Data provided here comes from our team of experts who have been working on business plan for a coffee shop. Furthermore, an industry specialist has reviewed and approved the final article.
What is the profitability of a coffee shop, and what income can one expect from operating a cafe?Let's check together.
Revenue metrics of a coffee shop
How does a coffee shop makes money?
A coffee shop makes money by selling coffee and other food and drinks.
What are the common products sold in coffee shopes?
Coffee shops typically offer a variety of hot and cold beverages, with coffee being the central focus. This includes various espresso-based drinks like lattes, cappuccinos, and Americanos, as well as brewed coffee options such as drip coffee and French press.
Alongside coffee, tea is often available in different flavors, both hot and iced. In addition to beverages, coffee shops commonly sell baked goods like muffins, croissants, cookies, and pastries. Many coffee shops also offer sandwiches, salads, and light snacks for breakfast and lunch.
To cater to different tastes, they might provide dairy and non-dairy milk alternatives, syrups for flavor customization, and options for decaffeinated beverages. Some coffee shops also retail whole bean coffee for customers to enjoy at home, as well as coffee-related accessories like travel mugs, brewing equipment, and grinders.
The ambiance of coffee shops often encourages customers to linger, work, or socialize, making them more than just places to get a drink – they become community spaces.
What about the prices?
A coffee shop typically offers a variety of items at different price points.
Coffee is usually the cornerstone, with prices ranging from around $2 to $5 for different sizes and types such as espresso, cappuccino, latte, and specialty blends. Tea selections often start at $2 for a basic cup and can go up to $4 or more for premium or specialty teas.
Pastries and baked goods like muffins, scones, and croissants generally fall within the $2 to $4 range, while more elaborate desserts might reach $5 or slightly higher. Breakfast items such as yogurt parfaits, oatmeal, or breakfast sandwiches often range from $3 to $6.
Lunch options like sandwiches, paninis, or salads can be priced between $5 and $10. Additional add-ons and extras like flavored syrups, alternative milk choices, or whipped cream may come with an extra charge of $0.50 to $1.5.
| Item | Price Range ($) |
|---|---|
| Coffee | $2 - $5 |
| Tea | $2 - $4 |
| Pastries & Baked Goods | $2 - $5 |
| Breakfast Items | $3 - $6 |
| Lunch Options | $5 - $10 |
| Add-ons & Extras | $0.50 - $1.5 |
Who are the customers of a coffee shop?
A coffee shop typically serves a wide variety of customers, ranging from everyday regulars to occasional visitors.
Which segments?
We've prepared a lot of business plans for this type of project. Here are the common customer segments.
| Customer Segment | Description | Preferences | How to Find Them |
|---|---|---|---|
| Students | Youthful individuals pursuing education | Quality coffee at affordable prices, cozy study atmosphere | Nearby campuses, social media ads targeting students |
| Professionals | Working individuals seeking a caffeine boost | Quick service, convenient location, variety of coffee options | Business districts, networking events, online ads |
| Health Enthusiasts | Individuals focused on wellness | Organic and healthy coffee options, nut milk alternatives | Fitness centers, health-related websites, partnerships with gyms |
| Tourists | Visitors exploring the area | Local specialty coffees, comfortable seating, free Wi-Fi | Near popular tourist attractions, travel websites, local guides |
| Creative Professionals | Artists, writers, designers seeking inspiration | Aesthetic ambiance, unique coffee blends, quiet environment | Art galleries, creative workshops, design forums |
How much they spend?
In our detailed analysis of the operational aspects of a typical coffee shop, we have observed that customers tend to spend between $5 to $20 per visit. This expenditure reflects variations in purchasing behavior, where some customers may simply buy a cup of coffee, while others purchase additional items such as pastries, sandwiches, or even specialty beverages.
Considering the frequency at which a regular customer visits, studies indicate that an average coffee enthusiast tends to frequent the same coffee shop around 15 to 25 times a month. Naturally, this varies based on individual habits, proximity to the coffee shop, and the quality of the experience provided.
Calculating the estimated lifetime value of an average coffee shop patron, considering they maintain consistent behavior for one full year, we would be looking at a range of $900 (15 visits x $5 x 12 months) to $6,000 (25 visits x $20 x 12 months). This calculation takes into account both the minimal spenders and those who indulge in additional purchases.
With this data, we can infer that, on average, a regular customer contributes approximately $3,450 in revenue annually to a coffee shop. This estimation serves as a valuable reference for understanding customer value and aligning business strategies, such as loyalty programs, to enhance customer retention.
(Disclaimer: the numbers outlined above are indicative averages and may not precisely reflect the specificities of your individual business circumstances.)
Which type(s) of customer(s) to target?
It's something to have in mind when you're writing the business plan for your coffee shop.
The most profitable customers for a coffee shop are typically regulars and loyal customers.
These customers visit frequently, make larger orders, and often bring friends or family with them. They are profitable because they contribute consistent revenue and word-of-mouth referrals.
To target and attract them, focus on creating a warm and welcoming atmosphere, offering high-quality coffee and delicious snacks, and providing excellent customer service. Loyalty programs and personalized promotions can also incentivize repeat visits.
To retain these customers, maintain consistent quality, engage with them on social media, gather feedback to continually improve your offerings, and offer loyalty rewards such as discounts or free items after a certain number of visits. Building strong relationships with your regulars will keep them coming back and recommending your coffee shop to others, ultimately driving profitability.
What is the average revenue of a coffee shop?
The average monthly revenue for a coffee shop can range significantly, typically falling between $3,000 and $30,000. The variance largely depends on several factors including location, size, and additional offerings. Let's dissect this further.
You can also estimate your own revenue, using different assumptions, with our financial plan for a coffee shop.
Case 1: A quaint little coffee shop in a small town
Average monthly revenue: $3,000
This type of coffee shop is often a small, cozy place in a rural area or small town, serving a limited community. The menu might be simple, offering basic beverages like coffee, tea, and perhaps some pastries or snacks.
Given its location and scale, such a coffee shop doesn't typically enjoy high foot traffic and may serve around 100 customers per day. Without additional offerings like gourmet food, specialty drinks, or live events, its revenue potential remains moderate.
Considering an average spend of $3 per customer and roughly 100 customers a day, this coffee shop's monthly revenue, considering it's open 30 days a month, would be around $9,000. This is a simplistic view, as it doesn't account for days with fewer customers or additional expenses.
Case 2: A trendy coffee shop in an urban neighborhood
Average monthly revenue: $15,000
This coffee shop scenario represents a popular spot in a busy urban area or city neighborhood. It's a place where people, especially young professionals and students, like to hang out. The menu is likely more diverse, offering a variety of specialty coffees, teas, smoothies, and a range of snacks or light meals.
This urban coffee shop attracts more customers due to its location and trendy appeal, potentially serving around 300 customers daily. With its wider range of offerings, customers might also spend more on average.
Assuming an average customer spend of $5, with its mix of standard and specialty offerings, and around 300 customers a day, this coffee shop could generate approximately $45,000 in monthly revenue, if open every day.
Case 3: A high-end, specialty coffee shop in a prime location
Average monthly revenue: $30,000
This type of coffee shop is positioned as a premium experience. Located in a high-end neighborhood or a commercially significant area, it attracts a clientele willing to pay more for specialty experiences, unique blends, and gourmet offerings.
The shop might be known for its exclusive coffee beans, exceptional customer service, and an upscale ambience. It's not just a place to grab a coffee; it's a destination. This reputation and product differentiation allow it to charge premium prices.
Despite potentially serving fewer customers—say around 200 a day—this coffee shop could see higher average spending, perhaps around $15 per customer due to the premium offerings. This could lead to a monthly revenue of around $90,000, considering it's open every day.
These scenarios demonstrate the variability in revenue based on different business models and locations. Actual revenues can differ based on operational efficiency, marketing effectiveness, and other factors influencing customer patronage.
The profitability metrics of a coffee shop
What are the expenses of a coffee shop?
A coffee shop's typical expenses consist of coffee beans, equipment, rent or lease payments for the cafe, staff wages, and marketing efforts.
| Category | Examples of Expenses | Average Monthly Cost (Range in $) | Tips to Reduce Expenses |
|---|---|---|---|
| Inventory | Coffee beans, tea, milk, syrups, pastries | $1,500 - $3,500 | Manage inventory efficiently, reduce waste, negotiate with suppliers |
| Staffing | Baristas, cashiers, kitchen staff | $2,000 - $4,000 | Optimize scheduling, cross-train employees, consider part-time or seasonal staff |
| Rent and Utilities | Lease, electricity, water, internet | $1,500 - $4,000 | Choose a location wisely, invest in energy-efficient appliances |
| Equipment | Espresso machines, grinders, ovens, blenders | $500 - $1,500 | Buy quality equipment, perform regular maintenance, repair instead of replacing |
| Marketing and Advertising | Social media ads, flyers, promotions | $300 - $800 | Focus on local marketing, utilize social media, collaborate with nearby businesses |
| Insurance | Liability insurance, worker's compensation | $100 - $300 | Shop around for insurance quotes, maintain a safe environment |
| Licenses and Permits | Business license, health permits | $100 - $500 | Ensure compliance to avoid fines and penalties |
| Furniture and Decor | Tables, chairs, artwork, lighting | $500 - $1,500 | Buy durable furniture, consider second-hand options |
| Supplies | Cups, napkins, stirrers, cleaning supplies | $200 - $500 | Buy in bulk, use eco-friendly options, reduce waste |
| Contingency | Emergency fund for unexpected expenses | $500 - $1,000 | Regularly contribute to the contingency fund |
When is a a coffee shop profitable?
The breakevenpoint
A coffee shop becomes profitable when its total revenue exceeds its total fixed and variable costs.
In simpler terms, it starts making a profit when the money it earns from selling coffee, pastries, and other items becomes greater than the expenses it incurs for rent, equipment, supplies, salaries, and other operating costs.
This means that the coffee shop has reached a point where it covers all its expenses and starts generating income; we call this the breakeven point.
Consider an example of a coffee shop where the monthly fixed costs typically amount to approximately $10,000.
A rough estimate for the breakeven point of a coffee shop would then be around $10,000 (since it's the total fixed cost to cover), or selling between 3,000 and 5,000 cups of coffee, assuming an average price of $2 to $3 per cup, not accounting for other expenses and sales like pastries, merchandise, or specialty drinks.
It's important to recognize that this indicator can vary widely depending on factors such as location, size, menu prices, operational costs, and competition. A large coffee shop in a prime location would obviously have a higher breakeven point than a small one in a less expensive area, as the revenue required to cover expenses would differ significantly.
Curious about the profitability of your coffee shop? Try out our user-friendly financial plan crafted for coffee shops. Simply input your own assumptions, and it will help you calculate the amount you need to earn in order to run a profitable business.
Biggest threats to profitability
The coffee shop faces several significant threats to profitability. These include rising costs like rent, employee wages, and ingredient expenses, which can squeeze profit margins.
Increased competition from other coffee shops or large chains offering similar products can lead to a loss of customers.
Fluctuating customer demand due to factors such as seasonality and economic downturns can affect sales and revenue.
Inefficient management and resource wastage can lead to unnecessary expenses.
Changing consumer preferences, which might shift away from traditional coffee offerings, can also impact sales.
Additionally, unexpected events like health crises, exemplified by the COVID-19 pandemic, can disrupt operations and reduce foot traffic.
These threats are often included in the SWOT analysis for a coffee shop.
What are the margins of a coffee shop?
Gross margins and net margins are financial metrics used to gauge the profitability of a coffee shop.
The gross margin is the difference between the revenue earned from selling coffee, snacks, and other items, and the direct costs of making those sales, such as purchasing coffee beans, bakery items, milk, and other supplies.
Essentially, it's the profit remaining after deducting the costs directly tied to producing and serving the coffee and food, like the cost of goods sold (COGS), and wages for baristas or cooks.
Net margin, in contrast, accounts for all the expenses the coffee shop experiences, including indirect costs such as administrative expenses, marketing, rent, and taxes.
The net margin gives a more comprehensive view of the coffee shop's profitability, encompassing both direct and indirect costs.
Gross margins
Coffee shops generally have an average gross margin in the range of 60% to 85%.
This implies that if your coffee shop earns $15,000 per month, your gross profit will be approximately 75% x $15,000 = $11,250.
Let's illustrate this with an example.
Consider a coffee shop that serves 400 customers per day, with an average spending of $5 per customer. The total revenue for the day would be $2,000.
However, the coffee shop experiences costs such as purchasing coffee, milk, snacks, and paying wages.
Assuming these costs amount to $800, the coffee shop's gross profit would be $2,000 - $800 = $1,200.
In this scenario, the gross margin for the coffee shop would be $1,200 / $2,000 = 60%.
Net margins
Coffee shops generally maintain an average net margin in the range of 5% to 15%.
Simply put, if your coffee shop generates $15,000 per month, your net profit might be around $1,500, representing 10% of the total revenue.
We'll use the same example for consistency.
Imagine our coffee shop serves 400 customers daily, each spending an average of $5. The total daily revenue is $2,000.
The direct costs, as previously stated, come to $800.
Beyond that, the coffee shop accrues various indirect costs, including marketing, insurance, utilities, accountant fees, taxes, and rent. Let's assume these additional costs total $900.
After deducting both the direct and indirect costs, the coffee shop's net profit would be $2,000 - $800 - $900 = $300.
In this situation, the net margin for the coffee shop would be $300 / $2,000 = 15%.
As a business owner, it's crucial to recognize that the net margin (as opposed to the gross margin) offers a more accurate depiction of how much money your coffee shop is genuinely earning, as it takes into consideration all operational costs and expenses.
At the end, how much can you make as a coffee shop owner?
Now you understand that the net margin is the crucial indicator for understanding whether your coffee shop is profitable. It essentially indicates how much money is left after covering all the expenses.
The amount you will make largely depends on how effectively you execute your business strategies.
Struggling coffee shop owner
Makes $500 per month
If you start a small coffee shop but make decisions like using lower-quality coffee, having inconsistent operating hours, neglecting essential maintenance, and not offering a diverse menu, you might not earn more than $3,000 in total revenue.
Furthermore, if you do not manage your expenses, such as rent, supplies, and staff salaries, you might struggle to achieve a net margin higher than 15%.
In financial terms, this scenario would limit your monthly earnings to a maximum of $500 (15% of $3,000).
Therefore, for a coffee shop owner, this is a scenario you'd want to avoid to ensure sustainable income and business growth.
Average coffee shop owner
Makes $3,750 per month
Imagine you decide to run a standard coffee shop with decent quality offerings. You maintain regular hours, provide a comfortable ambiance, and perhaps sell some pastries or merchandise alongside various coffee options.
Your efforts are genuine, and because of this, your total revenue may rise to about $20,000.
With careful management of your overhead costs, including inventory, marketing, and staff expenses, you could reasonably target a net margin of around 25%.
This means your monthly earnings could be approximately $3,750 (25% of $15,000).
Successful coffee shop owner
Makes $20,000 per month
You go the extra mile in ensuring your coffee shop stands out. You select high-quality, unique coffee blends, offer a variety of fresh food options, create a distinctive and cozy atmosphere, and engage the community through events and loyalty programs.
By doing so, your coffee shop becomes a staple in the community, and your total revenue might soar to $80,000 or even higher.
Moreover, through smart expense management, effective supplier contracts, and operational efficiencies, you are able to maintain a net margin of around 40%.
In this ideal scenario, your monthly earnings would be around $20,000 (40% of $50,000).
We hope this success becomes your story! If you dream of becoming an exceptional coffee shop owner, it starts with a well-thought-out business plan tailored to your vision and the local market's needs.