How to Open a Coffee Shop in 12 Complete Steps
Before we dive into the 12 steps, we like to start with the 4 FAQS to starting a coffee shop business:
How much money do I need to open a coffee shop or cafe?
Depending on your access to capital and budget, you can start a coffee shop cart for as little as $6000 if you buy used equipment wholesale. This doesn’t include rent, utilities, and supplies however, those operating costs can range greatly depending on location. Startup equipment costs will be covered in the section below in Section 7.
How to start a coffee shop with no money?
There are ways you can earn startup capital. All of which require having a solid business plan and a great background in the industry. You could use what you currently have to make coffee and make coffee deliveries to business parks…it’ll cost some money (paper cups, lids, stir sticks, supplies etc), but not in the larger sense of buying professional grade equipment and leasing a retail space. Everyone’s gotta start somewhere.
How much do coffee shop owners make?
Coffee Shop owners don’t make too much in terms of monthly salary because the bulk of their business comes from the bonuses at the end of the year. Margins range from 40~60% on average for coffee shops. Depending on how much you’re putting back into your business (and how the business is doing) you should be able to pay yourself at least $40,000/year. And at the end of the year, you should be able to generate $150k+ in revenue, which means you have a very nice bonus coming your way (again, if this is your business model).
What are the coffee shop equipment needs?
You’ll need an espresso machine, espresso bean grinders (2, one for regular and one for decaf), drip coffee grinder (and another for decaf), drip coffee airpots, drip brewers, and all kinds of small wares that you can read all about in section 7.
If you have any other questions that aren’t answered here in the article, make sure to let us know in the comments below.
Now! Let’s move on to our 12 steps for how to open a coffee shop.
If you’re serious about opening your own coffee shop, this article will serve as a guide that will help you understand what goes into a business, coffee shop or not.
I can’t guarantee you’ll find the same success as I have, but I can assure that you’ll finish this article with a much better understanding of what it takes to build a company.
Step 1: Learn How a Coffee Shop Works
The good news is: you don’t need an MBA to get started, but you do need some insight into how a coffee shop works.
Start by understanding the business. Coffee is an $18 billion industry in the U.S., with ⅔ of those sales coming from independent shops.
Now, the stat that got me into the industry is that there are 16,000 coffee bars in a population of nearly 300 million people. That’s about one shop for every 19,000 people.
But a large majority of the country (and the world) drinks coffee and if you open a coffee shop, you must make sure it’s run properly so they keep coming back.
The only real way to do that is through market research. Scout the competition. Learn what you’re up against.
Starbucks may not have the greatest coffee in the world (sorry, but it’s true) but they have mastered the art of expectation management. Regardless of which Starbucks branch you walk into, you know how the ordering process works, how the coffee will taste, and if you’re a regular, what the menu has to offer. It’s a streamlined coffee machine.
If you walk into an independent coffee shop anywhere in the country, the menu may change, but the ordering process will be pretty similar. You know you’re going to walk up to the counter to order and pay for your drink, then wait as your order is called. You know there will be food offerings and a place to sit.
Coffee shops, whether they’re chains or independent, have a lot of similarities. And it’s up to you to understand those functions if you want to run your own successful coffee shop.
Having a plan is vital to any business. But that doesn’t guarantee success. My startup had a brilliant business plan. It was good enough to get us private funding from investors. But as Mike Tyson once said, “Everybody has a plan until they get punched in the mouth.”
Reality just didn’t agree with the assumptions we made.
But for my coffee shop, my business plan was simple: serve high-end, hand drip, pour-over coffee to a young, hip crowd.
But there was more to it.
I analyzed my costs, my location, my competition, my market and my promotions strategy.
Then looked at my hiring and staffing plan. I even analyzed my decor and brand.
But when I filled it out, I was happy with what I had and it was worth the investment.
So while you may get lucky without a plan, I cannot recommend enough that you go online and look up a business plan template to ensure you have a direction to work with.
Here is a solution for a complete fill-in-the-blanks solution to creating your own coffee shop business plan.
Step 3: Discover Earning Potential
Your earning potential varies based on your business. Maybe you have a drive thru. Or a full coffee shop. Or maybe you have a coffee cart or kiosk. Different models have different revenues and costs.
But again, coffee is an $18 billion industry in the U.S. with ⅔ of those sales coming from independent shops.
There are 16,000 coffee bars in a population of nearly 300 million people. And boy do they like coffee.
Around 77% of the adult U.S. population drinks coffee. So many people need coffee first thing in the morning to start their day! The average coffee drinker spends more than $200 a year on coffee.
Others use my shop as an office, and drink coffee and eat snacks as they work.
But your earning potential will depend on your choice of location, your costs, and your margins.
The way we make coffee at my shop is a very manual process which takes time. But we use the finest coffee beans and it all comes out with beautiful presentation and a little coffee wafer on the side.
My baristas explain the process as they go if the customer has any questions, and they make it a point to remember our regular customers – their names — and their orders.
The customer pays $6 give or take depending on the order. And my cost, including labor, time and supplies is around $1.50.
My return on investment is more than tripled on every cup of coffee. Which means I obviously want to get as many people in the door as possible.
However, I have limits on how many people I can serve with a pour-over method. So in the mornings, I have an express line with already made coffee available at $3 per cup. And my customers love it!
While my revenue may be lower on the pre-made coffee (still amazing for the record), so are my costs.
The point of this is to say that it’s important to understand your margins to establish how much you can make. If you can figure out your investment in each cup factoring in labor and supplies, you then know if you’re earning or losing money.
And by knowing your limitation, you can get creative and figure out alternatives to continue earning.
Step 4: Set a Budget
Budgets may be boring but one thing I learned along the way is that budgets are life. A budget tells you what you can and cannot do.
Before I opened my own coffee shop, I researched my costs. How much does it cost to open one? Am I buying a building or renting a storefront? How much are the beans? The coffee maker? Food supplies? Furniture?
And those are just the startup costs.
Utilities, coffee beans, labor, and marketing are all recurring costs.
But once I know my costs (to the penny), I can predict my profits. And once I know my profits, I know what funds I have on hand to reinvest in my business.
The biggest part of my budget comes down to marketing and promotion.
I love to stay active with local organizations, and my company sponsors and participates in events regularly. Not only do I get to do some good, it’s written off as a marketing expense.
But when my budget tells me to slow it down, I slow down. If my budget shows I’m spending too much without more revenues coming in, then I cut expenses.
And always be looking to lower costs, but not at the expense of your business. There’s a difference between staffing properly and overworking employees to save a few dollars on hourly wages by understaffing.
Always make sure equipment and lights are turned off when not in use. Utility costs add up in a big way. And if the weather is nice outside, open some doors instead of letting the air conditioning run all day.
Unsold pastries? Instead of throwing them out, try offering them at a discount the following day.
Every dollar you save is one more dollar you can reinvest in the business. And your budget will help you predict those dollars.
Organize your Cash Flow Projections
Using excel or google sheets, label the columns by the year, like such:
Next, start categorizing your revenue sources for the rows. For this example we have:
- Revenue Sources
- Sales from Services
- Sales from Products
- Note: For your projection sheet, you should break down your sales by the service type as well, so you can get a good sense of which services are driving the MOST of your revenue. That way, you can invest more capital into those high-revenue services.
Then, add two more categories: Fixed expenses (expenses that stay the same) and fluctuating expenses (such as merchandise costs of goods and marketing campaigns). For this example, we used:
- Fixed Expenses:
- Fluctuating Expenses:
After that, it’s time to start filling in the blanks. In this example below, I assumed the cost of goods, and some general numbers in the expenses.
Now, it’s time to start putting in some projections. In the very beginning of your startup, this will serve as a goal sheet. It’s important to track these things monthly in the actuals and compare it against the goals so you know where you’re falling short.
Step 5: Decide Which Products/Services to Offer
Choosing your products depends on who you’re serving.
If your vision of a coffee shop is to service the corporate crowd who just wants caffeine in a cup as quickly as possible, then you probably just need some commercial coffee machines and a payment system. Maybe some fresh fruit and protein or breakfast bars, too.
If you’re an office coffee shop where people can sit down and work all day, you may want a more intimate offering. Like mine.
That’s why I focus on a top line product made with love. People spend a lot of time in my shop and work from there, so I invest in great products and have some delicious food offerings like breakfast tacos, pastries, and bagels.
The products you carry define your brand. And that brand is what brings people in.
Why should they come to you for a cup of coffee instead of your competition? Are you competing on price, quality or service?
You can make beautiful coffee art and have amazing service (like yours truly), but your drinks won’t be cheap. Fortunately for me, part of my plan was to pursue customers who aren’t price-conscious.
Will you be known for your famous espresso?
Or will your customers rave about your fancy latte art?
Step 6: Decide on a Location
Choosing a location for your coffee shop should be based on several factors. Think of it as a summation of the earlier topics we’ve covered.
You want to make sure your location fits your budget first and foremost. But the type of place you want to operate also ties into the mix.
If you have a kiosk or shopping cart, your options are drastically different than if you have a full-service, sit-down coffee shop or drive-thru.
And don’t forget about your customers.
Are you going after corporate America? Then a quick, in-and-out small storefront in a bustling downtown may be what you need.
If you’re looking to serve a more hip, younger crowd who will sit and stay for a while, maybe you want to look for a location within a shopping plaza somewhere.
Look for places with lots of visibility, great lighting, and as much foot traffic as possible within your budget.
A great (or poor) location can help or hurt your business. Do everything you can to set your shop up for success, starting with a great location.
Step 7: Find Suppliers and Equipment
It’s important to think of your costs as fixed costs and recurring costs. You’ll need to invest in equipment which meets your goals and products.
You’ll need furniture. A cash register. What about an oven? And dishwasher?
These fall under fixed costs. You pay them once and that’s (hopefully) it.
Then you’ve got your recurring costs.
Coffee beans. Food supplies. To-go cups. Coffee cup sleeves. These are all supplies you’ll need to order regularly.
Look for sites like webstaurantstore.com to find equipment and services to help set up recurring orders. Or go to trade shows.
You’ll need suppliers for your fixed and recurring expenses so make sure to shop around and look for great prices without sacrificing quality.
Here is a list of startup coffee shop equipment costs (or fixed costs).
Remember: your menu will determine the full list of equipment needed for your coffee shop or café. If you’re serving food, you’ll need a lot more equipment. Here is a list of equipment needs just for the coffee portion of your business:
Coffee Shop Startup Equipment List
- Espresso Machine
- Espresso Coffee Bean Grinder (2, regular and decaf)
- Bean Grinder for Drip Coffee
- Brewer for Drip Coffee
- Air Pot for Drip Coffee
- Blenders (if you’re offering this on your menu)
Small Wares For Your Coffee Shop
- Steaming pitchers for your milk (large and small)
- Twisted foaming spoons
- Mugs, demitasses, cups and saucers
- Racks for syrups and teas
- Tamper, packing mat, knock box
Step 8: Promote Your Coffee Shop
Promoting a coffee shop is the same as promoting any other business. Find a way to reach the market you’re targeting.
Yelp is a great way to get eyes on your shop and should never be ignored.
Google Adwords is a powerful tool since so many people utilize the platform to search for local businesses.
Another amazing tool is Facebook’s Local Awareness Ads. You can target people within a specific radius of your business at no additional cost. It’s an incredibly powerful tool.
My personal favorite promotional strategy is getting involved in the community. Sponsor or contribute to local events and organizations. You get publicity in the papers from coverage of the event and build connections with locals who will remember you and can become customers.
When all else fails, stand outside and hand out coupons!
Never underestimate the power of a free anything.
No matter how amazing your store is, it will die without customers to pay the bills.
Step 9: Create a Staffing Plan
The great thing about a coffee shop is that it can be run with a fairly small staff.
But even with that, labor is always my highest cost. So I always make it a point to hire the best employees I can possibly find.
Before I dived into full-on hiring mode, I made a list of characteristics I wanted in my team members and questions I could possibly ask during the interview to help me find these traits. In addition to that, I tested every applicant’s skill and experience by having them make me a cup each of various types of coffee. I also asked them about different blends and other coffee-related facts so I could gauge the extent of their “barista know-hows”.
Have you decided on how you’ll interview your applicants? Where will you find your candidates?
If your only plan is Craigslist, you may find yourself with a small pool of applicants you feel are qualified.
That’s not a knock on Craigslist, I actually hired one of my managers from there. But it’s to say that you need to know where to look and Craigslist is not your only option.
Check out Facebook. Ask around and see if anyone is looking.
One of my long-term workers came from a friend of a friend on Facebook and turned out to be an amazing employee until he moved out of state.
You certainly can’t do everything by yourself, so make sure you have a plan in place to find the right people and schedule them accordingly to keep your costs down.
Step 10: Decide on a Style/Design
Your decor should be visually appealing to your target audience. If they’re hip, maybe you want to have some random, vintage decor with all kinds of shenanigans on the wall.
If your target market is corporate America, a sleek, minimalistic or modern design with lots of glass and metal fosters an elegant, capable look.
Will your furniture be the old “fall into the couch with a book” type? Or will it be “straight-backed high chairs around gleaming metal tables”? That’s for you to decide.
As for a logo, I went to 99designs. You set a budget, and several designers compete to deliver exactly what you’re envisioning for your logo. You can deliver feedback and get back revisions so you get exactly what you want. Only the winning design (chosen by you) gets the payment you set in your budget.
Let designers compete for a prize with their designs you get to pick from. It’s a huge help and a massive time saver.
You would also need business cards. Here are neat designs to choose from:
Just remember to keep your customers at the focus of your style and not your own personal preferences.
Step 11: Create an Accounting Plan
Having an efficient accounting system in place is critical to any business. Not only is it important for taxes and to avoid audits, but it is also essential for tracking your inventory thus ensuring that your shop is actually running as a business and not a “charity”. In other words, tracking everything ensures no one is stealing from you.
A budget is only helpful if you’re properly tracking everything, so make sure you have an accounting system lined up.
Some that I can recommend are:
Step 12: Get Into the Coffee Shop Community
Believe it or not, the coffee shop owner’s community is pretty big. And you need to get involved.
Not only do you get valuable trade techniques and opportunities, it’s also lots of fun.
You get to go to (and participate in) trade shows. You meet amazing people and make great friends. And you never know where your big break might come from.
You can talk to other people in your industry and other business owners in general, to get business tips, advice, and hacks for faster growth.
Check out The National Coffee Association for dates of conventions and for coffee related news.
Also, don’t hesitate to get involved online through Facebook. Follow groups on Facebook with other coffee shop owners to get ideas on new products and services to offer and more efficient ways to run your business.
Here’s an infographic about starting a coffee shop business:
The Bottom Line
Opening (and running) a coffee shop is a lot of work. But if you do it right, it’s not only rewarding, it’s a lot of fun.
I love being my own boss and I love all the people I get to meet every day.
Hopefully, you put this guide to use.
If this was helpful for you and you want to learn more about opening a salon, StartupJungle.com has a 21 point checklist for starting your new business. Make sure you download this if you’re serious about getting started.