Opening a coffee shop can be extremely profitable if you do it right. Pass by any busy specialty coffee shop and it will likely be full of customers enjoying coffee, espresso, lattes, teas, and a variety of pastries and other goodies. Wi-Fi and other work-friendly features have become commonplace as well, as coffee shops frequently serve as meeting hubs.
Serving quality coffees and snacks in a trendy, relaxing atmosphere can be a hugely successful endeavor—a business model pioneered by Starbucks, which as of 2021 has grown to nearly 33,000 coffeehouse locations around the world.
If you love coffee and are looking for a business opportunity, this is your guide to starting a coffee shop and making it a success.
Compare Your Coffee Shop Options
There are three basic options for starting a coffee shop:
- Purchase a franchise. To jump in with a built-in business model, you might consider a franchise, where most of the major business decisions will be made for you. For a fee, you will be provided with a turnkey business in a location selected by the provider of the franchise.
- Buy an existing business. Investing in a shop that is for sale or in need of a revamp is another way to acquire a turnkey operation. However, finding a profitable business for sale is no easy task.
- Start from scratch. Starting your own business from the ground up requires the most effort, but it also offers the most flexibility and the best potential to maximize profits.
Whichever option you choose, the same fundamentals for success apply. Your business plan for starting a coffee shop should incorporate the following key factors.
Find a Good Location With Reasonable Rent
Before opening a coffee shop, understand why they're so popular. First of all, coffee shops are great places to socialize and meet up with friends, or to pass the time reading or surfing the web while enjoying a beverage and snack. Coffee shops are also a popular place for informal business meetings, or for students wanting to catch up on schoolwork. Walk into any popular coffee shop and you're likely to see a realtor reviewing listings with a client, or a group of students collaborating on a school project.
When selecting a location, make it close and convenient for the types of customers your coffee shop will draw.
If you are franchising or buying an existing business, you won't have much say in location, but you should still do your research and decide whether the existing or selected location is desirable.
Location vs. Rent
Note that the most central locations are not necessarily the best for your bottom line. Malls and other high-traffic locations typically have the highest rents and the most competition. Storefronts are excellent locations for coffee shops—they have the highest visibility, the rents are usually lower than in malls, and you can set your own business hours instead of having them dictated for you.
Vehicle Traffic and Parking
Unless you do locate in a mall or other site with lots of pedestrian traffic, you'll need to think carefully about accessibility and parking. If a customer has to make a difficult turn off a busy street to get to your establishment or they have trouble finding available parking, they are likely to take their business elsewhere. Ideally, you want a convenient, highly visible location on a busy street, with pedestrian activity, and plenty of parking so customers can easily drop in on their way to or from work or school.
With the popularity of cycling growing by leaps and bounds, having a secure lock-up rack for bikes in front of your coffee shop is essential.
Consistently Serve a High-Quality Product
When opening a coffee shop, consider that gourmet coffee and tea drinkers want more than a mug of ordinary joe or a teabag in a foam cup. According to a study by the National Coffee Association of America, coffee beverages of the specialty variety overtook standard drip coffee in popularity in 2010 and have been on a steady rise ever since.
In fact, over the last few years, "specialty" coffee has grown in scope from the traditional espresso variations and cold-blended drinks to include new trends like CBD infusions, cold brew, nitro, ready-to-drink (RTD), and with all manner of non-dairy additions. Sustainability is also valued by consumers more than ever, which in the coffee industry means fair trade beans and eco-friendly packaging and practices.
Given the demands of discriminating customers, there is little chance a coffee shop business will attract a regular clientele and thrive unless you can consistently serve quality products, and keep up with growing trends and consumer values. This means you will need to:
- Keep up with industry culture
- Source a variety of fresh-roasted beans
- Invest in high-quality equipment (espresso machine, grinders, water filtration systems, etc.)
- Serve fresh pastries and snacks
- Keep a well-trained and knowledgeable staff
- Offer a mix of customer favorites, trending beverages, and your own unique creations
Provide Great Customer Service
Excellent customer service is crucial to any successful business, especially in the food service industry. Most successful coffee shops utilize counter service. Having customers order and pay up front and calling them when their drinks and snacks are ready minimizes your labor costs and enables you to better handle busy periods.
Table service is generally slower, more labor-intensive, and better suited to restaurants where patrons order full meals and spend more time in the establishment, but it's not out of the question. Offering table service gives more opportunity to upsell and may suit your business model.
Create a Trendy, Relaxing Café Atmosphere
When opening a coffee shop, having the right atmosphere is key to attracting customers. Surveys have shown that most consumers cite comfort, familiarity, and overall atmosphere as the primary attractions for a café. On top of its service model, Starbucks' relaxing, modern, and cozy atmosphere is one of the major contributors to its success. Their now infamous "third place" principle established the notion of the coffee shop occupying a special place beyond the home or the office—environment is paramount, while beverages are almost incidental.
Just how important is design? Considering the rising influence of social media advertising, a good-looking space may get lots of attention, and an especially quirky or unique aesthetic may even draw crowds for Instagram credit alone.
The ideal atmosphere is clean and bright with plenty of natural light and comfortable seating space. Use a mix of seating and table types so you can accommodate single customers as well as groups of various sizes. Having an outdoor patio space is a huge attraction in warmer seasons, and greatly increases the visibility of your business.
Unless you have some designing experience, consider hiring a professional interior decorator to handle layout, furniture, flooring, etc. You want a distinctive, personalized ambiance that will draw in customers.
Offer a Variety of Snacks
Another key to success when planning how to start a coffee shop is to realize that, even though coffee and tea have a high markup, a coffee shop cannot survive on coffee sales alone. Most successful food service and retail establishments know to diversify their offerings.
Having an assortment of quality snacks on display at the counter will tempt your customers to make an additional purchase. Most bakery items pair well with coffee, but to further define your brand and increase sales, you may want to think beyond the typical muffins and pastries. Is there a local bakery or sandwich shop you can partner with? Many customers are eager to support small businesses, and baked goods can often be sourced wholesale from local bakeries. Does your coffee shop's image lend itself to a hallmark treat?
For efficiency, food items should either be pre-made or purchased from vendors. Preparing made-to-order food is time-consuming and reduces overall sales volume, particularly in busy periods.
Offer a Loyalty Program
Assuming you are serving a great product in a good location, having a customer loyalty program can really help you build clientele. Customers like to feel recognized, and occasional rewards incentivize them to return.
Loyalty cards improve your bottom line by:
- Encouraging regular customers to come in more often
- Improving the odds of an infrequent customer choosing your business over competitors
- Encouraging customers to spend more
You can set up your loyalty program in multiple ways. If you go the traditional route, with cards that earn stamps for each purchase, make sure to use good quality cards that have your business name and logo prominently displayed, and won't easily disintegrate from being in wallets or purses. Alternatively, newer digital programs can save customer information automatically at point of sale, giving customers one less thing to carry in their wallets.
Watch the Numbers
As fun as it might be to focus on the coffee, the décor, and your clients, remember that to run a successful business, you have to keep a tight watch on operations and profits. When coffee shops fail, it's overwhelmingly for financial reasons, such as overestimating profit, underestimating required cash flow, excessive overhead, lack of financial planning, poor debt management, and so on, and not because of bad coffee. As a business owner you'll need to continually learn about the industry and the product, but you'll also need to learn about how to compete in the market. Coffee shops, like most casual food service establishments, have tight profit margins of about 5%-8%. This means you'll keep between 5-8 cents for each dollar of sales, once expenses are factored in.
During the COVID pandemic, government shutdowns on non-essential businesses affected traffic in coffee shops dramatically, but many stores adjusted; drive-thru service saw a 13% increase among daily coffee drinkers, and app-based ordering increased by 63%.
To maintain such a slim profit margin, it is crucial that you manage the costs of goods, supplies, labor, permits, and any other expenses, and that you maximize your coffee shop's appeal. A business plan will help you forecast profits and identify areas that may need adjusting.
Get Behind the Bar
As with any customer service-intensive business, when running a coffee shop, the owner should be present and fully engaged with the business as much as possible. For many customers, the sign of a good business is seeing the owner front and center taking orders, serving, and conversing with the public.
Having a hands-on presence also helps to motivate staff to perform at their best. This is especially important when you first start your coffee shop. If you are unable to be present, finding a good manager is essential.
Frequently Asked Questions
How Much Does It Cost to Open a Coffee Shop?
This figure will vary based on your coffee shop's location and specific features, but industry consensus is anywhere from $80,000 for a small kiosk or drive-thru stand to $300,000 for a full-service, sit-down establishment. Keep in mind you'll need to pay for equipment, supplies, marketing, labor, taxes, and rent, all before turning a profit.
Can You Make Money Running a Coffee Shop?
Coffee is a growing industry, and there will always be demand for good quality coffee shops. So yes, there is money to be made. If you've done everything right, when just starting out it's realistic to make 100-150 transactions per day, which at $5 per beverage, adds to about $500-$750. Savvy business owners will know how to sell more and spend less.
Should My Coffee Shop Offer Free Wi-Fi?
Most cafés offer free Wi-Fi as a convenience to customers as a perk. However, a growing number of independent coffee shops are pulling the plug on free Wi-Fi in an attempt to create a more communal atmosphere where people converse rather than immersing themselves in the internet. An ulterior motive might be to free up table space for people who order one thing and squat all day.
Ultimately, whether you choose to offer Wi-Fi should be a business decision based on your customers' wants and needs.