Brewing Up: How Much Does it Cost to Start a Coffee Shop?

If you find yourself in a daily habit of waiting for your morning fix at a coffee bar, you’re in the same boat as millions of other people worldwide on any given day. When you’re considering the possibility of starting a food and beverage business, opening a coffee shop isn’t a bad option. After all, coffee shops are one the fastest growing concepts in the restaurant industry, with a global market expected to reach US$237.6 billion by 2025.

But as you well know, there’s more to starting a successful business than just having a concept in mind: there’s planning, development and strategy involved, which translates to start-up costs coming at you from every direction.

Independent cafe owners can offer a more unique, intimate experience to their customers, unlike big-chain companies. When you execute your vision properly, you can foster a loyal customer base, boost word-of-mouth reviews and gain steady business. 

So how much does it cost to open a coffee shop? The simple answer, according to the successful coffee shop chain Crimson Cup, is between $80,000 and $400,000 depending on size, services, equipment and other specific considerations that vary from business to business. 

We’ve covered some of the necessary steps and expenses you should expect before getting started:

1. Writing a business plan
2. Raising capital and having a financial plan
3. Finding and developing space
4. Purchasing equipment
5. Finding staff and vendors
6. Setting up marketing
7. Choosing the right technology
8. Becoming compliant

1. Writing a business plan

The first step to starting any type of business is putting together a comprehensive business plan. A business plan is more than a proposal for funding. It’s a way to list out the steps that you’ll need to take to open your business. It’s also a great time to consider whether opening a coffee shop is truly right for you.

You may be wondering how much a coffee shop owner makes, to which there’s no broad answer. The amount you’ll be able to take home after balancing the rest of the budget depends significantly on how fast you’re able to attract a steady customer base, your break-even point with overhead, equipment costs and payroll, and more. Generally, networking, social media marketing and local outreach go a long way in kick-starting a business.

In a similar vein, you may be interested to know what your return on investment, or ROI, will be if you put the money into opening a coffee shop, and the answer is more complicated than you might like to hear. A coffee shop’s ROI has high potential because of the fast growth of the industry, but that doesn’t mean every venture will be a success. It takes hard work, careful oversight and smart budgeting to maximize your ROI.

Starting a small business isn’t glamorous, and your margins will be tight for at least the first two years. However, with our help, you won’t be caught off guard by any of the costs associated with opening a coffee shop, which is a significant advantage.

Conduct research for your business plan

As you write your business plan, the more prepared you are with analytics and research, the better. Here are a few strategies you can use to make sure your business plan is rooted in research: 

• Develop online or in-person surveys and questionnaires through platforms like Google Forms to gather preferences about coffee types, offerings and more. 
• Visit your competitors, like nearby coffee shops, and take note of their operations, pricing, menu and customer experience.
• Use online tools to gather data on the demographics of the area you want to set up in to understand age, income levels, lifestyle and preferences of the local population. 
• Stay informed on greater industry trends such as popular flavors, sustainability endeavors and new technologies.
• Carry out a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) to understand the business landscape that you’re entering.

2. Raising capital and having a financial plan

How much does it cost to start a cafe? The answer is different for everyone, but there is a range that we’ve mentioned a few times. For now, let’s focus on how you can fund your business. 

Of course, you’ll need to be able to fund your new business. You’ll include this in your business plan, but it’s something you’ll have to continue accounting for after you open. 

Consult a professional to ensure you have all your financial bases covered, and to understand the best funding strategy for your business. You may want to take a multifaceted approach, with a mixture of your savings as well as a small business loan, for instance. 

Ultimately, it’s best to develop a detailed financial plan that includes startup costs, projected revenues and break-even analysis. This is especially the case if you plan to go to the bank for a business loan or line of credit. 

Explore all available funding options, such as small business loans through the U.S. Small Business Administration (SBA), grants or investor partnerships. Ensure that your financial plan accounts for extra and unexpected expenses, especially in the first six months of your business operating. 

Did you know? Eligible Lightspeed customers can take advantage of Lightspeed Capital, our merchant cash advance program. If you’re approved, you can get funding in as soon as two business days, which you can use for any expense. Plus, there are no payment schedules, fluctuating interest rates or lengthy applications. The advance is remitted daily through a portion of your sales. To find out if you’re eligible, sign in to your Lightspeed account and go to the Financial Services section, or email us at [email protected].

3. Finding and developing space

The cost of finding your perfect space depends on the location and size of your coffee shop, as well as the availability of space in your community. Here are some costs you’ll have to cover in the earliest stages of starting your new business:

• The cost of renting or buying a commercial space. The lease for a storefront in a sought-after area will improve your odds for early success but will increase rental costs.
• The cost of paying utilities. While you set up in your new store, you’ll need to have the gas, electric and water turned on, which will add to your opening expenses.
• Renovation costs. It will take work to turn a blank-slate rental into a space that resembles a coffee shop, no matter what your decor you choose. You may have to pay for new light fixtures, cabinets and decorations, as well as practical installations like coolers, freezers and refrigerated display shelves.
• Licenses and permits. More on this later, but keep in mind that you may have to pay to acquire certain licenses to maintain your space. That could include a food service license, building health permit and certificate of occupancy. 

4. Purchasing equipment

Brewing equipment

Equipment needs for any small business are subject to variations, but there’s one thing that’s certain: this isn’t the equipment you use for your morning cup of joe, and industrial coffee brewing and filtration equipment can get pricey. Here are a few pieces of equipment that no coffee shop can go without:

• Water filtration system
• Commercial coffee grinder and drip coffee maker
• Espresso machine

The hardest part of buying equipment for a coffee shop or other food and beverage businesses is deciding what you need and how much of it to buy.

When you add up the high-quality equipment it takes just to make your customers’ favorite drinks, it can total up to $10,000 or more. This highlights how expensive starting a coffee shop can be.

As a general rule, start slow and increase when your budget allows. Growing your business gradually instead of planning for unrealistic numbers enables you to manage the scale of your business even under the tightest of margins.

Initial inventory and other supplies

• Coffee beans
  • Teas $1,000
  • Coffee $1000
• Cups
  • Paper cups $1,000
  • Containers
  • Clear plastic cups
  • Napkins $1,000
  • Stirrers
  • Straws
  • lids
• Food and drinks
  • Meet varying demands by including tea, bottled water, juices, baked goods, salads, ready-made sandwiches, ice cream, etc.
• Supplies such as cream and packets of real sugar, low-calorie substitutes, syrups, spices such as cinnamon, nutmeg
• Milk, cocoa powder

Additional overhead

Remember the costs you accrued in monthly rent, renovations and installations? At some point, you’ll add more fixed costs in the form of a security system and insurance to protect your investment.

5. Finding staff and vendors

Why do we include your staff and product vendors in the same section? Because it all ties back to your break-even point. Since you haven’t opened your coffee shop yet, you’ll have no way of calculating food and labor cost percentages, which is an essential part of making sure your business is performing well.

You can, however, keep track of these costs to estimate a realistic amount of revenue and make sure none of the costs mentioned are becoming unsustainable.

In the food service industry, food and labor costs are referred to as prime costs. Prime costs, when taken as a percentage of total revenue, shouldn’t exceed 60% to 65%. Compared to restaurants and other food and beverage businesses, most coffee shops have it easier, especially if you don’t plan on serving a broad menu of food with your coffee drinks.

In most restaurants:

• 60%–65% of prime costs go to labor
• Food and beverage costs average 28–35% of total sales
• Regular coffee drinks have an average margin of 15%–20%, and specialty coffee drinks have an average margin of 12%–18% 

With a higher percentage for any food you serve, you should still be able to keep food costs below 25%, leaving more room for labor while remaining profitable.

Your business plan should include a section in which you forecast your expected revenue. Using this estimation, calculate your target per-serving costs on each of the items on your menu. This provides you with a set of goals to aim for, as well as an estimate of the remaining budget you’ll use to hire staff.

6. Marketing

Marketing is also a key consideration for a burgeoning coffee shop hoping to make a splash in the industry. You can go through the trouble of hiring a consultant to help with marketing and outreach or subscribe to software like Lightspeed, which makes it easy to reach out to your customers.

Lightspeed POS integrates with email marketing tools like MailChimp, which allows you to capture customer data, view customer purchase history and create marketable audiences.

7. Becoming compliant

Finally, you’ll need permits to be able to run your business, serve food, play music, hire employees, etc.

The first permits every business must acquire are a Business License and Employee ID Number (EID). These allow you to operate a legitimate business with legal employees.

To legally run restaurant, A Certificate of Occupancy, and Food Service License are also needed. If you plan to serve alcohol as part of a coffee shop/bar concept which is becoming increasingly popular, you’ll need a liquor license as well. All of these permits carry application costs that vary between states and provinces, so make sure to include that in your cost breakdown.

8. Using the right technology

Another cost you’ll come across is associated with your transaction technology. Modern POS software can cost between $50 and $200 per month, while the associated hardware bundle will often cost you a one-time payment of $1,200 to $4,000. 

While POS software might seem expensive in the short term, it tends to pay for itself as you run your business, making inventory and transactions easier to track.

It can even help you grow your business faster. For instance, Lightspeed offers reporting tools that allow you to see what’s selling best, most popular items, peak sales hours and more. Equipped with the right information, you can make more informed, high-level decisions to optimize your sales. 

Using the right system for your coffee shop can streamline your operation and help your staff work more efficiently. 

Let’s take a look at a real-life example. Lightspeed customer Table Rock Coffee Roasters offers customers small batches of handcrafted medium-to-light roasted coffee. 

When they opened in 2020, owner and founder Chris Richard needed an intuitive and flexible POS system. “My staff has a lot going on and we needed to be able to navigate the POS easily in a way that makes sense.”

With Lightspeed, he has customized the POS and ordering flow to match Table Rock Coffee Roaster’s specific workflows.“We have a lot of control over the back end, which is good,” says Richard.

They’ve also utilized Lightspeed’s data functionality to propel their growth. “One thing we love about Lightspeed is the reporting system. … We can look at sales from like the previous week or the previous month or the previous year. And based on the increase, we have seen that current year we can make projections into the future,” says Richard.

For a POS system geared towards coffee shops, check out Lightspeed’s innovative POS software.

Can you afford to own a coffee shop?

The costs to open a coffee shop may seem extensive and daunting at first. A minimum of $80,000 to start a food and beverage business seems like a lot of money, and you might not be comfortable applying for loans of this size (or a larger amount), and that’s okay. However, remember that coffee shops have some of the highest potentials for a significant return on your investment in any other small business.

If you’re still tentative, there are ways to get your feet wet without going all in on a full-service coffee shop. For example, the Crimson Cup estimate for the cost of a mobile coffee cart starts at only $60,000. You could also ditch the overhead of a permanent location and start a food truck or partner with local businesses to have a regular pop-up coffee shop location in their stores on certain days of the week. What’s important is that if you feel your entrepreneurial spirit, you should follow it, wherever it goes.

It’s time to take the next step and get set up with a coffee shop POS that will help you get started. Talk to one of our experts to find out how Lightspeed can be your partner in all things coffee.