How Much Does It Cost to Start a Coffee Shop?
November 1, 2022 | Last Updated on: November 1, 2022
November 1, 2022 | Last Updated on: November 1, 2022
Do you find yourself living for your gourmet coffee habit?
Many entrepreneurs in your position consider opening their own coffee shop. Coffee shops are one of the fastest-growing concepts in the restaurant industry, with a global market expected to reach $237.6 billion by 2025. Does this mean coffee shops are an expanding opportunity or one that’s nearly reached full saturation?
This article explains how much it costs to open a coffee business (including benchmark coffee shop startup costs) and the steps it takes to do so, so you can decide whether it’s a smart move for you.
The price varies, but a reasonable estimated total cost is between $75,000 and $350,000. That’s a wide range because it depends on location, size, services, equipment, staffing, insurance requirements, whether you buy, build, or rent a space, and more.
The first step to starting any small business is creating a complete business plan.
A business plan is often required to secure funding. However, it’s far more critical than that. It’s a way to plan the steps you’ll need to take to open your business. Once you’ve completed the planning process, you should know whether opening a coffee shop is a smart move for you.
A business plan can help you figure out:
By the end of the business planning process, you’ll have a strong sense of whether it makes sense for you to do the hard work and move ahead and open a coffee shop.
Tip: If you’re not sure how to write a business plan, you can find all types of proven templates online.
Once you finalize your business plan, it’s time to purchase or rent a space to run it out of. The cost of space is one of the most significant variables when operating a coffee service business. It depends on location, size (total square feet), and space availability in the community. A sizeable full-service coffee shop in downtown Los Angeles, California, will be far more costly than a small take-out operation in the suburbs of Mobile, Alabama, or a kiosk or coffee cart at a small mall. Owning a coffee-focused food truck costs slightly less than a brick-and-mortar one with a starting price tag of approximately $60,000.
Here are some location-related costs you’ll have to cover in the earliest stages of starting your new business:
Tip: Always include a contingency fund in your renovation budget. It’s rare for a coffee shop to open without unexpected emergencies happening.
The equipment you must purchase for a professional coffee operation isn’t the same as your home coffee machine, even if what you have is top tier. You need to buy items that make the kind of quality coffee people will be willing to pay for, bring efficiency to the operation, and can stand up to extreme wear and tear. This type of equipment is costly, and you will need more of it depending on the size of your operation and the number of customers you expect to serve at peak periods. Here are a few pieces of equipment that no coffee shop can go without:
When you add up the high-quality equipment it takes to run a coffee shop, equipment costs can come to $10,000 or more. It’s a good idea to buy only the equipment you need to operate your shop on opening day and scale up over time. It doesn’t make sense to invest precious start-up dollars on things you may not use.
Of course, you’ll need coffee, cups, and other supplies to open your coffee business. Here are some benchmark start-up costs for different items.
Your coffee shop is only as good as the things you serve. You don’t want to skimp on consumable products.
Another relatively high start-up cost for coffee shops is transaction technology, typically a point-of-sale system. POS software for a coffee shop can cost between $50 and $200 per month. The hardware to run the system will likely be a one-time payment of between $1,200 and $4,000.
POS software might seem expensive for a start-up coffee shop. However, it will pay for itself over time because it will make inventory and transactions easier to track.
You’ll likely need to purchase insurance and a security system. Most landlords and lenders will require these things. Insurance costs will vary depending on what it covers, business size, location, limits, insurer, property value, and more.
Security system prices have fallen in recent years, and you should be able to find a basic one for under $500 plus a minimal monthly monitoring fee.
In the food service industry, food and labor expenses are referred to as prime costs. These costs, taken together, shouldn’t exceed 60 to 65 percent of total operating expenses. This is a more manageable goal for coffee shops to hit than other food service businesses because they typically serve a more limited number of things.
For coffee shops:
These are benchmarks. However, they’re common in the restaurant industry, so it makes sense to stick as close as possible to them, especially during these inflationary times.
Marketing is critical to attracting customers to a new coffee shop, especially in today’s crowded marketplace. You may be able to handle simple marketing tasks like posting on social media or setting up a Google Business Profile or managing some Google Ads. Still, it could be a good investment to spend some money on professional branding and marketing support, especially when you’re trying to attract people already frequenting all those crowded coffee houses in your community.
If you decide to go the professional route, you should expect to spend approximately $2,000 monthly for part-time, limited professional marketing support and direct marketing expenses.
Finally, before you set your grand opening date, you’ll be required to get permits and licenses to run your business, serve coffee and food, play music, hire employees, and more.
The first permits every business must acquire are a business license and Employer ID Number (EIN). These allow you to operate a legitimate business with employees. To legally run a restaurant, a certificate of occupancy and food service license are also required. If you plan to serve alcohol as part of your coffee shop concept, which is becoming popular because it extends business hours and revenue possibilities, you’ll also need a liquor license. All of these permits carry application costs that vary among the states and municipal authorities that could be involved. Expect to budget several hundred to a few thousand dollars for permits, based on the size and complexity of your business, where it’s located, and the types of food and service you offer.
Plan to spend a minimum of $80,000 on starting a coffee shop. It may seem like a lot of money, but you could get financing to help make your dream a reality.
Some common types of financing for coffee shops include:
If you’re concerned about borrowing money to start a coffee shop, consult with an expert at a small business loan company like Biz2Credit or your financial advisor. It can also be a good idea to talk to successful coffee shop owners in your area to find out how they funded their businesses and get other tips about running your operation.