Budgeting to start a small business is no easy feat. It gets even more difficult when you plan to start a new project in a sector, as saturated as the coffee shop industry. After all, the running joke of “there’s a Starbucks on every corner” actually holds true, to the point where the coffee giant is now competing with its own self.
With that being said, the increasing competition also means that there’s more room for you to grow. You need to serve those customers who are tired of the crowded spaces at famous coffee shops. For starters, if you can offer a compelling cup of joe, mixed with the specified quantity of flavorings and inclusive dietary choices, then you have built yourself a recipe for potential success right there. But flavor itself isn’t the only factor that helps you cut through the competition. Your ambience, service, branding, and customization also need to be on point for you to stand out from any rivals.
So how do you factor in all these requirements, when you are starting your own coffee shop? Most importantly, how much does it cost to start a coffee shop from scratch? While the questions might seem difficult, the answers are not that hard to understand, if someone helpfully explains them to you – which is exactly what I’m about to do.
Also be sure to check out 5 Brand Tips for Small Businesses for your startup coffee shop. Branding and marketing is just as important to the growth of your shop as much as managing the costs are!
How Much Money it Takes to Open a Coffee Shop
First things first, it is important to comprehend that budgeting is an important factor in launching any business venture, and a coffee shop is no different. No matter the amount of capital you have, you’ll need to allocate specific funds to different segments of your new cafe. Thinking marketing, operations, growth, payables and more!
Assessing planned expenses, potential income, and unforeseen expenditures will be all part of the starting plan. Managing ongoing finances will be a big part of scaling your business in the long run. Many small-medium sized businesses do not grow to the level they want because of poor financial management, don’t let this happen to you!
1. Budgeting a Coffee Shop Correctly
How much your coffee shop costs is largely dependent on the kind of setup you are going to build.
For instance, if you are looking for a drive-through cafe, then it might cost somewhere from $80,000 to $200,000. Whereas, going for a walk-in coffee shop could require you to shell out anywhere from $80,000 to $275,000.
If you look at the difference between these approximates closely, you would also see that there is not a very big gap between building a drive-through, and a walk-in coffee shop. It’s because the equipment, which is the largest expense in a coffee shop, remains mostly the same in both setups.
The main difference in cost between a drive-through and walk-in cafe is your real estate, operating area, team size, as well as your furniture and fixtures. At the same time, it’s important to note that even these approximates could vary depending upon the size and location of your new coffee shop. Operating as a franchise could also affect these costs further.
2. How Much is Commercial Coffee Equipment?
While real estate costs could largely vary due to your chosen location, one expense that remains consistent is your equipment.
Because almost all coffee shops use the same commercial equipment for their day to day operations, with some of them splurging on a few special appliances.
Whether you have the luxury to go all out on fancy coffee makers or not, you would still have to spend on basic equipment that is considered staple to a coffee shop. A coffee grinder, coffee brewer, and countertop dispensers for milk and other flavorings come under this category, where something as simple as a professional espresso machine could cost about $20,000. This is perhaps the biggest factor in determining how much does it cost to start a coffee shop.
Overall, professional coffee shop equipment could cost you anywhere from $50,000 to $70,000. Look at this affordable espresso machine we found though, you might just opt for espresso machines like this if you’re on a tight budget. We all start somewhere!
3. Inventory Costs of a Coffee Shop
Given that you cannot just run your equipment without any ingredients, it is important to stock up on inventory while starting your own coffee shop. Thankfully, this particular expense is not hard to calculate, and you can easily adjust your stock according to the sales that you get in the first couple of months. This also includes costs for branded items such as coffee cups, sleeves, and napkins. Brand My Cafe does a lot of branding for many small coffee shops, check out some of their designs here!
One of the most important expenses in inventory is obviously coffee beans. Some coffee shops choose to roast their own beans, for which they use industrial-grade coffee roasters. Whereas, others get their coffee beans pre-roasted. This has a direct effect on your monthly inventory as well as one-time equipment costs. Other important expenses on inventory include but are not limited to milk, sugar, cream, flavorings, syrups, and spices. Usually, the opening inventory for your coffee shop could cost somewhere from $5,000 to $10,000.
4. Marketing Budgets of Coffee Shops
Starting your new coffee shop would go in vain if people don’t know that it even exists. That is why you would need to factor in marketing costs in order to reach out to your target market. This is also a big factor while assessing how much does it cost to start a coffee shop.
Whether you go with traditional marketing options or if you choose digital marketing as your go-to advertisement medium, you would still need to allocate a large chunk of your overall spend to marketing. This is crucial, since proper marketing is one of the great ways to reach out to potential customers during the first few weeks of your launch. Typically, a good marketing budget for a startup coffee shop should start from $5,000.
5. Operation Costs of a Coffee Shop
Apart from real estate and equipment, you would also need to acknowledge costs for necessary operational devices, such as a point of sale (POS) terminal, bookkeeping software, and cleaning supplies. The operational costs would also include your employee’s wages. If you’re interested, see the best POS terminals to use in your small business at Brand My Cafe Blog.
These costs would be dependent on the overall size of your operation. Other factors such as outsourcing your accounting or bookkeeping might also play a big part in affecting these expenditures. While these expenses could vary from coffee shop to coffee shop and depend upon the business’ size and its foot traffic, it is very important to be mindful of them when you are starting your own coffee shop.
Budgeting for these variable costs is a very important part of running your new business. Normally, you could allocate about $2,000 to $5,000 for these costs during the initial few weeks, and then adjust the amount as you see fit.
Breaking it All Down
Going through these costs and putting together the differences between approximates and actual expenditures is an interesting task. Sometimes, the approximates might seem higher than your actual costs; at other instances, it would be the other way around (which could be worse), and you might see that your actual costs surpass these projections.
Overall, knowing about these industry averages actually helps you in the long run. Whenever you are starting a business, it is important that your starting capital is sufficient enough to not only cover your actual costs, but to also provide a safety net in case the business takes more time to scale.
Keeping this in mind, use these projections as guidelines, while managing your finances and outside investments, and you would be able to master the costs of starting your own coffee shop. Nothing’s a better teacher than going through the experience yourself!
It is also important to remember that the whole point of learning all these aspects, is to assess your spending ability against your business plans. If the expenses seem too daunting for you, then you should not be afraid of seeking help through relevant options such as business loans. There are specially designed loan programs can help you achieve your dreams while also keeping you safe from a financial standpoint.
Thanks for reading!! Be sure to also check out some of our other articles on our page like Why Opening A Coffee Shop Is Harder Thank You Think or 5 Tips When Starting A Coffee Shop.
Brand My Cafe helps small & medium-sized businesses, cafes and foodservice brands grow their identity through custom coffee cups, coffee sleeves & more. Join our exclusive Facebook group Restaurant Brand Builders to brainstorm ideas with passionate other passionate owners!