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How to Start a Coffee Shop in 4 Steps

December 19, 2012 by Bethany Ramos
 

Sure, you love spending hours tucked away in a corner of a cozy neighborhood coffee shop – studying, reading, or working on your laptop. But just because you have an undying love for the coffee culture in your community doesn’t mean you have what it takes to open your own café. Or does it?

Depending on your business experience and personal financial situation, opening a coffee shop can be a lucrative venture. In this article, we’re going to help you weigh the pros and cons of starting a coffee shop from the ground up. We’ll also compare opening a coffee shop to owning a franchise to help you make the best decision.

Why Open a Coffee Shop? Intriguing Industry Statistics

The research doesn’t lie. According to statistics from the Small Business Development Center National Information Clearinghouse, roughly 20,000 coffee shops in the US earned $10 million in 2011. Pretty impressive! To dig a little deeper…

  • 70% of total sales were generated from the top 50 coffee shop corporations, i.e. name brands like Starbucks and Caribou Coffee.
  • Coffee shop gross margins average at 85%.
  • Coffee shop operating incomes average at 2.5% of net sales.
  • Each worker in a bustling coffee shop generates roughly $50,000 in annual revenue.

The National Coffee Drinking Study sheds further light on the lifeblood that keeps a coffee shop up and running: the coffee drinker.

Did you know that most adult coffee drinkers began their coffee habit as a teen? – tweet this

54% of today’s coffee drinkers started drinking Java between ages 13 and 19. 22% started up their coffee habit from ages 20 to 24. When you crunch the numbers, it indicates that 76% of adult coffee drinkers today began their relationship with coffee by the age of 24.

This means that the average coffee shop can expect a heavy influx of customers in adult, as well as teen, age groups. For potential coffee shop owners, this is pure gold. It provides the opportunity to market to even more local customers interested in coffee and coffee related products.

Now that you understand the why of opening a coffee shop, it’s time to move on to the how

4 Important Steps to Open a Coffee Shop

Make no mistake – opening a neighborhood coffee shop is going to take blood, sweat, and tears if you want it to be successful. Consider these 4 recommendations from The Coffee Bump team to make your dream of opening a café into a reality:

  1. Create a business plan. The traditional coffee shop has been done. And overdone. And done again. While your local community may appreciate a basic coffee shop concept, you can increase sales by constructing a clever business plan that focuses on unique marketing ideas.

    For example, most customers consider a coffee shop to be a workspace away from the office. Yet The Woods Coffee of Washington took it to the next level by building an in-house conference room that they rented out to local businesses for meetings and the like. This private room created an additional revenue stream; customers renting the room were also more likely to order food and beverages from the coffee shop to cater the meeting. Win-win!

    Under the umbrella of your business plan, you will also need to choose:

    • A name
    • A logo
    • A slogan
  2. Become a student of the culture. To remain a savvy business owner in the coffee industry, you need to know what you’re talking about. It may take weeks or months to learn the ins and outs of coffee and espresso by taking local or online courses and attending tradeshows.

    Although you may not work behind the counter, understanding basic and advanced coffee techniques will help you to run your business wisely. A knowledgeable coffee shop owner can balance two important components: keeping overhead low without compromising quality.

    This is also the best time to:

    • Research vendors
    • Price NSF Certified machinery
    • Select specialty coffee
  3. Choose a location. For success in a coffee shop, it’s all about location, location, location. You may be able to find the perfect spot in a busy strip mall or shopping center. A smaller coffee cart or kiosk can be placed near an office complex to draw sleepy workers before, during, and after office hours.

    A coffee shop location should provide ample square footage and easy access to customers, especially during the morning commute.

    Don’t forget to:

    • Sniff out the competition
    • Measure counter space for necessary machinery
    • Measure floor space for tables, chairs, armchairs, etc.
  4. Get permits and licenses. At this time, it may be easier to hire an attorney or consultant to manage the red tape for you. To open a coffee shop according to city codes and regulations, you will need to secure a food handling permit by submitting an application, paying a fee, and passing an inspection.

    Additionally, a bookkeeper or accountant may be beneficial to help you set menu prices, taking into account state sales tax on each item. Cutting corners in legal requirements is never recommended and may even get your business shut down.

    Other necessary red tape to open your business may include:

    • Securing business property, liability, and auto insurance, if necessary
    • Hiring employees and filing all legal documents
    • Creating employee benefit packages

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The Cost of Opening a Coffee Shop Compared to Buying a Franchise

While the steps listed above are extensive, to say the least, your final decision may come down to your bottom line: How much can you afford to spend to open a coffee shop?

Mindful Design Consulting estimates the total startup expense for a coffee shop, including first month’s labor costs, at $102, 821. Espresso 101 provides further estimates at:

  • Coffee Cart: $20,000-$25,000
  • Coffee Kiosk: $25,000-$75,000
  • Drive-Thru Coffee Shop: $35,000-$200,000
  • Sit-Down Coffee Shop: $200,000-$375,000

Based on estimates from Franchise Direct, a brand name coffee shop franchise like Seattle’s Best could start at a conservative investment of $265,508; a Seattle’s Best kiosk starts at $178,308. Other concepts like Twisted Doughnut and All The Perks Espresso Café have a minimum cash requirement of $50,000.

While many aspiring business owners with large amounts of liquid capital appreciate a coffee franchise because it includes all the supplies and support necessary to get a business off the ground, some critics frown on franchises because of excessive fees, royalties, and markups.

Before making any major financial decision, take the time to research all available options to get the most out of your investment.

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