Going into business is one of the most liberating feelings a person can experience. There are a lot of advantages that one can expect when a person decides to make the leap into entrepreneurship. When you pass that threshold, you will get the feeling of being the master of your own destiny.
One of the most popular choices for a new business is coffee shops. Afterall, not only are they a great place to unwind and relax with a nice hot cup of joe, but they can also serve as meeting places where important matters can be discussed and deals can be closed.
There are a lot of costs associated with starting a new coffee shop that one must anticipate, however, here are some of the most important ones that you need to be aware of.
Startup Costs for a Coffee Business
The first type of cost that one has to prepare for when starting a coffee shop business is startup costs. These costs are essentially what you need to get the business off the ground. The good news is that these are costs that you only have to dish out once.
There are many startup costs that you have to keep in mind if you want your operations to be successful. It is not enough to just have the basic equipment that you need for your coffee shop, but you have to consider marketing costs as well. Marketing costs when you are just starting out tend to be a lot higher than your regular marketing costs because you are getting your name out there for the very first time and you do not want to be irrelevant before you have even begun.
You also have to spend some money on real estate. Even though real estate is seen as more of a recurring expense, there are a lot of development costs that you have to spend money on in the beginning.
Lastly, in order for your coffee shop to be truly competitive, it would also be a good idea to spend money on branding consultation in order for your business to have the differentiation that it needs to stand out from the rest. Let us go into these startup costs in greater detail.
1. Investing in Coffee Shop Equipment
In order for you to have a competitive coffee shop, you need top-of-the-line equipment. These include:
- Espresso Machine
If you are in a coffee shop, an espresso machine is an absolute must-have. With an espresso machine, you will be able to offer your customers the stable drinks that they expect from a decent coffee shop such as lattes, cappuccinos, macchiatos, and others.
A high-end automatic machine to be operated by a skilled barista would cost you about $3000 but the absolute best machines can go as high as $5000. Some luxury coffee shops, however, have even more elite machines that basically minimize the work of the baristas and can be as expensive as $20,000. Because you are a new coffee shop, a $5000 machine would work just fine.
- Grinders
The next thing that you are going to need is our coffee and espresso grinders. If you have one of the most expensive machines for making coffee that we mentioned earlier, you probably do not need one of these because those machines are completely automatic. If you’ve gone with one of the more standard machines, however, then grinders are a must-have.
These machines can range up from $500 for a standard grinder, to $3000 for a high-end machine. It all goes down to how fine and coarse the results of the grinders are. Some of the best brands for these machines include Curtis and Mazzer.
- Roasters
Another machine that you need for your arsenal is a coffee roaster. These are very important. In order for your coffee shop to stand out, you need to be able to make sure that you can curate your own flavors. This way, your customers will be able to associate the specific tastes to you and your brand.
The more customization you are able to do, the more unique your customers’ perception of your coffee will be. The cost for roasters depends on the volume of beams that they are able to process. Some of the smaller ones can be bought for less than $2500. A roaster that can process 3 to 4 kg can be as expensive as $14,000.Finally, roasters that can process up to 25 kg can be as expensive as a whopping $60,000.
- Blenders
The next piece of equipment that you are going to need for your arsenal is an industrial-grade blender that you can use for drinks such as frappes, smoothies, and other concoctions to require a little bit of frost.
The importance of mentioning that the blender needs to be industrial grade it’s because it should be strong enough to crush the ice in such a way that it is able to do this consistently without the motor being compromised over time. As you are probably already aware, basic blenders can go for as low as $300, but the ones that you need for your coffee shop or the ones that cost about $2000.
- Refrigeration systems
Next, you should invest in a good refrigeration system. There are a lot of ingredients after all that you are going to need to keep cold consistently. These include milk and cream. It is not enough to get the type of refrigerators that you have at home.
You need a commercial-grade unit that will last for a very long time because you do not want your refrigerator system to break down when your business is operational. You simply cannot afford for that to happen. The type of industrial-grade refrigeration systems that your business could use typically cost about $12,000 or even more.
- Water filtration systems
The final thing that you were going to have to invest in when you are starting out with your coffee shop is the right water filtration system. This is because you are in the business of serving drinks – and water is the base for all drinks, coffee or otherwise. The reason why it is so important to get a good coffee filtration system is that the quality of the water and the minerals that you have in your water can greatly affect the flavor of the coffee.
No matter what ingredients you put into the coffee, you will not be able to hide the bad aftertaste of poor water. A water filtration system will ensure that your drinks are not only high-quality but also very healthy. Some water filtration systems cost as little as $1000 but it would be advisable that you get a commercial grade one that can cost up to $9000.
2. Marketing Costs for a Coffee Business
The marketing costs when launching a business are very different from your fixed marketing costs once you are already established. The reason why marketing costs are higher when you start is because the type of marketing campaigns that you’re going to be running are more centered around driving traffic towards your coffee shop and towards your website.
Part of the reason why these are so expensive is also because you are not going to be expecting to recoup your investment for these initial marketing efforts for a while. It’s going to take a longer time for you to see this money back.
Because we live in the age of digital advertising, having marketing campaigns for Facebook, Google, and other social media platforms is absolutely crucial. If you go with a professional marketing agency, they are likely to charge you $2000 per month to manage $5000 worth of advertising spending, making the total for those efforts about $7000.
Of course, you may be hesitant to go with an agency at first because digital advertising is something that you are able to do by yourself, but working with professionals will ensure that you are targeting the right audience.
It is not enough to just set your advertising campaigns to the people within your area — you have to market to the people that are in your area that are interested in the type of product that you are selling. Getting that particular audience right on your digital advertising platforms takes skill.
3. Branding and Consultation
Finally, another very important start-up cost that people tend to look over is the cost of establishing your own brand. Because this expense is rather vague, new coffee shop owners are very very quick to dismiss their necessity. But here’s the thing, people regularly go to Starbucks because they associate Starbucks with a certain type of feel and a certain type of ambiance that they want to go for when they go for their coffee.
The same thing could be said of coffee beans. If you do not know the kind of brand and the kind of voice that you were meant to be portraying, your coffee shop will simply get lost in all of the noise and quickly become irrelevant.
Hiring professional brand consultants can be as expensive as $5000 but the good news is if you check all of the freelancing websites that are available for you including Upwork and Fiverr, You will likely be able to find highly reviewed professionals that can provide this consultation for you at discounted rates.
Fixed Costs of Running a Coffee Business
Owning and running a coffee shop involves a lot of fixed costs, the most obvious of which is our rent and staff-related fees. Fixed costs are basically recurring expenses that you are going to have to pay month after month. These costs are advantageous, however, because you do not have to worry about paying more than these amounts. As the name suggests, they are fixed.
You can easily account for these things in your ledgers. Fixed costs make it easier for you to create a realistic projection of your profits compared to variable costs. Let us go through some of the most common fixed costs for a coffee shop in more detail.
1. Rent
Rent is the most important recurring expense involved with owning a coffee shop. There are a lot of locations that you can partner with for your café including malls, business centers, tourist attractions, or any area that promises a lot of foot traffic.
These areas may be a little bit more expensive. However, they will make it easier for you to recoup your investment faster. If you are not an established brand, people will not be going to your coffee shop for the sake of going there – you are going to need for them to stumble upon your coffee shop accidentally. Realistically, your occupancy cost should not be greater than 10% of your gross annual sales.
2. Coffee Shop Staff related costs
The second very essential fixed cost that you have to take into consideration is the cost of hiring the right team. Having the right team members will not come cheap because you want to hire people with experience. Bigger companies like Starbucks have the luxury of taking on staff members who are new to the industry because they have the resources to be able to train them better, and they can afford the overall turnaround.
Since you are new to the coffee shop industry, you want to hire people who have worked in the industry before so that you can keep your operations lean. If you are able to shift around your employees correctly, you can keep your coffee shop open up to 24 hours per day.
The important thing to remember is that you never want to pay your employees minimum wage, no matter what. Studies have shown that paying a livable wage to your employees will greatly increase their productivity because they do not have to stress out about making ends meet. Remember, you may be new to the game, but you are working with human beings — not simple commodities.
Coffee Businesses and Their Variable Costs
Variable costs are different from fixed costs in that they do not stay the same month after month. Of course, these provide a little bit of a challenge when it comes to accounting because you will not be able to set your expectations precisely — you are going to have to rely on projections and estimates.
They can be advantageous, however, because since the prices are not fixed There is a chance that you are actually going to be paying a lower price. Some of the most important variable costs that you need to keep in mind are professional costs from consultants and lawyers, interest costs from your loans and business credit cards, inventory costs, and utilities.
1. Professional Fees
As mentioned earlier, it would be a good idea to delegate some of your important tasks to real professionals. You can bring on 1099 Contractors or hire an independent service. There are various legal fees that you need to take care of on a fairly regular basis, for example, that will not always be the same in terms of price because these depend on your actual needs. There are also the variable costs of hiring consultants for things such as marketing and branding.
2. Interest Costs Associated with Your Coffee Shop Financing
You also need to factor in interest costs when you consider the variable cost for your new coffee shop. Even if your loans or credit cards have a fixed interest rate associated with them, the overall cost of interest would not be the same month after month because if the interest rates are compounding. You will be working with a new principal amount each and every month and this will only change when you make payments to reduce the principal amounts.
Aside from your loans, this also applies to your various business lines of credits and possible equipment financing that you may have taken out. As with any business, it would be a great idea for you to completely master the financial aspects of borrowing for your coffee shop because core knowledge of things such as compounding interest can help you boost your profit margins.
3. Investing in Coffee Shop Inventory
The cost of inventory is also a very important variable cost because when you run a coffee shop, you have to remember that you were working with commodities. These commodities change value every now and then, depending on where the factors of supply and demand bring their costs. Coffee beans particularly are known to be very volatile.
4. Utilities
Of course, the price of your utilities as you would expect but also not remain the same each and every month. The price of utilities can greatly vary depending on the volume of customers you have that month. You will be spending more resources on things such as water and electricity when you have to cater to more orders and a greater volume of people.
This could also change depending on how long you choose to keep your store open for. There may be some days where he would like to keep your store open 24 hours per day, but some dry seasons where you would want to close up shop early. These factors can greatly affect how much you pay for things such as electricity.
Ambiance and Ergonomic Costs to Create a Coffee Shop
Ambiance and ergonomics are a special type of variable cost that is worth talking about because the ambiance of the coffee shop could really make or break it. Do you want to be able to play the kind of music that people expect from coffee shops for example, because the feel of the coffee shop will not be complete without it? That particular cost won’t cost you too much at all because all it takes is a simple subscription to a music streaming app like Spotify or Apple Music so that you can play your curated playlists each and every month.
Another important part of your ambiance you need to take care of on a regular basis is the design of your coffee shop. Do you want to be able to switch it up for the holidays, for example, creating new drinks and decor for Halloween, Christmas, and even Thanksgiving? This is a great way to attract new customers to your store because people always want to check out how well you present yourself on special occasions.
For your baristas, do you want to give them workstations that are conducive to keeping them productive? Make sure that they have economic chairs and equipment so that you will reduce your level of strain and you can keep them proactive.
Key Takeaways on Investing in Your Coffee Business
So these are the main cost considerations for aspiring coffee shop owners. It may seem like a daunting task to dish out this much money in order for your business to take off, but it will be well worth it in the end when you are able to recoup your investment and continue to make the stream of income for the long term.
You have to remember that these are not exactly costs — these are investments. You are not simply spending money here, you are investing capital in order to make money. Of course, these expenses involve a little bit of risk but you cannot possibly hope to succeed in business if you do not increase your appetite for risk.
Always make sure that you find the right balance when it comes to your finances — be thrifty but do not try to rip people off. Always try to stretch a dollar, but do not go for cheap items. It is all a matter of finding the perfect balance between price and value. Once your customers see the fruits of making all of these expenses – you will not just have casual customers – but patrons for life.
