If you consider yourself a top home barista, you may have daydreamed about opening your own coffee shop and sharing your love for quality beans with the world.
But if you did, how much could you expect to earn?
Stick with us as we explore how much coffee shops make, including key expenses and profit-making tips.
How Much Do Coffee Shops Make?
Of course, we’d love to give you a simple answer about how much a coffee shop and its owner(s) can expect to earn within a year. However, this depends on a range of factors, including the size of the business, the business model, and other case-by-case factors like location.
On average, the consensus is that small, independent coffee shops make around $450,000-$500,000 a year.
We do have to take this with a pinch of salt, as this figure equates to the gross earnings of the coffee shop before other expenses like taxes, utilities, wages, and inventory are taken into account. Once everything is factored in, coffee shop owners should expect a profit of $60,000 - $160,000 per year.
How Do Coffee Shops Work Out Their Profit Margins?
To put it simply, to work out whether your business is in profit, you take away your total expenses from your gross sales amount.
The profit margin for a coffee shop is anywhere between 1% and 25%, although the average for most independent, small coffee shops is around 15%.
How Much Profit is Made on a Cup of Coffee?
You might be wondering how much a coffee shop makes on a single cup of coffee. Let’s break this down.
First, we need to work out the type of coffee being made, as each one has a different cost of goods (CoGs) and price attached to it. The most popular coffee order in the US is a latte, selling for around $4 on average.
Lattes are pretty simple, as they just contain two parts — one part steamed milk to one part espresso. A gallon of milk costs around $4, and we need around 5.5 oz for an 8 oz latte.
There are 128 ounces in a gallon, so: 400 ÷ 128 = 3.1 cents per ounce. 3.1 x 5.5 = 17 cents.
To make a shot of espresso, you need around 9 grams of coffee or 18 grams for a double. A 12 oz bag of Cafely’s signature Saigon OG Blend retails for $17.85, and there are 28 grams in an ounce.
So, the price of our espresso for our latte is 1785 ÷ 12 = $1.49 per ounce. 149 ÷ 28 = 5.3 cents per gram. 5.3 x 18 = 95 cents for a double shot.
Of course, this estimate is a little high, as purchasing in higher quantities, such as through Cafely’s wholesale program, will lead to bigger discounts and a lower price per ounce.
We won’t count hot water here, as it costs around 2 cents to heat up a gallon, and we only need 2–3 ounces for our latte.
So, in a very basic calculation, it costs a coffee shop $1.12 to make a latte. Sold at $4, this gives a profit of $2.88.
Of course, this is very simplified, and we’re not accounting for many factors, like employee wages, energy bills, to-go packaging, or any additives like syrups or sugar, as well as other overall expenses we’ll go into in a little while. This will drop the profit further, so it is much more likely to sit around the $2 mark.
What Are the Main Expenses for a Coffee Shop?
In an ideal world, the only expenses for a coffee shop should be good drinks and happy customers. Unfortunately, there are plenty of things that need to be taken into account for its day-to-day running.
1. Inventory Costs
Inventory refers to the items sold or used to make the products in a store. When we talk about coffee shops, this includes things like the coffee beans, milk, flavorings, and other ingredients needed to make any food and drinks that are on the menu.
All of these items come at a price, and this is especially true when you factor in quality. If you are looking to create high-quality coffee, you’re going to need high-quality ingredients, and this often has a premium price tag to match.
Although coffee beans have a relatively good shelf life, coffee shops need to take care when it comes to purchasing perishable goods, such as milk, cream, and plant-based alternatives. Over-purchasing based on demand could lead to unused waste products, resulting in potential profits going down the drain.
2. Operating Costs
It’s no good to create great coffee if you don’t have a functioning place to sell it. Operating costs cover your premises and everything else associated with the day-to-day running of your store.
Things that are factored into a coffee shop’s operating costs include:
- Energy and utility bills
- Rent
- Insurance
- Maintenance
- Other essentials, such as cleaning equipment and products
3. Employee Costs
While nothing is stopping you from running a coffee shop completely solo, the chances are you’re going to need some help. This means hiring employees. Staff costs include wages, training, holiday pay, other benefits, and employees on different levels of pay, such as managers.
While you might think that you can just stick to the minimum wage for employees, it’s important to remember that high turnover due to job dissatisfaction can be just as much, if not more expensive, than happy, long-term staff on sustainable wages. The best coffee shops strike a balance between keeping workers happy and keeping the business ticking over nicely.
How Can Coffee Shops Boost Their Profits?
There are plenty of strategies that coffee shops can employ to bolster their profits aside from just selling coffee. Learning consumer statistics and trends in the coffee industry can help identify profitable upsells.
Here are some of the upsells that you might see them use:
1. Coffee & Coffee Paraphernalia
Especially if they work with smaller or signature roasters, many coffee shops will sell grounds and beans to allow their customers to make their coffee at home.
Alongside this, they’ll usually sell coffee-making equipment, like French presses, phins, pour-over sets, or milk jugs.
2. Merchandise
If the coffee shop has started to develop a local following and is keen to promote its brand, it may also sell merchandise related to the store. Mugs, tote bags, t-shirts, and reusable to-go cups are popular choices.
Some coffee shops could even be a hybrid between a coffee shop and a gift store, selling goods like candles, books, or homewares, as well as providing a caffeine fix.
3. Food
People often want something to go along with their coffee, so selling food is a great way to upsell. This could be something as simple as cookies and pastries, or the shop could develop its own breakfast and lunch menu.
4. Catering Services & Events
Catering for functions like business meetings and private events can also help coffee shops bring in extra income.
If they have a particularly inviting establishment, they can allow others to host events in their space, too. This is of particular use to businesses that may have limited opening hours and a way to gain extra revenue when they are not using the premises.
How Much Does it Cost to Open Up a Coffee Shop?
We’ve been talking a lot about how much it costs to run an existing coffee shop. But how much could you expect to spend if you were opening one up from scratch?
Each coffee shop will be different depending on location, its size, and its specialties. If you’re looking to set up a specialty coffee shop in New York City, it’s going to be much more expensive than a small downtown coffee shop in the suburbs of the Midwest.
But, most people are willing to agree that start-up costs for coffee shops range from $50,000 to $300,000. We’ll look at some of the expenses below.
1. Location Costs
Depending on where you want to start your business, how much you’ll expect to pay in rent will differ. For example, shops with a larger floor plan will be more expensive, as well as those in highly trafficked areas like city centers, business parks, and retail stores.
Rent can be anywhere from $2,500 a month to $10,000, while a lease will cost you $30,000 to $120,000 per year. It’s worth looking at which option best suits your business model in the short and long term.
2. Equipment & Furnishings
As coffee lovers may know, a good coffee machine isn’t cheap! Coffee shops will want professional-grade machines that are highly durable and capable of making hundreds of cups a day.
This includes espresso machines and grinders, as well as any equipment needed to make specialty coffees, like pour-over setups and phins in the case of Vietnamese coffee shops.
You’ll also need:
- Furniture: chairs, tables, couches
- Cups, glasses, cutlery and plates
- Decor including wallpaper/paint, flooring, pictures, etc.
- Shelving for displays and storage
- A PoS (point of sale) setup
- Other food and beverage-making equipment like toasters, ovens, and ice machines
- A dishwasher and sink
- A large fridge and freezer
All in all, you could easily end up spending $50,000 or more on all of these things. However, most startups will think thrifty — for example, unique furniture from Goodwill can create a quirky vibe and save money, or they may be able to buy some equipment second-hand or inherit it from another business.
3. Staff Costs
A coffee shop will likely require more than just you as an employee. You’ll probably need one or two extra staff, or even more, depending on the size of your business and its opening hours. The average salary for a barista in the US is $29,250 a year, or $14.09 an hour.
If we take the example of taking on two employees in your first month, you'll need to have at least $4,875 in the bank ready to pay them. Ideally, you'll have at least six months' worth of wages ready to pay out.
4. Legal Costs & Licenses
You’ll need to make sure you are abiding by all relevant laws and legislation when opening your coffee shop. This means applying for various licenses and making sure you have the relevant insurance in place.
These include:
- A valid business license
- A sales tax license
- A reseller license for goods not made in-house
- Food-handling permits
- Department of Health permit
- General liability insurance
- Property insurance
- Business Insurance
5. Other Costs
Other costs associated with opening a coffee shop could also include marketing and advertising to get the word out, discounts for opening promotional offers, and training costs for newly onboarded staff.
FAQs: Running a Coffee Shop
Still curious about how to go about setting up a successful coffee shop? We’ve got some common queries below.
1. How Can I Afford to Run a Coffee Shop?
Although the costs can be pretty steep, there are ways to lessen the financial blow of opening a coffee shop. For example, you may qualify for a loan from your bank or your local government to help you get started.
Places like the Local Business Development Center can help you understand what financial help and support is available to you.
2. What’s the Cheapest Way to Open a Coffee Shop?
One of the most popular ways to start a coffee business that won’t break the bank is to set up a coffee truck. As it’s smaller and you don’t have to worry about the rents of a large store or seating customers, this can make it an appealing option.
Be aware you can’t park up wherever you want and start selling; remember to get a permit for a location for your coffee truck.
3. What is the Best Type of Coffee to Sell in a Coffee Shop?
This will depend upon your target audience and the business model you are going for. Arabica coffee is the most popular worldwide, but you may be able to pick up an untapped slice of the market by offering robusta coffee, like Cafely’s HaNoi blend.
4. What is the Success Rate of Coffee Shops?
Unfortunately, it’s a sad fact that around 60% of coffee shops fail within the first five years. However, by keeping on top of industry trends and best practices, you increase the likelihood of your business being able to succeed.
5. How Much Does the Coffee Industry Make in a Year?
The global coffee market is worth a staggering $93.74 billion, and this number is set to continue to grow even more in the coming years.
6. How Much Does an Average Coffee Cost?
The average price of a coffee in the US is $4. However, this can go up or down depending upon the type of coffee ordered and the additions made to it. For example, a simple americano can be $2.30, while a frappuccino can easily reach $12.90 and more.
