It’s thought that around 64% of American adults consume coffee every day. No wonder, then, that the humble coffee shop has become such an important part of so many people’s lives.
For some, it’s a remote workplace; for others, a place to hang out with friends. Coffee shops are embedded deep within the national conscience and, as a result, have formed a colossal industry.
It’s not just for the big players, either. If you get it right, your independent coffee shop could become one of the most beloved destinations in your town.
Unfortunately, around 50% of coffee shops fail within their first five years of business. But if you do your homework, you’ll stand a far better chance of residing within the other 50% that make an ongoing success of their venue.
It all starts with the basics: money. So, how much does it cost to open a coffee shop in the US?
Start by writing a business plan
Like any business, it’s easy for the costs associated with a coffee shop to spiral out of control.
However, if you write a business plan before committing to anything, you’ll get a feel for how to open a coffee shop and, crucially, whether or not it’s for you.
It’ll also reveal how tight your margins will be to begin with and the kind of business you’ll need to attract in order to start making any kind of return. This might come as a shock, but it’s the harsh reality of this industry. Stick with it, though, and there are handsome earnings to be had. This guide isn’t for creating a business plan, but it’s impossible not to answer the question of “how much to open a coffee shop” without at least highlighting its importance.
The total setup costs
Before we dive into the specifics, let’s consider the potential costs for setting up the most common types of coffee shop.
It’s important to note at this juncture that there isn’t any such thing as ‘typical’ coffee shop start-up costs. They vary greatly depending on the area, size of business and your ambitions.
Here are a few rough estimates:
- Sit-down coffee shops cost around $200,000 to $380,000 to set up.
- Franchised coffee shops can cost as much as $700,000 to open.
- Large drive-through shops typically cost between $80,000 and $200,000 to set up.
- Small kiosks can cost as little as $25,000 to set up.
We can’t overestimate the importance of location; it plays a massive role in how much you’ll need to spend to get going. But it also significantly impacts how quickly you’ll break even and, eventually, make a return.
The two types of coffee shop costs ☕
It’s a good idea to break down the costs you’ll encounter when setting up your coffee shop.
They fall broadly into two categories.
- Fixed costs. These will be the bulk of your monthly expenses and include rent and staff costs.
- Variable costs. These relate directly to how much produce you sell; variable costs will fluctuate depending on how much milk you use, the amount of coffee you grind and how many cups you sell.
As you’d guess, variable costs are far harder to predict and account for than fixed costs - particularly from the outset.
The aim is to ensure that your fixed costs don’t exceed too higher percentage of your sales (around 20-30%). If you also keep a firm eye on profitability, those variable costs will become less of a concern, too.
Finding your space
It’s actually very hard to give guidance on one of your biggest costs: the premises.
When dreaming up coffee shop ideas, you’ll no doubt start with the location. As noted earlier, this is incredibly important, but the price of that location and the space you occupy within it will vary significantly from state to state.
For instance, there’ll be the cost of either renting or buying the commercial space, but you’ll also need to take into account the cost of paying for utilities and any renovation costs that can’t be ignored.
Rental is almost always the preferred route for coffee shop owners, and the price you pay will be based on the square footage and location. Speak to as many commercial realtors as you can to get the best deal.
Another potential big cost will be the kit you need to get going. Thankfully, if you’re not intending on running a large food service operation alongside your coffee offering, you won’t need to invest too heavily in kitchen equipment.
That leaves the essentials:
- commercial espresso machine ($2,000 - $5,000);
- commercial coffee grinder ($500 - $2,000);
- commercial coffee brewer ($500 - $1,500); and
- the POS (point of sale) terminal (typically based on a monthly ‘software as a service’ fee - budget up to $50 per month).
We’ve added some guide costs above, but leasing this essential equipment is usually the most common way of obtaining it.
The good news is that the cost of POS systems has vastly lowered over the years, and if you spread the lease across, say, five years for everything else, the monthly overhead won’t be as bad as you think.
If you’d prefer to buy outright, you can do a lot worse than buy used equipment, and there’s usually plenty of it on the market.
Sweating the small stuff
As you’d guess, there are lots of smaller costs to take into consideration when opening a coffee shop.
They’re just as important as the larger costs. Arguably, more so, because they’re the ongoing variable costs which will have a telling impact on your profitability.
It all starts with that all-important initial inventory stock-up. For instance, your coffee beans will typically cost around $1,000 to bring in at volume when you first open. And you can expect to spend the same on tea, if you’re going to offer that kind of beverage alongside.
An initial stock of paper takeout cups will set you back about $1,000, whereas mugs will vary depending on the style you want and whether or not you brand them. Make sure you shop around.
It’s also important to get quotes for straws, stirrers, lids and containers. They won’t break the bank, but you’ll need a solid stock to get started with.
Budget around $5,000 to get fully stocked (that includes milk, cream, sugar and anything else you might need to supplement the coffee). Just be prepared to break that budget a little if your guests flood in quicker than expected (a nice problem to have).
You can’t open your coffee shop without a great team, and staff costs will be of your largest overheads.
For most coffee shops, around 60% of prime costs (the most common definition for those that relate to staffing) will go towards labor.
That might sound high, but the cost of providing your coffee shouldn’t be too high as an overall percentage of your cost base - particularly if you don’t have a large food service operation to account for. In turn, that should mean that identifying the point at which you’ll start making a profit will be far easier.
Getting out there: marketing
There’s no defined, standard cost of marketing a new coffee shop. Once again, it depends on your location and the type of venue.
The trick lies in keeping any form of marketing costs as low as possible by leaning on word of mouth (for that, you will need to get out there and spread the word yourself), traditional door-to-door leaflet drops and email and social media marketing.
The latter, in particular, can be incredibly cost-effective. If you can angle some budget towards pay-per-click (PPC) advertising on Facebook, for instance, you can precisely target just the right audience. Work to obtain their email addresses and you’ll start to build a database of customers to which you can send relevant offers and tantalising menu updates.
The general consensus seems to be that the average cost to open a coffee shop in the United States is around $200,000 (including legal fees and the various red tape), but as we’ve hopefully demonstrated today, this can vary depending on a number of factors.
Just remember to do your homework, write that business plan and focus hard on the profitability of your venue. Then you can get down to the exciting stuff!