How to Start a Coffee Shop
There is something about a coffee shop that captivates you. Whether it be the precision of the brewing process, the burst of aromas, or the mix of customers that come through the door, you’re eager to take the plunge and learn how to start a coffee shop.
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Your goal is to provide coffee connoisseurs a selection of complex beans that create unique flavors while also delivering a superb customer experience. But as you know, a coffee shop requires more than a few talented baristas making latte art in a trendy location. Here’s everything you need to know about how to open a coffee shop.
How to write a business plan
In order to be successful when you start a coffee shop, you need to write a business plan that lays out your business objectives and the strategies used to achieve them. Key sections of a business plan include:
- Executive summary. Your executive summary should provide a topline synopsis of your business (location, size, company ownership), as well as your coffee shop’s objectives (or mission statement) and how you plan to meet them. You may also want to include an overview of startup costs and forecasted revenue growth (which is explained later in the business plan).
Market analysis. The coffee market is continuously evolving due to a shift in consumer trends. According to the National Coffee Association, fewer people are drinking drip coffee (46 percent), more people are drinking coffee prepared from home (46 percent), and 59 percent of the daily consumption of coffee is classified as gourmet. Not only is the coffee game changing, but so are food and retail spaces. This means you need to have sound understanding of the market.
Your market analysis should uncover similar trends and data that you can use to determine what concept you bring to market. Include a description of the market segmentation and your target market, then highlight your target market’s buying patterns, factors that encourage or limit coffee consumption, and any gaps in the industry that your coffee shop can capitalize on.
- Competitive analysis. Your competitive analysis should hone in on your local environment and highlight any current competitors as well as potential competitors who might enter the market. Determine the strengths and weaknesses of your competitors to uncover opportunities that give your coffee shop a competitive advantage.
- Product line. This section describes the coffee products you intend to sell at your store. Here you can include your plan to procure your coffee beans, the vendors you want to use for additional materials, and the specific drinks (and snacks) to be served.
Sales strategy. Use insights from your market and competitive analysis to outline a strategy for promoting your coffee products and your business as a whole. This may include traditional sales techniques as well as marketing tactics. It’s important to identify which sales data to track in order to determine if your business is growing.
Then focus on revenue forecasting from your sales. Most forecasting should be done three years out so you can get a clear picture of your break-even point and profit potential. This can help you effectively budget when starting your coffee shop.
- Management plan. Managing your coffee shop is key to growing your business, so take the time to create a management summary, which includes a layout of your management team, personnel responsibilities, and employee costs (wages, payroll, training, etc.).
Financial considerations. Now is the time to think about the cash flow at your coffee shop. You need to define your costs and how to finance your business in order to determine the average profits for your coffee shop.
Then compute your projected cash flow (which was done in your sales and operations planning) to determine your break-even point. Include your projected profit and loss over a three-year time span to show the coffee shop’s net profitability as the store becomes established in the local market.
Legal considerations for your coffee shop
After your coffee shop business plan is in order, it’s time to consider the legal parameters of your business. The legal requirements of your particular business depend on where you operate, and aside from registering your business with the IRS and obtaining a business license, there are various state licenses and permits you need to research before you start a coffee shop.
Outside of general business licensing, there are industry-specific licenses and permits to be obtained. For example, a license to handle and prepare food and beverages, and licenses that certify compliance with restaurant health and safety practices. You’ll also need to pass other health safety inspections before your coffee shop can operate. Each of these is unique to your business and where you are located, so make sure you consult a legal expert on these matters.
You should also consider insurance coverage to protect you from unforeseen accidents at your coffee shop. Here are a few types of insurance to investigate:
- General insurance
- Health insurance
- Liability insurance
- Kitchen insurance
- Workers’ compensation
How much does it cost to open a coffee shop?
The cost to start a coffee shop can be a major barrier to entry for some aspiring owners. But if you understand what you need to budget for — what is necessary and what is not — you can make it happen. Here are six cost factors to consider when you open a coffee shop:
Physical space. The location of your coffee shop is absolutely crucial. Generally, there are four types of locations you can consider: coffee kiosk, coffee truck, coffee shop with seating, and coffee shop with seating and a drive-through.
Once you’ve narrowed down the style of your space, the cost factors of the space include the building deposit, monthly rent, utilities, and square footage of your store. These are determined by the popularity of the location and the foot traffic potential.
- Interior design. The design of a coffee shop says a lot of about the store itself and it can cost you a pretty penny without some strategic planning. Revisit your store’s vision and the environment you’re trying to cultivate before you start to buy anything; think about what you really want to spend money on. Research and purchase coffee mugs, seating, artwork, and additional interior decor based on your desired style.
- Equipment. The selection of coffee shop equipment can be overwhelming — there are a lot of options and they cost a lot of money. Review the best coffee shop equipment for your store and figure out what equipment you absolutely must have to open.
Your menu. How many products you offer is another cost driver when you open a coffee shop. You might want to stick to the basics, you might want a small selection of gourmet coffee, or you might want gourmet coffee and yummy treats.
Use your market and competitive analyses to decide which products are worth putting on your menu. You want to follow industry trends, but make sure you are providing products that your customers actually want.
- Labor. You might think that paying baristas and servers at your coffee shop is simple — just pay them an hourly wage. But there’s a lot more that goes into the cost of labor. Aside from wages, you have to think about training costs, benefits, insurance, and technology that can help you with things like employee management and payroll.
Marketing. When you first open a coffee shop, there are promotional efforts that should be included in your startup costs. These may include the cost of a soft opening that showcases your coffee and creates hype in the community, or the cost of a social media campaign to reach your new customers.
The optimal coffee marketing strategy — and how much it costs — depends upon on your target customers, so find out where they obtain information and create campaigns that make sense for them.
You may not have the money on hand to fund the total cost of a coffee shop, but don’t worry, there are financing options available. You might look for investors to help with business funds or you might look into small business loans. Loans can help subsidize:
- New coffee equipment
- Day-to-day operations
Here are some additional ways to strategically use a business loan to help your coffee shop grow.
Choosing the right location
When you’re looking for the optimal location for your coffee shop, cost might be your biggest driver. Cheaper rent and lowered utilities might sound great when you are first starting a coffee shop, but choosing a location solely on price can be detrimental in the long term.
The location of your coffee shop can make or break your business, and there are specific factors that determine the best location for your coffee shop. Aside from costs, consider foot traffic, your target market, and competitors, among other things.
So to make sure you are choosing the best coffee shop location, you need to ask a lot of questions. When you are searching for the perfect coffee shop location, here are some questions you can ask before you commit to a location:
What types of businesses have operated here in the past?
Find out if coffee shops have ever operated in the space and try to get a sense of the clientele that shops in the area.
What are the restrictions on remodeling?
Some commercial landlords prohibit renovations of any kind, so if the space hasn’t operated as a coffee shop in the past, it may not be permitted.
What is the minimum lease requirement?
Typically commercial landlords require a year, which may be the right choice when you’re first getting started. Long leases can be risky when you first open a coffee shop.
What insurance coverage does the lease require?
Commercial landlords require certain insurance.
Do I owe the landlord a share of my sales?
While this sounds obscure, your lease may require you to pay the landlord a percentage of your monthly sales. Make sure to inquire about this stipulation.
While it sounds tedious, an optimal coffee shop location is worth taking the time to ask lots of questions.
Taking payments at your coffee shop
Guests expect a swift, personal experience when they walk through your doors. Long lines due to a lousy payment system can taint a customer’s perception and even result in the loss of business. So when you start a coffee shop, it’s important to invest in a robust POS system.
Payments are just the start
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To ensure that your coffee POS system improves daily processes in your coffee shop, look for:
- A system that is aesthetically pleasing and simple. Coffee shops tend to be quaint, with the counter being the focal point to a customer’s eyes. Cords and bulky systems can turn off customers, so look for a POS system that essentially blends into your decor.
- A built-in tipping system that’s easy for customers to use. The best way to increase tips at your store is to provide exceptional customer service; but there are a few interesting findings that help improve tipping. With tipping built into your POS, customers are presented with a screen that suggests a tip amount, which allows them to easily add a tip in just one click.
- Inventory management that allows you to set up your menu on your POS and track products being sold and materials being used. Look for software that lets you set stock alerts when inventory gets low as a way to effectively manage your inventory.
- Data capabilities to collect insight on what’s being sold. With data analytics integrated into your POS, you can see what menu items are popular and gain sales insights that help you improve your business strategy. Learn more ways analytics can help you grow your business.
Reaching your customers
The feeling of opening your coffee shop is truly rewarding, but now the daily grind begins. When you’re figuring out how to run your coffee shop, you might prioritize managing employees and optimizing the ordering process. But one of your most important day-to-day jobs is to make sure that customers come through your doors again, and again, and again (and that they don’t go to your competitor down the street). So developing a customer retention strategy is crucial.
To stay connected with your customers and develop a relationship with them, you should invest in a customer engagement tool (or customer relationship manager) that allows you to reach your customers and understand their behavior. CRM software for your coffee shop might include:
- An email marketing tool that allows you to email campaigns to keep your customers informed about what is happening in your store, whether it’s a promotion or an event. Sending personalized messages to loyal customers, like birthday emails or holiday notes, actually generates higher engagement and greater redemption rates on average than one-off email campaigns.
- A customer loyalty program that incentivizes customers to spend. Sixty-two percent of shoppers make more store visits and purchases because they signed up for a mobile loyalty program, according to a study by 3cInteractive. It can help boost sales and keeps your customers returning for your coffee.
- Feedback software that is integrated into your POS system so customers can tell you about their experience at your shop. Feedback software provides one-on-one communication with your customer, so you can get a direct response about a particular service. You can use positive feedback to motivate employees and constructive criticism to tweak business processes.
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