How Much Does It Cost to Start a Coffee Shop Business?

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How Much Does It Cost to Start a Coffee Shop?

Your Coffee Shop Cost Breakdown

How Much Does It Cost to Start a Coffee Shop?

One of the first questions an aspiring coffee shop owner asks is: how much does it cost to start a coffee shop?

There’s no simple way to answer this question.

The fact is – it really depends.

Your total cost to start a coffee shop ultimately depends on your business concept and menu, along with other important factors that we’ll be discussing in a minute.

It may help you think about your coffee shop startup costs, like a wedding you are planning for yourself and your future spouse. The ultimate cost of your wedding would be based on any number of factors, including your menu, your location, the time of year, how many people you plan to invite, etc.

Likewise, the ultimate cost of a coffee shop business rests entirely on your business concept, menu, equipment needs, location, rent, etc.

We will look at those things that will determine your coffee shop's ultimate cost in greater detail in today's post. For a brief synopsis of this post, Download our Free Coffee Shop Cost PDF Insert.

So, let's get started!

Your Coffee Shop Cost Breakdown

Your Coffee Shop Cost Factors

The answer to, ‘How much does a coffee shop cost?' always lays with the same first question:

What type of coffee business are you looking to start? For example, do you want to open a drive-thru coffee stand business or perhaps a coffee shop bookstore?

Would you like a coffee shop that operates in the city center or perhaps in the suburbs? Are you buying an existing coffee business or starting a coffee shop from scratch?

All of these answers will impact your total costs. So, let’s discuss those basic elements that make up most of the costs for your future coffee shop.

Generally, your coffee shop startup costs depend on the following:

Your concept
Coffee shop menu
Coffee equipment
Physical location
Build out & remodeling
Labor costs
Your legal & administrative costs
Branding & marketing choices
Furniture & fixtures
Other additional costs based on your personal situation or location

These costs, taken together, can add up quickly. Nevertheless, you must tally up all of these costs and create a working budget. Throughout the process, it’s important to maintain honesty with yourself about the cost of each element.

The more you know, the better you will manage the costs associated with starting your coffee shop.

Coffee Shop Cost Breakdown

How much does it cost to start a coffee shop?

The Cost Range For Your Coffee Shop Concept

It’s fair to say that each type of coffee business has a general price range.It is important to note here that many of the costs aren’t always paid upfront – on day one. Rather, costs are often paid over a certain period of time.

This is important because you probably will not need 100% of the money upfront.How much money you do need upfront is determined by your coffee shop concept and your situation.

Let’s take a look at the general concepts and cost breakdown below:

Traditional Coffee Shop Business Cost Range:

Small coffee shop with seating: $40,000 to $200,000
Large coffee shop with seating: $75,000 to $350,000
Franchise coffee shop: $100,00 to $350,000
Café & Bakery: $120,000 to $350,000
Coffee Shop Bookstore: $80,000 to $250,00

Low-Cost Coffee Shop Business Cost Range:

A piggyback coffee business: $3,500 – $15,000
Drive-thru coffee stand business: $10,00 – $90,000
Espresso catering business: $4,500 – $15,000
Mobile coffee business: $10,000 – $95,000
Online coffee business: $400 – $10,000

As you can see, depending on each type of coffee business you intend to open, you will experience varying swings in costs. I want to emphasize that these are just rough estimates to give you a general sense of some of the startup costs you can expect.

Note: Read to learn about a piggyback coffee business?

The needle on your wide spectrum of costs can be anywhere depending on your coffee business concept.

Why categorize the above cost breakdowns into two general types?

Traditional retail coffee shops
Low-cost coffee businesses

The cost breakdown with these categories may help us make better sense of the money you expect to invest. The first category represents a “typical” coffee shop. A “typical” coffee shop is what an average person thinks a coffee shop is. The second category focuses on several low-cost coffee businesses. Some of these may be unorthodox or non-standard coffee businesses (as we have listed).

These coffee businesses may be small and more affordable, but they can also be just as profitable. For more information, read our post, Low-Cost Ideas to Start a Coffee Business.

How much does it cost to start a coffee shop?

Types of Coffee Shop Startup Costs

There are several terms associated with costs when starting a business that you should be aware of. We believe these terms are helpful to know as you get deeper into the reeds with figuring out your coffee shop budget and ultimately determining your total coffee shop costs.

Download our Free Coffee Shop Cost Breakdown – PDF Insert

In order to calculate the cost of a coffee shop startup, we will list and define various coffee shop costs below:

Coffee Shop Startup Costs

These costs are solely associated with starting your business. They often include the costs of any legal fees, administrative paperwork, security deposits, equipment, services, consultants, training, etc.

You may see these notated differently on your tax filings from your operational costs the following year that you open your coffee shop. (You should consult a tax specialist for more information.)

Operational Costs

These are costs that are required to keep your business running day-to-day or month-to-month. They can be anything from the cost of your coffee beans, milk, payroll, and your rent.

Your operational costs include two general categories – your fixed and variable costs.

Coffee Shop Fixed Costs

Fixed costs are costs that don’t typically change month to month. These costs can be your monthly rent, insurance premiums, security payments, a manager’s monthly salary, etc.

Your Coffee Shop Variable Costs

Variable costs fluctuate regularly depending on your volume of sales, hours of operation, etc. These may include the number of coffee beans, cups, lids, barista labor hours, syrups, milk, sugar, napkins, etc.

Coffee Shop Consumable Costs

Consumable costs are simply those costs that are expended regularly because they are used up. For example, they could be anything from paper napkins, cups, lids, soap, disinfectants, bleach, towels, etc.

Calculate The Costs of Starting a Coffee Shop

The coffee shop costs listed above will be needed to calculate your cost of starting a coffee shop. Once these costs are defined for your coffee shop business, usually in a spreadsheet or budget document, we will be able to add up the costs. From there you can determine which costs you can eliminate or that you determine are absolutely necessary.

How much does it cost to start a coffee shop?

Your Coffee Shop Cost Analysis

Your coffee shop cost analysis is just a fancy way of laying out all your costs on the table. It is your “umbrella” term or “blanket” cost description of everything that needs to be accounted for. Your analysis will determine how much your coffee shop will ultimately cost.

Your cost analysis includes your initial startup costs, materials used for building out your shop, contract work, cafe design, layout services, permitting costs, etc. It would include your operational costs too.

Your cost analysis will help you determine how much money you will have to pull from your personal savings, take out a bank loan, utilize personal investors, etc. Your operational total cost analysis will help you figure out your funding mix.

Coffee Shop Cost Breakdown

How much does it cost to start a coffee shop?

Calculating Your Coffee Shop Business Costs

Step 1 – Write a Coffee Shop Business Plan

By putting together a well-written business plan, you will be able to determine – among other things – your financial projections. These will include your general overhead, coffee equipment costs, rental costs, payroll costs, and your break-even point and profitability projections.

By running these numbers, you’ll be able to determine your return on your investment (ROI).

Additionally, a comprehensive coffee shop business plan will play an important role as you approach property managers and investors who want to understand your concept and see a detailed financial forecast for your proposed coffee business.

By understanding what you want and need, you’ll also be a better negotiator, reduce your costs, and save tons of time.

Your Coffee Shop Concept

Your business plan will articulate your coffee shop concept. Additionally, your concept determines what type of coffee business you intend to open. Since it serves as the base of your coffee business, it will serve as the gateway to determining your total cost estimates and financial forecasts.

Your concept should detail the overall experience you and your customers will have when engaging with your business.

While you’ll have plenty of options, you want to make sure that your concept resonates with your target market within your chosen location.

A perfectly executed concept may not work well if it does not resonate with your community, so be sure to determine the best fit for customers in the location you plan to open.

Step 2 – Determine Your Menu

It may not seem obvious at first, but really your coffee shop menu plays quarterback to your entire coffee shop budget.

Without knowing your menu first, your most effective planning will grind to a halt.

For example, your coffee menu – and menu prices – affirm who your target customer will be. Therefore, in essence, your menu really determines your ideal location.

Additionally, your menu will determine what equipment you are going to purchase. Your equipment requires a certain amount of space, installation, and people to operate it.

This impacts your lease, contract work, and hiring baristas. Don’t forget that if you want to open a full-fledged café with a kitchen, you will be under greater scrutiny from the health department to get a permit.

Because of all this, it’s fair to say that what's on your coffee shop menu board is the center of your entire coffee budget.

Step 3 – Choosing Your Coffee Equipment

Your coffee equipment plays a big part in your upfront startup costs. If you finance or lease your coffee shop equipment, you’ll have to make monthly payments that include interest payments.

Coffee Shop Equipment Costs Include:

Espresso Machine
Grinders (one for decaf and one for regular espresso)
Scales
Metal Pitchers
Scales
Toaster Ovens
Refrigerators
Freezers
Ice-Makers
Coffee Brewers
Display Cases
Storage Racks
Blenders
Dish Washer
Grease Trap
Point-of-Sale System
Power Generator (mobile coffee business)

Coffee Shop Consumable Supplies and Costs

Consumable supplies may be categorized as equipment as well. These items are regularly used up.

These may include towels, soap, disinfectants, and bleach. They may also include things like boxes, bags, napkins, postage, etc. All of these can add up to increase your variable costs as time goes on. Being mindful of waste can lead to significant savings with your consumables.

As you ramp up your inventory initially and determine what works best for your coffee shop, you’ll probably spend a little more during a “trial-and-error” period. This is normal. The more experience you have, the less waste you’ll most likely experience.

Maintaining your inventory and budget management will help you make better decisions and save money. Your coffee shop POS system can come in handy in helping you manage your inventory.

Step 4 – Finding the Right Physical Location & Space

Real-estate costs will play a big role in how much your coffee shop will cost – with your upfront startup costs and operational costs.

Your location rental costs are determined by your square footage (or square meters in Europe or elsewhere).

The cost per square foot helps compare the cost differences between locations.

If you decide to lease your coffee shop space, you’ll be paying for a security deposit, monthly rent, and possibly other expenses as defined in terms of your lease. Other rental scenarios may include paying a certain percentage of your gross sales to the property manager every month.

Additionally, some common expenses and rent payments are pest control, security service, trash, taxes, and building maintenance fees.

These costs should be tallied up together to determine your overall rent-to-earnings ratio.

Calculating Your Coffee Shop Expenses

How much does it cost to start a coffee shop?

How much should your coffee shop location cost?

Real-estate costs vary from city or region. In some parts of the country, you can expect to pay higher prices for your rent and associated expenses noted above, compared with other parts of the country.

According to Zillow, the average percentage of your home rental cost should not exceed 30% of your income. However, this is a rule of thumb for your personal finances and should NOT be used as a benchmark for your coffee shop business.

Instead, look at the ratio of your annual rent costs to that of your annual earnings.

Estimated Revenue ÷ Annual Rent = Ratio

For example, if you pay $1500 in monthly rent, that translates to $18,000 per year. Let’s say that your estimated annual revenue is $120,000. From that information, we can calculate the ratio.

Let’s do that math:

Using the equation above, your revenue-to-rent ratio is:

$120,000 (revenue) ÷ $18,000 (annual rent) = .15 or 15%.

This ratio might be acceptable.

However, it may be better as a retail coffee shopif your ratio was around .10 or less.

To get your revenue-to-rent ratio to a safer level, your earnings should be around $170,000 to $180,000 per year. Your estimated revenue should play a decisive factor in your location choices (and thus, your overall cost estimates). You can't adequately plan without the other!

If you find a great location, but your revenue-to-rent ratio is, say, .30 or 30% – then you will have a strong likelihood to get in-over-your-head quickly. Again, you do not want to use the same ratio recommendations for your personal living expenses!

When it comes to your retail coffee shop, we think that your ratio should not exceed over 12% of your gross sales.

How much does it cost to start a coffee shop?

Is your coffee shop lease worth the cost?

The less money you spend on rent, the more you will have to invest in your coffee shop growth (advertising, staff, paying back loans more quickly, and of course, paying yourself!).

You’ll have to determine if the rent you will be paying is truly worth the cost. Is there something unique and special about the location that is worthy of you renting there? Again, you will have to incorporate your concept, your customers, your menu, and other qualitative factors that space provides.

Once you’ve signed your property lease, you’ll next have to consider the costs to design and construct an appropriate layout. Let’s talk about that next.

Your Coffee Shop Design & Layout

If you starta coffee shop from scratch in a new and cleared space, you may have various initial costs.

These costs may include paying an architect or a design firm or layout specialist to create a scalable mechanical drawing. This design would then be used by one or several contractors.

Hiring multiple contractors can blow a hole through your coffee budget, so you will want to plan before hiring anyone. You may consider saving money and doing as much of the work yourself.

Be mindful that some states, counties, and property managers require licensed contractors to do the specialized work of electrical installation and plumbing. And in every state, you are required to be ADA compliant.

Step 5 – Budget for your legal & administrative costs

There are often nominal but important fees and costs associated with setting up your business.

These costs and requirements should not be overlooked. Make sure they get into your budget planning.

These costs may include:

Setting up your LLC
Paperwork that may require hiring a lawyer or legal service
Applying for city and state licenses and permits
Health department proposals and inspections
Buildings department proposals and inspections

Step 6 – Budget for Your One-time Coffee Shop Startup Expenses

As part of your startup costs, you will have various one-time expenses. Not counting your equipment costs, these other one-time expenses are important to your business and expensive. Overlooking them might undercount your financial needs. Like other costs associated with starting your coffee shop, they can add up quickly.

These one-time coffee shop costs may include:

Any security deposits
Consulting fees
Website development
Security System
Point-of-Sale (POS) System
Furniture & fixtures
Exterior signs
Exterior lighting
Indoor and exterior menu board

Step 7 – Budget for Hiring Staff

If you own a small coffee kiosk or coffee cart, you may be able to work it yourself. However, there may come a time that even your small coffee shop will need to hire staff or baristas.

Many times, you will have to hire multiple staff members.

The cost associated with staff can add up quickly. For example, if you hire two or three baristas to work 30 hours a week.

That’s 90 hours @ your hourly rate.

Additionally, you may have to pay certain benefits mandated by the state, including workers comp insurance, taxes, and medical leave. Hiring staff can be expensive, which is another reason to be extra diligent with your hiring choices. Your barista hiring decisions will be a key factor in your coffee shop success. Keeping your baristas trained and engaged in your business will lead to higher customer satisfaction, higher revenue, and a better work environment.

Step 8 – Marketing and Promotion Costs

The marketing and promotion of your business may have one-time or on-going costs. A variety of benchmarks are given for new retail businesses. Consider budgeting 10% of your net revenue to sustained marketing and promotional costs. This would especially be important for new coffee businesses.

These costs may include:

Your website development
Coffee shop grand opening
Designing and printing business cards
T-shirts
Signs or posters
You may decide to hire a social media consultant or graphic designer.

You’ll want to make sure to include each of these costs in your budget.

Step 9 – Ensure Cash-on-Hand to Cover Expenses Until Profitability

Like any other business, your coffee shop will probably not reach profitability overnight. And your business may take time to ramp up to its full potential.

Without cash, your business will grind to a halt pretty quickly. So, you will want to have a certain amount of cash on hand for various expenses.

This may include contract labor, barista payroll, inventory and supplies, and utilities, etc.

Depending on your coffee shop concept, you will want enough cash-on-hand to sustain your business for at least six months worth of expenses. Together, with your existing sales and careful budgeting, this financial cushion will help you ensure stable growth until you reach profitability.

Bear in mind that a six months cushion may not be enough. It depends on your concept, operational costs, and your level of sales.

If your expenses are $2000 a month, you will want to factor another $12,000 of cash on hand in your budget.

Other Miscellaneous Coffee Shop Expenses:

Many costs have the keen ability to sneak up on you. They add up quickly or hit you just as you’re not suspecting it. As a new coffee shop owner, these costs can send you scrambling to find new money. Prepare for these additional coffee shop startup costs, and you'll be in a much better position.

These costs may include:

Lump interest payments on loans
Taxes
Consultant fees
Equipment maintenance fees
Barista training
Shipping costs
Moving expenses
Over existing debt

Coffee Shop Cost Breakdown

Coffee Shop Startup Costs

Moving from Costs to Profits

Now that we’ve talked about costs let’s talk about profits!

Each cost mentioned so far is really an investment in your business. You are ultimately spending money to enjoy a return.

Whether you buy an espresso machine, display case, hire a barista, or design a coffee sign – it’s all geared for the ability to make money.

Your ultimate goal is to create a profitable business. Just how profitable a coffee shop is entirely up to you.

What is a good profit margin?

If you are asking, “what is a good profit margin for my coffee shop?” – You’re asking the right question!

Certainly, profit margins vary from industry to industry, but there are generally accepted standards for profitability.

Typically, a 10% net profit margin is considered average or good. In comparison, a 20% profit margin is considered very good.

In many cases, anything under 5% may be considered poor margins. Of course, when you are just starting a coffee business, you may not reach profitability for the first year or two.

With profit margins, consider that margins differ:

from industry to industry;
between new businesses from older businesses.

How do you calculate the profit margin?

While not the scope of this article, we’ll briefly mention some strategies to calculate your profit margins. For starters, you can determine your net income by determining your net sales and then subtracting your costs of goods sold (COGS).

Basically, take your income and subtract the costs. Then, you will divide that number by your net sales.

Net Sales – Cost of Goods Sold ÷ Net Sales

= Gross Profit Margin

For example:

Let’s say your net sales are $1,000 for the week. Your cost of goods sold (COGS) is $600. By plugging the numbers into the equation, you'll get this:

$1000 – $600 = $400/$1000 = .4 or 40% Gross Profit Margins

This is a very simplified look at costs, but hopefully, it will help introduce you to the ways you can look at your profitability. For another in-depth look at potential costs for your coffee shop, read our post, How to Determine the Cost of Selling 100 Coffees.

Coffee Shop Startup Costs

The Cost to Open a Coffee Shop:

Your Potential Coffee Shop Funding Mix

There are a variety of ways to obtain the money to start your coffee business. Many times, your money will come from different sources. We like to refer to these sources as your funding mix.

Here are some examples of funding sources:

1. Personal Savings
2. Credit Cards
3. Borrowing (institution or a personal loan)
4. Bringing in investors/partners
5. Crowdfunding

These are the general funding pools that you will need to draw money from. Before you borrow or bring in potential investors, you want to determine:

1. How much money you need to open your coffee shop.
2. How much money you can obtain from each pool
3. Develop your financial forecasts to know when you reach your break-even point.

Let us take a look at the pros and cons of using various finance pools to cover the costs of opening a coffee shop. Consider the table below.

Funding Type	Pros	Cons
Personal Savings	Funds without going into debt	Higher personal financial risk
Credit Cards	Immediate Financial Resources	Must payback debt with high interest rates
Borrowing (bank or a personal loan)	Cash Funding	Must payback with variable interest rates
Bringing in Investors/Partners	Cash Funding	Potential loss of company control (diluted decision making power)
Crowdfunding	Funds without interest	Some fees, You need funds to invest in a marketing campaign, You may have to pay enticements

How much does it cost to start a coffee shop?

What are your coffee shop monthly expenses?

When determining your coffee shop startup cost breakdown, there are two general pockets to consider – your startup costs and operational costs. Your coffee shop startup costs are your initial costs to launch your coffee business. These could be anything from your business setup costs, as well as your logo, equipment, and build-out costs. Operational costs, as described above, are everything it takes to run your business.

For many, it’s helpful to look at operational costs broken down by month. Your monthly costs will likely be the vast majority of your operating costs but could include some startup costs as well.

From personal budgeting, we are used to figuring out costs per month. We commonly use our monthly budget to assess our rent or mortgage payments, car payments, cell phone bills, among others. Therefore, it is fair to ask how much does a coffee shop costs per month.

Figuring out our monthly costs to run a coffee shop, hence, makes sense.

What coffee shop monthly expenses should I expect?

Every month coffee shop owners can expect certain expenses. These vary depending on your ultimate concept. Yet, some expenses are generally the same from one coffee shop to the next. I will list common coffee shop monthly expenses below.

Rent – your monthly lease cost
Labor – Salary, hourly wages, and taxes.
Insurance – General liability, commercial auto.
Inventory – Coffee, wholesale food, milk, etc.
Supplies – Cups, lids, napkins, spoons, etc.
Security – You may need to pay for security services through a business association fee.
Utilities – These fluctuate, but they are billed out every month.
Interest on loans – May likely include principal payments.

Can you afford your own coffee shop at this time?

You still may be unsure if you can afford your own coffee shop at this time. Money – and access to money – is the single biggest factor when deciding to invest in a coffee business.

You will have to assess your personal finances and determine if opening a coffee shop leave you in a vulnerable situation. You may not want to jeopardize your well-being to start any business.

There are plenty of things that you can do today without spending any money on a coffee shop. Planning, learning, and exploring retail coffee come to mind.

If you are on a minimal budget, consider reading posts we’ve written, Low-Cost Coffee Shop Ideas, or How to Start a Coffee Shop on a Budget.

How Much Does a Coffee Shop Cost?

As you can see, many elements come together to develop your coffee shop budget – and ultimately determine your coffee shop costs. We will summarize those items to consider when determining your coffee shop costs with the list below:

Write a coffee shop business plan.
Determine your coffee shop menu.
Choose your coffee shop equipment.
Finding the right physical location and space.
Budget for your legal and administrative costs.
Budget for your one-time coffee shop startup expenses.
Hiring staff allowances.
Hold cash reserves to cover expenses.
Be mindful of other miscellaneous expenses.

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How much does it cost to start a coffee shop?

This article is for educational purposes only. To determine the exact cost of your coffee shop, you will have to consider factors that are essential for your coffee shop startup. Each coffee shop costs differently and depends on location, size, scope, concept, coffee shop build-out, and taxes.