How to Calculate Coffee Shop Startup Costs

In a recent “Start-up Strategies” column for CoffeeTalk magazine, Greg Ubert addressed one of the first questions potential business owners ask: “How much will it cost to open my coffee shop?”

Greg Ubert, founder and president, Crimson Cup Coffee & Tea

Greg Ubert, founder and president, Crimson Cup Coffee & Tea

He goes on to write, “Because every specialty coffee business is different, there is no simple answer. Your costs will depend on the type of business, the price of retail space in your community and many other variables.”

Follow the formula outlined in the column below to outline the startup costs for your coffee shop.

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The first step is to decide what kind of business you want to open. Some common types include a coffee house with drive-thru, a walk-in coffee house, or a strictly drive-thru coffee bar. Generally, the more square footage, the higher the cost of build-out.

At the same time, consider where you will operate. Location can make or break your business. In most cases, your coffee shop should be on the drive side of a road with heavy morning traffic.

Tailor your location search to the type of business. A coffee house with drive-thru requires up to 1,500 square feet in a retail strip or standalone building. For a walk-in coffee house, you may need as little as 300 square feet in high-density location to 1,800 square feet with easy access to automobile or walk-up traffic. For a coffee drive-thru, usually 100-300 square feet will suffice.

Calculating Projected Sales
Once you’ve found potential locations, it’s time to run some numbers. Calculating projected sales weans out unprofitable options. Count the number of cars passing during peak morning hours. In a good location, you can expect about 1.5 percent of cars on the drive side to stop at your shop. You can also expect visits by five percent of those passing by on foot. So if 10,000 cars and 500 pedestrians pass each morning, expect visits from 175. For this article, we’ll use $4 as a conservative estimate for each purchase. (In reality, this figure varies by market.) Daily sales would be $700, with monthly sales averaging $21,000.

As a rule, your rent or mortgage should take up no more than 15 percent of monthly sales. For a location generating $21,000 in monthly sales, this means a maximum of $3,150 in rent.

You must also account for build-out and equipment costs, which will be depreciated over time. It’s a good idea to hire an architect or contractor for the build-out. These professionals can estimate costs of plumbing, electrical, heating, and air conditioning systems, and they can help you negotiate to see whether the landlord will finance any of the remodeling expenses.

In terms of equipment, you’ll need a top-of-the-line espresso machine, espresso and coffee grinders, blenders, coffee brewers, refrigerator, etc. Don’t be tempted to save money by buying cheap or used equipment. Your espresso machine is the lifeline of your business. If it breaks, you’re out of business. Buy the best you can find, learn how to use it, and follow the suggested maintenance schedules rigorously.

Drink ingredients such as coffee, milk, and syrups will be your largest operating expense, accounting for up to 40 percent of sales, or up to $8,400 monthly in the scenario above. Never scrimp on ingredients. Serving the best is the only way to attract and keep specialty coffee customers. You can keep inventory costs low by partnering with a supplier that makes frequent deliveries.

Your next-largest operating expense, payroll costs, should account for 30 percent or less of sales. These include wages, benefits, payroll taxes, worker’s compensation, and costs of payroll processing. For our scenario, you would budget no more than $6,300 – including your salary, if you plan to work in the shop.

Calculating “Other” Expenses
Rent, drink ingredients, and payroll costs can account for 85 percent of expenses in the beginning coffee shop. This leaves 15 percent to cover all other expenses, including:

1.    Professional fees for architects, attorneys, accountants, and business consultants
2.    Training costs
3.    Principal and interest costs (if you plan to borrow money)
4.    Income taxes (usually about 35 percent of operating profit)
5.    Other expenses, including business insurance, supplies (cups, napkins, stir sticks, etc.), licenses and permits, office supplies, utilities, advertising, and repairs and maintenance
6.    Your profit

After you’ve done your homework, add up all these projected expenses. You should have cash on hand to cover your initial build-out as well as operating expenses for the first six months. That’s what it will cost to open your coffee shop.

Questions about opening a coffee shop? We’re here to help! Give us a call at 888-800-9224 or fill out this form, and we’ll be in touch.

3 Responses to How to Calculate Coffee Shop Startup Costs

  1. Ben says:

    Hello there!

    My name is Ben Marshall, a fellow coffee enthusiast around the Columbus area! First off, I just want to say that I love what your company stands for in terms of promoting independent coffee shops! The wisdom, tips and steps on starting a coffee shop is great. It’s been a dream of mine for a while!

    That being said, myself and a friend of mine are thinking about starting a coffee shop, but currently we are only in the preliminary stages of even getting a game-plan set up. I’m sure you are VERY busy, but to help us gain wisdom and ideas, we were looking to interview various coffee shop owners/workers around Columbus to see how they got started and what helped them thrive as a business. Since your shop is around Columbus, I was curious to see if you would be willing to sit down and talk with myself and my potential business partner about your company sometime in the future!

    I understand that this may not be possible and apologize about any inconvenience that this presents. However, if an interview/chat is possible, please contact me via e-mail or phone (614-370-4874) with any dates or times that would work best at your earliest convenience!

    Thank you SO much for your time, and I look forward to hearing back from you! Have a great day!

    Sincerely,
    Ben Marshall

  2. Layla Albassam says:

    Dear all,

    I want to open my own coffee shop and I’m exteremly clueless what basic kitchen utensils that I will be needing to start up my business.
    Your response is highly appreciated.

    Regard,

  3. Jason Dielman says:

    Good afternoon,

    My wife and I are very much wanting to start a coffee shop and would just like to know where to begin. We have a building in mind already and are looking to get finding very soon.

    Looking forward to hearing from you.

    Thank you,
    Jason

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