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The Economics of Owning a Coffee Shop

Author: Jacob Harris

It is no secret that starting any business from scratch comes with difficulties. If you dream of owning a coffee shop, however, with hard work, extensive experience, analytical skills and a well-designed business plan, you can succeed. Understanding the economics of owning a coffee shop is a vital step in making your dream a reality. Most importantly, you need to take into account the initial, fixed and variable costs as well as the ergonomics of the business.

Cost Analytics

Initial costs can vary significantly depending on the coffee shop's location, size and equipment needs. Sit-down coffee shops typically cost between $200,000 and $375,000 to set up; large drive-thru shops can cost between $80,000 and $200,000; and a small kiosk can cost between $25,000 and $75,000. Opening a franchised sit-down coffee shop can cost up to $673,700 to start up. Understanding the initial cost is the first step in deciding if you have the ability to start up a new coffee shop. Depending on the type of coffee shop you want to open, your initial costs vary.

Fixed costs make up most of the monthly expenses for any for-profit company. These costs include rent, which should not exceed 15% of sales, and staff costs, including payroll taxes and benefits. Another large and important fixed cost can be equipment such as espresso machines, which can cost up to $20,000. In addition, many coffee shops also roast their own beans. Industrial coffee roasters can cost upwards of $10,000. Note that fixed costs stay constant from month to month, and the retailer must pay rent and utility bills irrespective of sales for the given pay period. That said, you need to cover your bottom line each month to pay these expenses.

Variable costs vary proportionally to the good or service produced by a business. These costs depend on how many cups of coffee are sold or how much milk and sugar are used for each drink, so they can be hard to predict each month. As an owner, you want to increase revenue as much as possible; however, that means you need to make enough to cover the variable costs each month. Therefore, you may need to promote multiple sales, meaning you need to offer other products that may not have as high variable costs to make a large profit. For example, coffee shops can also sell coffee beans to customers as another revenue stream.

Ergonomics

Efficiency and productivity are vital in running any successful business, especially coffee shops, which need to sell large quantities of low-priced items to cover costs. Ergonomics can make or break your coffee shop. Managers need to ensure the layout of the workstation allows baristas to work efficiently and get people in and out the door quickly. The workstation should be designed perfectly with easy access to the fridge, cups, grinder, accessories, storage supplies and sink. Understanding ergonomics can vastly work to increase your revenue by making your workers and workspace more productive.

The Bottom Line

Depending on the type of coffee shop you want to open, the initial startup cost can be over $300,000. Understating your initial, fixed and variable costs is imperative to running a successful establishment. Anyone considering starting up a coffee shop needs to have the startup capital as well as additional funds to keep the business afloat when hard times hit in order to cover those fixed costs. In general, a great location with heavy foot traffic goes a long way in setting up a successful coffee business. Also very important is a detailed and well-thought-out business plan for your future coffee shop.

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