offer.
Bottom line: Can you afford to own a coffee shop?
Plan to spend a minimum of $80,000 on starting a coffee shop. It may seem like a lot of money, but you could get financing to help make your dream a reality.
Some common types of financing for coffee shops include:
- Term loans provide a lump sum of cash that you pay back with interest over a set period (the term). Short-term loans are typically paid back in a year. Long-term loans, like those used to purchase real estate, can have terms of up to 30 years. This type of financing can be used for many purposes, including maintaining cash flow, purchasing supplies, or buying property. You can get term loans from traditional banks and financial companies, or lenders affiliated with the U.S. Small Business Administration (SBA). However, if youâre a first-time business owner, online lenders may be a more realistic possibility for you.
- Equipment loans are relatively low interest financing you can use to purchase the equipment you need to operate your coffee house. They come with low-interest rates because the equipment collateralizes them. Always make your equipment loan payments. If you miss them, the financial company could seize the equipment required to make coffee and serve your customers.
- Business line of credit is similar to the credit line you get on your home. Youâre provided with a limited amount of money you can borrow when needed. You only pay the cash back when you use it. A credit line can be suitable for covering emergency or seasonal expenses.
- Business credit cards should be used to purchase things for your coffee shop. Theyâre an excellent way to record your shop-related purchases, separating them from the personal stuff you buy. This is particularly beneficial at tax time.
If youâre concerned about borrowing money to start a coffee shop, consult with an expert at a small business loan company like Biz2Credit or your financial advisor. It can also be a good idea to talk to successful coffee shop owners in your area to find out how they funded their businesses and get other tips about running your operation.