No matter what kind of business you’re interested in starting, opening it comes down to a few main goals – one of the biggest ones being to make a profit.
More specifically, entrepreneurs who are interested in starting a coffee business may be wondering how lucrative their venture can end up becoming, especially if they’re excited at how easy the coffee industry can be to break into.
In fact, coffee consumers in the United States have been heavily contributing to the coffee industry’s growth, which has been gradually increasing in increments of at least a couple billion dollars every year since 2017. It’s hard to blame would-be entrepreneurs, then, for wanting to get in on an industry whose growth doesn’t seem to be slowing down.
So, what’s the catch when it comes to starting your new venture?
Well, there’s no one thing, in particular, that should dissuade you from opening a new coffee business. But bear in mind that, while it can be simple to get your business off the ground and start serving your new customers, it’s going to be a bit more difficult to make a sizable profit and make your business truly lucrative right when you’re starting out.
If you’re still interested in whether now’s the right time to open a coffee business of your own and whether you can expect to make a profit you can comfortably live off, then you’ve come to the right place.
Let’s take a deep dive into how much income you can expect to start raking in as an owner of a coffee shop. We’ll go over how long it will realistically take to start seeing returns on your investments and the different types, sizes, and services of coffee businesses out there. Also, we’ll cover all the things you should do to make sure you position yourself for the greatest levels of success as your own boss and coffee shop owner extraordinaire.
Have a Game Plan Before You Start Your Coffee Business
It should probably go without saying, but you should take a bit of time to prepare yourself for jumping headfirst into opening your own business. One of the biggest things to prepare yourself for before you get your feet wet as a coffee shop owner: you need to keep in mind that you’ll always need to funnel a certain amount of your coffee shop’s income right back into your business.
Before You Dive Into the Coffee Business, Set Yourself Up For Success
Starting a coffee business requires that you focus on two important things: the startup capital that funds its launch and the scale at which you offer your services to your customers.
But, what exactly do these concepts mean to you? And why are they important to think about as a business owner?
First, let’s consider the startup costs you need to get your business off the ground. For the majority of the more than 20,000 coffee shops operating across the U.S., most of them only have a maximum of $500,000 in startup capital to work with and make smart use of – and that’s being charitably optimistic. Many other coffee shop owners are undercapitalized, starting with as little as $150,000 to get their venture started.
So, what can you do to make sure you don’t find yourself in financial hot water because of a lack of capital funds? Start projecting some sales figures for your business, of course.
Project Sales When Establishing Your Coffee Business
Projecting sales figures for your business can go a number of different ways, but the best way to do it is by simply figuring out how much you think your customers will purchase when they visit your location.
In other words, think of the average amount of money your customer will likely spend on your products. Then, multiply that total sum by the average cost you think you’ll price your products at.
So, to accurately project your business’s sales figures with this method, consider the average price you’ll assign to each of your products.
As we just mentioned, though, projecting your sales is only part of the puzzle of setting yourself up for future financial success. Remember the concept of ‘scale’ being important to successfully launch your new venture, too?
Consider the fact that, if you only run a single coffee shop over the course of a year – meaning just one location in the country – you can expect to net a salary of $47,000 (and that’s before taxes, by the way).
Needless to say, you’ll want to have a plan to scale your business as soon as possible to compensate for the admittedly meager projects you face by running just one shop. Otherwise, you’ll be netting too small of an income to keep your business afloat.
Scaling Your Coffee Business – Quickly
Scaling your business and opening up multiple shops can seem pretty daunting if you’ve never even opened one shop before, but there are creative ways to look at it that can make it seem less scary. For instance: you can approach the concept of scaling your business kind of like how a spider builds its own spider web.
Think about it: the wider that spider’s web, the more food (in your case, more customers!) it can catch. And the longer that web lasts, the stronger and more stable it becomes.
Scaling your coffee business, then, multiplies your net profit exponentially as it adds more locations to your franchise, sort of like how a spiderweb multiplies its net catch of food the bigger it gets.
To start scaling your business efficiently and quickly, you need to know how to afford new locations and make them lucrative for your business.
Wisely spread out the costs you put toward your labor, your overhead, and your salary you yourself take home over the base of your estimated scale over a year’s time. If you can figure out your net income after considering these factors, you can better estimate how much you can make if all of these costs were spread out just a little more across a larger, more profitable revenue base.
Choosing A Location to Launch Your Coffee Business
You have some options to choose from when it comes to choosing the physical location for your new store. Not only can your location potentially affect the revenue you bring in, but it can also attract different demographics of customers as well as give you varying options for when you decide to scale to two or more locations
Adopt a Coffee Business Franchise
The level of effort you need to put in to get your location ready for business also varies based on whether you decide to, say, buy an existing franchise or business, or decide to start from scratch all by yourself. In this case, you give yourself a safety net created by all of the supplies and existing equipment you can leverage from an established franchise.
For many new business owners who are struggling to get a hefty sum of pre-capital funds, though, owning a franchise can be too costly of a choice. Adopting a franchise means you pay the heftiest upfront cost for a major turnkey solution that takes care of many big logistical and financial decisions for you.
Do It Yourself – Start Your Coffee Business From Scratch
Starting your own coffee business from scratch gives you the most leeway possible as far as where you can choose your location, as well as the size and scope of equipment and supplies ready to use.
The obvious downside is that unlike adopting a franchise or even purchasing an existing business, starting your own coffee spot from scratch means you have zero turnkey solutions. You won’t have that cushion to the initial financial impact and learning curve that comes with starting a new business.
However, if you’re dead-set on strategically choosing a location that can complement your plans to scale in the future, and you don’t have the capital backing to purchase an existing location, then starting your own business from scratch is likely the right move for you.
Purchase an Existing Coffee Business
An existing coffee business doesn’t have quite the scope and scale of an existing franchise, but it’s almost definitely more profitable, initially than starting out all by yourself.
Being in the middle of these two choices, purchasing an existing coffee shop also takes more effort on your part. You’ll need to check out what’s under the location’s hood more than if you’d chosen a franchise chain. You’ll also need to do your homework to see what the place’s previous financial history and business records look like.
The advantages, however, are similar to that of adopting a franchise. That existing businesses, especially those that are already profitable, is a valuable turnkey solution. The customers and operations are already established and recognized in your potential location’s community.
It can be time-consuming picking out a location that makes sense for your business goals, expectations from your area of choice, and ambitions to scale your business. But the effort is well worth it if you only have a limited amount of startup capital to work with.
Most importantly, though, you need a location that fits like a glove with your subsequent business plan. That’s right: the business plan is your next step to take toward creating a coffee business that’s lucrative and poised for successful growth over the long-term.
Think Through Your Coffee Industry Business Plan Before Opening
For the less business-savvy folks among us, let’s very quickly cover the definition of a business plan.
For all intents and purposes, the business plan you mockup for your new coffee shop clearly sets expectations for the financial and performance goals you want to hit, consistently, and efficiently.
If you’re starting your business all by yourself, you may not think it’s necessary to draft a formal business plan. Unless you have a group of investors that are interested in helping launch your coffee business venture, there’s probably not an audience that you need to present your business plan to. And, after all, can’t you easily store all that information inside your head, instead? Well, yes and no.
Yes in the sense that, if it really is just you operating your business for the foreseeable future, then you likely know the goals and outcomes you want to achieve. As soon as you add another employee to the mix, though, the need for a business plan skyrockets exponentially. The reason being? It’s impossible to clearly articulate to someone else the “business plan” that’s existed, up until now, all in your head.
Calculate Business Costs Associated With Starting and Running Your Coffee Business
Starting a new coffee business means incurring all sorts of costs that you need to factor into your business plan. Without accurately predicting which costs form the basis for your business’s creation, you won’t have much luck creating a lucrative future for it.
The initial amount that you need to invest in your business also depends on the location, size, inventory, and subsequent equipment requirements. Consider the following cost analytics associated with different types of shop establishments. This will help you estimate how much startup capital you need to get your venture off the ground. You’ll have a clear picture of how much money you need to allocate directly toward your establishment costs.
Take a look at the biggest cost components that create a well-thought-out, thorough coffee shop business plan:
Choosing a Location for Your New Coffee Business
Since you’re familiar with the basics that go into finding the perfect location for your business, let’s cover the build-out of your shop’s future spot first. The first and most obvious factor is the neighborhood you settle into.
This is essential to your business’s longevity and profitability because of the potential customers you stand to attract. It’s wise to consider a location that mixes a healthy blend of a tourist economy with family-friendly, culturally minded people.
By now you’ve likely considered the extent of your budget, but it’s to revisit it and factor it into your business plan. Certain locations can have dramatically pricier rental costs than more mid-sized or rural places.
This is especially true in densely populated neighborhoods and areas like metropolitan areas or nearby suburbs. Try to strike a middle-ground location that offers a rising trend in touristry popularity as well as affordable rental costs for retail spaces for your new business.
To wrap your choice of location, consider the extent of your roasting needs for the coffee beans you’ll be sourcing, roasting, and serving to your customers. Physical spaces can range from standalone roasteries to impressive combinations of both your shop as well as your roastery.
To make this choice as simple as possible, you need to know how many employees (is it just you? you and a whole team?) are going to be helping operate your business. A good rule of thumb to follow: the more employees you staff, the more physical space you’ll need to handle a larger volume of roasted beans.
Staffing Needs to Launch Your Coffee Business
As the old adage goes, “it takes a village…to start a coffee shop.” Well, something like that anyway.
Unless you’re superman and plan on working evenings and weekends to keep your new coffee business afloat, it’s recommended that you source some human talent that can help you bring your products to more customers, more easily.
In addition to hiring people to help you run a business, other professional services such as consultants and contractors who help you navigate your business’s growing pains also count as hiring and staffing needs.
It’s important to anticipate the net sum you’ll be paying toward staffing costs and professional services. Consider lumping both your full-time, salaried hires as well as people whom you hire on a one-off or as-needed basis.
Your coffee shop’s customer service is only as good as the staff whom you hire. Remember that you should try to look for employees who share your genuine passion and knowledge for coffee as well as the coffee industry itself.
You don’t want to run into a situation where you begin to draw in a consistent stream of customers only to lose them. If employees helping run your shop couldn’t care less about answering their questions or recommending products to them, they’ll look for a new go-to spot.
Do your best to strike a balance between employees who are willing to work for the salaries you’ve budgeted out and have a true love for all things coffee-related.
Inventory and Equipment For Your Coffee Business
You can’t serve coffee without the right tools and equipment. Starting your own coffee business that needs to be self-sufficient and reliant on its own resources. And when it comes to roasting beans to brew and serve your very own coffee, your biggest start-up costs easily fall under the category of inventory and equipment.
Purchasing an inventory of top-quality equipment such as your own coffee grinders and filtration systems to purify water is pricey. It can easily run your inventory and equipment startup costs past $10,000 dollars.
With this in mind, it’s recommended that you carefully make equipment purchases in increments, if possible. If you purchase an inventory of equipment this way, you mitigate the risk of blowing through your budget and losing the funds to properly address your other cost factors.
What Kind Of Coffee Business Do You Want To Start?
It takes a ton of effort to set yourself up with a business plan, prime location, accurate sales projections, and potential team members to help you run your new coffee shop. So, now that you’ve made it this far, give yourself a pat on the back – you’ve earned it.
Defining the kind of coffee shop you want to start is going to help you finalize the process of beginning your new venture. But it’s also, arguably the biggest decision you need to make before you start selling your products in earnest.
Are you still feeling confident in yourself and your new business? That’s good because you now need to decide on one of the most defining choices that affect your coffee shop:
Just what kind of coffee shop do you want to open, exactly?
No matter what type of shop you’re looking to open, this is the phase of creating your new business that requires you to invest your startup capital. This will allow you to more quickly hit a realistic break-even point and continue on toward a lucrative venture.
Let’s break down the three main options you have when you’re ready to open your new business: shops, cafes, and kiosks. Although each option may sound like it’s pretty similar to the other, each of these three definitions has important characteristics that will impact all of the planning, accounting, and preparation you’ve taken part in thus far.
Ready to get started? Take a look at what each of these options has to offer you, your employees, your products, and your customers, and how each can propel you to success, provided that you take the proper steps first.
Option #1: Opening a Coffee Shop
Our first option on the list is the coffee shop, which is different from cafes and kiosks in more ways than one.
Coffee shops are by far and away from the most well-known type of coffee-serving establishment. They rely on their selection of well-made, great-tasting coffee as their bread and butter for customers to enjoy.
And, although they may seem similar to coffee cafes and kiosks (they all serve coffee after all, right?), shops stand out from their competition by focusing chiefly on serving coffee. They also sell roasted coffee beans for customers to grind up themselves, and coffee-making accessories that highlight quality coffee over food and non-coffee beverages.
But Are Coffee Shops Lucrative?
Coffee shops thrive best when their service is quick and the flow of customers is consistent. That’s because, in order to compete with the larger selection of goods that establishments such as cafes have to offer, you need to be strategic about the price points.
On top of that, you need to be prepared to compete with a whopping 24,000 coffee cafes operating in your industry. That’s a lot of potential competition with very little room for error.
With that piece of reality out of the way, let’s look at the more optimistic side of starting a coffee shop that can help you bring in promising profit margins. There are countless coffee shops that are skirting by fulfilling a lower expectation of profitability. It’s still very possible to operate at the top-end of profitability and rake in big profit margins. All it takes is a bit of know-how and good, old-fashioned hard work.
What Do I Need to do to Make My Coffee Shop Lucrative?
A lucrative coffee shop is one that does many things right and pays attention to what its competitors are doing wrong. At the core of a quality coffee shop is a quality coffee beverage.
The finest coffees are what will keep recurring customers returning and new customers interested in checking out your products. It’s rare to see a business succeed, especially one in the highly saturated coffee industry, without offering consistent, quality products.
To that end, you’ll want to purchase the best available coffee and espresso machines that can reliably produce top-quality coffee. But don’t forget that you’ll also need top-grade water purifiers and demineralizes for coffee and espresso machines to ensure you can make that perfect cup of coffee for every single customer who walks into your shop.
Remember how we mentioned that you want to have a system in place to keep serving customers at a quick pace that keeps people coming in through your doors? You can achieve this more easily by investing in the ergonomics of your coffee shop. In other words, make it easy for your baristas, to stay in one space without competing for attention with your employees.
Your workstation should be laid out in such a way that your employees can continue to store milk in the fridge, be able to reach for their coffee grinders and keep talking with your customers without missing a beat. Avoid the inconvenience that comes with a haphazardly arranged workstation setup.
Coffee cafes are likely creating multiple sales organically because of their wider selection of both food and beverages. It’s important to keep in mind that you also need to implement a mechanism to ensure repeat sales from customers who may otherwise never return. Consider offering sales promotions and discounts on certain items of yours whose price points are appropriate for such an offer.
Option #2: Starting a Coffee Cafe
As you already know by now, coffee cafes tend to have much wider selections of products to offer than their kiosk and shop counterparts. You have the widest range of products with which to promote multiple sales, diversify your product assortment, and merchandise your margins. So, compared to your shop and kiosk competitors, the sky is seemingly the limit in terms of how much you can customize to increase your profit margins and achieve a lucrative business.
But are Are Coffee Cafes lucrative?
The most successful coffee cafes are the ones that manage their menus and pricing the most efficiently. You have less of a risk of smaller profit margins due to lower price points and a more limited selection of products when compared to kiosks and shops, but this also means that you likely have to put in the most work into making your menu work, relatively speaking.
What Do I Need to do to Make My Coffee Cafe Lucrative?
To make a coffee cafe menu that’s both lucrative and appealing to customers, think about your pricing strategy and how it can incorporate small, incremental price increases over the course of a year or more.
This way, you don’t risk a large chance of losing a loyal portion of your customer base, since they’ll likely have either not noticed or not cared about these incremental increases enough to stop giving you their business.
Be careful not to set your initial prices too low, however, as this can eventually hurt your profit margins and make it difficult to stay in business without upping your prices.
Option #3 Establishing a Coffee Kiosk
Coffee kiosks are neither full-blown establishments with a wide selection of products, nor are they intended to offer the more niche experience that coffee shops deliver. Instead, coffee kiosks focus on speed, efficiency, and most importantly, convenience.
Kiosks offer several tantalizing benefits that are basically impossible to achieve with cafes and shops, chief among them being no need for multiple employees manning your counter and servicing your customers.
Kiosks typically offer drive-up locations around town, where your customers can obtain your products through either face-to-face service, automated service, or a combination of both that delivers them their beverages as quickly and smoothly as possible.
But are Coffee Kiosks Lucrative?
The biggest impediment to getting your kiosk off the ground is finding a location with proper square footage requirements. Remember that your kiosk has no outdoor seating area, no indoor seating area, and potentially just one or two windows.
You’ll need to plan to serve customers face-to-face or through their car windows if you decide to open a drive-thru-style kiosk. Either way, you’ll need to be prepared to put your initial profit margins on hold until you can work with your local municipalities and planning departments to zero in on a proper location for your kiosk.
Of course, once they’re open, kiosks can immediately start bringing in an impressively quick stream of customers who can very easily access your services. That is, once you’ve proven to these municipalities and planning departments the extent of the sales value that you’ve projected your kiosk can deliver.
This is where your business plan that you spent so much time and energy creating will come in handy; it will be invaluable to you as you market your idea for a kiosk to a receptive audience.
What Do I Need to Make My Coffee Kiosk Lucrative?
When it comes to making a coffee kiosk profitable over the long term, speed is the name of the game. You can’t make a coffee kiosk profitable without playing to its key strength: speed of efficiency.
It can be tricky to strike the right balance to obtain this level of efficiency. You need a kiosk that’s small enough that ideally, just you (and maybe another employee) can quickly service your in-person or drive-thru customers. But you also need one that’s large enough to have the space to store your inventory and equipment to complete a day’s worth of business.
On top of that, you need to be mindful of the biggest money-sucker associated with opening a coffee kiosk: getting your municipal amenities squared away. It can be pretty costly to set up things such as your electrical wiring and water and drainage.
This is more essential for kiosks than it is for cafes and shops, which are often attached to larger buildings and don’t require a completely new establishment to be built from the ground up on unused square footage.
How Do I Start My Coffee Business and Make it Successful In The Future?
You can do every single thing right to set yourself up for success to run a coffee business. Drafting up a business plan can help you forecast your future expenditures to a tee. You can also source the finest talent committed whole-heartedly to helping your business grow.
By defining exactly what kind of establishment – cafe, kiosk, or shop – you want to open you can play best to your strengths and minimize your weaknesses. You can do all of this, and still fall short of positioning yourself and your business for continued success in the future.
So, while you revel in the success of your business as it currently is, keep an eye on the future. Watch for potential trends and novelties that you can adopt to keep your business fresh and profitable years down the road:
Increase Automation in Your Coffee Business
Nearly every modern industry has been touched by digital transformation and the automation that comes with it in one way or another. The coffee industry is no exception.
You can consider adopting automated technologies that increase your service’s efficiency and keep your customers happy and returning, order after order. The trick is knowing what and when to automate, and at what stage of your business’s lifecycle to begin automating those things.
The most obvious components that you can automate include your reordering process so that you don’t need to spend as much time double-checking your current inventory and wondering whether it’s time to re-order your stock of supplies. You can also automate certain processes like payroll and scheduling to make management easier and more intuitive.
Have a Solid Marketing Plan For Your Coffee Business
Not only do you need a solid marketing plan to get your coffee business off the ground, but you need to take a cyclical approach. An ongoing plan allows you to keep your business relevant and constantly churn in new customers. It also reminds your current customers that you are their fave coffee spot.
Take a multifaceted approach to get the most exposure. A good mix of traditional and digital marketing campaigns can reach the max number of customers. Many small businesses find that using social media as well as tried and true methods are both effective.
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It’s essential to not be stagnant with your marketing plan. Mix it up a bit to keep things fresh. Keep an eye on the data to see what works, and what doesn’t do as well. In time, you’ll find the right combination of marketing tools that work best for your business.
Start a Rewards Program to Grow Your Coffee Business
Small businesses are some of the best candidates for starting their own loyalty or rewards programs. This is mainly because they’re so effective at quickly increasing a new base of customers that’s interested in continuing to return to your business.
An approximate 64% of small businesses that began their own loyalty or rewards program claimed that their business began to make more money than it took to keep their lights on. Your business stands to profit much more heavily from repeat customers than it does from one-off visitors who don’t have an incentive to re-visit your shop.
Coffee That’s Sourced from Local Roasters
It’s becoming more popular than ever for cafes and coffee shops to specialize in quality coffee that’s made from beans sourced from local roasters. You can choose from different selections of beans, styles of drinks, and even multiple flavor profiles to accent your coffee’s tastes in interesting ways.
These are all important parts that are essential to making a great-tasting coffee that brings back repeat customers. In this case, it’s the roasters themselves that we’re interested in. Coffee spots that support local roasters by offering their premium products stand to make a huge impact on the local food industry and the community that they serve.
These businesses also make it easier for local roasters to expose more people (your customers) to their coffee beans, and subsequently get an ever-increasing customer base.
“Gastropub” & Alcohol Selections in Your Coffee Business
You’ve probably heard of the “gastropub” in recent years. Basically, it’s a bar that also specializes in gourmet food. Maybe you’ve decided to open up your own coffee shop that happens to serve customers until later in the day. You can consider offering an adult-targeted menu of alcoholic selections.
For example, Starbucks’ Evenings program added $1B to its 2019 annual revenue. Offering a selection of later-hours gastropub and alcoholic offerings can keep business flowing past hours where you’d normally notice a dropoff in customer visits. You can also include your new menu of offerings online and as part of your loyalty and rewards programs to incentive more visits during more hours of the day.
The Bottom Line to Starting a Profitable Coffee Business
There’s a whole lot of forethought and careful financial planning that goes into starting a lucrative coffee business. The big things like your location, your product selection, and your base of repeat customers are essential to your success.
Your advertising and marketing strategies are your best friends. They can keep your business not just afloat and surviving, but constantly attracting new customers and thriving. However, once you have all of these things in place, it’s only a matter of time before you have a line of customers always flowing out your door.
Continue to make sure that you’re trying out new strategies and offering new conveniences and incentives for your customers. Entice them to keep checking your business out and letting their friends and family know about it by word of mouth.
The bottom line: if you know your business in and out as well as the customers you’re attracting, there’s nothing stopping your shop from taking the coffee industry by storm.
