How Much Do Coffee Shops Make?

With the advantage of low overhead costs and high margins on sold menu items, coffee shops have the potential to make a lot of money. However, the culture of using coffee shops as social areas and coworking spaces can lower sales per day, which can cut at profits if you don’t plan effectively. 

Before opening a coffee shop, it’s important to get familiar with the variables that affect expenses revenue. Understanding the different coffee shop niches, costs, and sales strategies can help you maximize your establishment’s sales potential. 

How much profit do most coffee shops generate?

Coffee shops can make about $50,000 to $500,000 annually depending on multiple factors, including your niche, location, competition, and business strategies. The range varies significantly due to the massive differences in scale between coffee shop niches.

Most small coffee shops aim for a profit margin of 10% to 20%. Anything higher might be difficult to achieve, due to the high startup and operating costs involved in running a coffee shop. However, with the right strategies, you can minimize expenses and maximize revenue to ensure you have enough money to reinvest in your business.   

What are the costs of running a coffee shop?

The cost of opening a coffee shop runs at around $60,000 to $400,000, depending on niche and scale. Kiosks would fall under the lower end, drive-thrus around mid-range, and full brick-and-mortar stores on the higher end. 

Your initial startup costs would include location, construction or renovation, equipment, initial inventory, licenses and permits, labor costs and payroll, marketing and branding, and utilities and supplies expenses. Here’s a sample breakdown of how much opening a coffee shop would cost. 

However, the spending doesn’t end after you’ve established your coffee shop. Lease, inventory, labor costs, marketing and branding, and utilities and supplies expenses would carry on as monthly operating expenses. 

You would also need to set money aside for repayments if you sourced your funding from creditors or investors. All in all, you should expect to pay $9,000 to $37,500 on monthly operating expenses. 

 

Factors that affect coffee shop profitability

Increasing the profitability of your coffee shop is a matter of understanding the main variables impacting revenue potential and expenses. Here are a few factors that affect coffee shop profitability, and how to navigate them. 

Franchise vs independent

Franchise coffee shop profit margins are typically lower than independent coffee shop profit margins. The reason for the difference is franchising fees, which run from $20,000 to $50,000. 

Although franchise coffee shops gain a competitive advantage through brand recognition, they keep less of their revenue than independent coffee shops.

Deciding between franchise and independent coffee shops is a matter of risk appetite. While independent coffee shops offer higher potential profit margins, you need to work harder to attract customers and get your name recognized. 

Meanwhile, franchise coffee shops have built-in brand recognition, attracting a loyal base of customers automatically. You can also turn to other franchise branches as models of success or failure. Because these factors reduce the effort and risk involved in starting a coffee shop, the lowered profit margin might be worth it. 

Start an independent coffee shop if you want to increase your profit-earning potential. With thorough market research, a clear concept, and an effective marketing strategy, you can manage the typical financial risks and maintain both revenue and independence.

Revenue streams

Coffee shops primarily generate revenue selling food and beverages. However, many shops increase profitability by diversifying their revenue streams. Common types of revenue coffee shop revenue streams include add-ons, merchandise, space rental, catering services, and workshops. 

• Beverages: The majority of coffee shop revenue comes from the sale of coffee, tea, and other beverages.
• Food: Most brick-and-mortar coffee shops also offer food options, such as pastries, baked goods, sandwiches, soups, and ice cream. 
• Add-ons: You can charge extra for added or swapped ingredients, such as sugar, milk alternatives, syrup, cream, and other spices and sweeteners. 
• Merchandise: Many coffee shops also sell branded coffee paraphernalia, such as mugs, tumblers, and t-shirts. Merchandise is also effective at cultivating brand loyalty.
• Space rental: Coffee shops can charge their customers extra for taking up space past a certain threshold. They can also rent their space out for events, meetings, and conferences. 
• Catering services: Some coffee shops also bring their products to private and public events. Catering arrangements help you guarantee sales with predictable costs and minimal risk.
• Workshops: If your baristas are trained teachers, you can host workshops and training programs for extra cash. 

Additional revenue streams typically come with additional costs. If you keep your revenue streams related to your existing products and services, you can generate extra profit with minimal investment. 

For example, if you have extra space, you can rent it out for events while still maintaining shop operations. This way, you make money on rentals while having a captured market for your food and beverages. 

Niche

One of the biggest factors affecting coffee shop profitability is your niche. Different niches operate on different pricing strategies and scales, which each have a strong bearing on revenue and expenses. Coffee kiosks, for example, would cost significantly less to operate than a coffee shop, but cannot charge high markups on their products. 

Here are the most common types of coffee shop niches and their estimated annual profit.

Cafe bakeries

Expected profit: $325,000 to $400,000  

Cafe bakeries are some of the most profitable types of coffee shops, thanks to their additional revenue streams. Rather than offering just coffee, they also offer pastries and other baked goods as full meals or sides. Because their customers are likely to buy multiple items in one sitting, cafe bakeries generate more revenue than their coffee shop counterparts.

However, the additional menu items might make the cafe bakery a little more expensive to maintain. You will incur additional costs for labor, bakery equipment, and ingredients for baked goods. 

Coffee kiosk: 

Expected profit: $30,000 to $175,000 

Coffee kiosks are cost-effective alternatives to brick-and-mortar coffee shops. Because they require less space, they help you save on rent, utilities, maintenance, and labor costs. You can place kiosks in high foot-traffic areas to capitalize on activity with minimal investment. 

However, because coffee kiosks only provide products without the experience and atmosphere of sitting in a brick-and-mortar establishment, they have to charge lower markups on their products to stay competitive. Customers also have higher expectations for speed and convenience when not provided seating. 

Coffee trucks:

Expected profit: $50,000 to $100,000 

Thanks to their flexibility, mobility, and low overhead costs, food truck coffee shops tend to be more profitable than other types of coffee shops. The first reason is that food truck costs run significantly lower than brick-and-mortar stores. The second reason is that they allow the business to follow where the customers are, leveraging high foot traffic areas and peak times.

However, food trucks also charge lower prices than their brick-and-mortar counterparts. Because they do not provide seating, they cannot justify matching their margins to brick-and-mortar coffee shop products. Customers expect food truck coffee to cost less and leave the kitchen faster. 

Themed cafes

Many cafes attract customers by centering their cafes on a specific theme. Rather than just selling coffee, themed cafes give their customers a unique experience through decor, atmosphere, and activities. Not only do they provide a second hook for luring customers, but they also give the cafe additional revenue streams. 

Here are a few examples of themed cafes:

• Board game cafes
• Animal cafes
• Library cafes
• Cafe cinemas

The issue with themed cafes is that you incur additional costs with your extra services. However, with the right pricing model, these expenses are easy to cover. Board game cafes, for example, typically charge customers a per-hour rate when they want to borrow board games. This covers the cost of the used space while also incentivizing the customers to stay and buy more products. 

Location

The buying behaviors of coffee shop customers differ from fine dining restaurant customers. Fine dining restaurants offer more than just food; they provide an experience of exceptional service in a comfortable ambiance. Establishments in less-than-ideal locations can still thrive if customers find their combination of offerings compelling enough — just look at Michelin-winning remote restaurants La Mare aux Oiseaux and Loch Bay. 

However, most coffee shops aren’t a reprieve from people’s day-to-day routines—they’re a part of them. Customers rely on coffee shops for extra energy or space to work. They expect these establishments to be close by for support as they move through their daily tasks.

Location, then, plays a crucial role in the success of a coffee shop. Any coffee shop that intends to profit should operate their stores where people work, such as malls, business districts, universities, and other high foot traffic areas. Otherwise, they will have a difficult time attracting customers.

Of course, these high-activity locations tend to charge costly rent, which can drive your prices up. It’s important that you find a balance between meeting customers where they are and paying a rate that still allows you to charge reasonable margins on your product. 

Pricing model

How you price your menu and services has a strong impact on profitability. The markups on coffee products differ wildly between stores depending on your niche, product offerings, and store policies. Some coffee shops sell not just coffee, but also the comfort and atmosphere of their physical store. They add the cost of the experience to their product markups. 

Meanwhile, smaller shops, such as kiosks, drive-through stores, and food trucks, charge less because they provide no additional physical benefit beyond the products they sell. Additionally, they tend to sacrifice quality for convenience, which prevents them from justifying increased markups. 

When can I expect ROI on my coffee shop?

The standard timeframe for becoming profitable as a coffee shop is 12 to 24 months. Your profitability hinges on your sales and cost management strategies. Keep records of your sales data so you can understand the effects of your business decisions on revenue. Through trial and error, you can determine which systems and processes work best for your business. 

How to maximize coffee shop sales

Maximizing sales as a coffee shop is a matter of aligning with your customers. Events, catering, and loyalty programs are cost-effective ways of cultivating customer loyalty while promoting your products. Here are the best ways to maximize coffee shop sales. 

Host events 

If your space is large enough, one of the most effective ways to drive sales is to attract customers with more than just your products. Because coffee is already ubiquitous as a supplement to people’s day-to-day routines, it can be a welcome bonus for people participating in other events, such as open mic shows, trivia nights, and other themed occasions. 

Hosting an event at your coffee shop will encourage attendees to purchase your products. You can increase sales by charging an entry fee that includes a free drink or by setting a minimum spending requirement for participation.

Examples of events you can host include:

• Open mic nights: Amateur musicians, comedians, improvisers, and other types of performers need venues for the shows they stage. You can collaborate with them and charge a rental fee for the use of space, or enter a contract requiring their audience to meet a designated sales target. 
• Board game nights: You don’t have to be a committed board game cafe to host board game nights. Board game nights bring throngs of customers into your store. The energy required by these events encourages them to buy food and drinks continuously. 
• Trivia night: An alternative to board game nights are trivia nights, which run for shorter amounts of time but still attract crowds of competitive customers. Coffee keeps them alert enough to keep their head in the game. If you host trivia nights regularly, you’re bound to attract loyal customers to your store even outside these events. 
• Yoga or meditation class: Coffee goes great with morning meditation or yoga. Hosting morning classes will reliably bring groups of participants to your store, and they’ll likely want a pick-me-up once they’re done with their relaxation exercises.

Participate in events

If your product is your main selling point, promoting it through events is one of the best ways to attract new customers. Participate in food festivals, coffee expos, and other community events to bring a taste of your coffee shop to the customers. You might have to shell out money on additional equipment, but the business you attract will be worth it.

Examples of events you can participate in include:

• Coffee expos: Specialty coffee expos are an opportunity to showcase your products to coffee enthusiasts. If you’re lucky or play your cards right, you might brush elbows with influencers, celebrities, or well-respected individuals in the coffee industry, who might promote your products for you.
• Food festivals: Foodies and other event attendees want refreshments in between their stall-hopping, so opening a coffee stall at a food festival will inevitably drive sales. Like with coffee expos, food festivals are an opportunity to promote your product to food enthusiasts. If your product quality meets their standards, they will be likely to promote you on their blogs or social media. 
• Community events: Setting up stalls in local community events is a great way to make the locals aware of your business. Because these events are concerned with promoting bonds among the community, cultivating connections with event attendees can turn them into loyal customers later on.

Provide catering services

Catering services are a cost-effective way to boost revenue. While they require some initial investment in equipment, they also leverage existing resources, such as employees and inventory, which helps minimize overhead costs.

One of the key advantages of catering is its predictability. Clients provide guest counts in advance, allowing you to accurately estimate inventory needs. With a clear pricing agreement, you can also forecast revenue, making budgeting easier.

Additionally, catering creates opportunities to build customer loyalty. Satisfied clients are likely to hire you again for future events, and their guests may become new customers for both your coffee shop and catering services.

Design loyalty programs 

For many people, coffee is a daily necessity. Because coffee gives them a much-needed productivity boost, customers are more likely to return to their favorite coffee shop rather than their favorite fine dining restaurant. If you want to cultivate this level of customer loyalty faster, you can incentivize returning customers through loyalty programs. 

Loyalty programs cultivate brand loyalty by rewarding continued patronage with discounts, merchandise, and exclusive promotions. By making the customer feel appreciated, you give them more reasons to return. 

Starbucks, for example, rewards customers with points for every dollar spent. Customers can redeem their points for drinks, food, coffee beans, and merchandise. The program incentivizes loyalty, making Starbucks a more compelling option than other coffee shops.  

Build an effective digital marketing strategy 

Aside from hosting and joining events, you can promote your coffee shop through digital marketing. Social media marketing is the most cost-effective method since it requires minimal investment beyond graphics and visual assets. However, if you have the budget to spare, you can also place geo-targeted ads to increase your brand’s visibility among your target market.

Here are a few digital marketing options:

Facebook

Many food establishments use Facebook to store information about their business. Facebook can host your contact information, opening hours, and reviews so customers know what you’re about when they look you up. Post your products, space, promotions, and event information to promote your business to your followers. If the content is relevant to their interests, they will share it, allowing you to tap into their network. 

Instagram

The image-sharing platform Instagram is one of the most popular ways to promote food establishments, with over 38% of users using the platform looking for food content. Because it is traditionally aesthetics-oriented, Instagram is a great platform for brands with strong visual identities — coffee shops with good interior design or product presentation will thrive here. 

You can also use Instagram stories to share behind-the-scenes content, promote limited-time events, or interact with your followers.  

TikTok

TikTok is ideal for reaching younger audiences. If your brand has a strong voice or a sense of humor, your content is likely to perform well. Capitalize on the userbases’ enjoyment of memes, explainers, and dances to increase brand recognition. For instance, you could post a video showcasing how your baristas make coffee, highlighting the quality of your products and services to attract customers.

Ads

Targeted advertising is available on most social media platforms, including Instagram, TikTok, and YouTube. For a fee of approximately $2.32 per click, you can leverage these platforms’ sophisticated algorithms to bring your content directly to your target audiences. If you have a strong idea of who your ideal customer is, you can tailor your ads to their preferences, increasing the likelihood that your message will resonate. 

For example, if your target customers are professionals, you can create video ads featuring office workers gaining energy from your products. 

Digitize common coffee shop processes

Although investing in technology can be expensive, streamlining common coffee shop processes can ultimately improve your bottom line. Automating customer relationship management, employee management, and payment processing can increase your operational efficiency, which helps you keep customers satisfied and generate more sales per day. 

• Payment processing: Use POS solutions to accept all types of payment gateways, from cash to card to mobile payment. These streamlined payment processing solutions help you expand your customer base, improve retention, and automate sales and inventory tracking. 
• Customer relationship management (CRM): Tailoring marketing campaigns, events, menu design, and other aspects of coffee shop operations is the best way to improve customer loyalty. CRM solutions, which collect detailed customer data, are the most efficient way to source relevant information
• Employee management: Streamline scheduling, time clocking, attendance tracking, payroll, and employee engagement with automated restaurant employee management software. You can use 7shifts to let users log clock in, which automatically tracks attendance and payroll costs. 

Let success brew with 7shifts

Getting your ROI on your coffee shop can be a challenge. However, with the right sales strategies, you can maximize revenue and offset the high overhead of running a coffee shop. Leverage events, additional revenue streams, and marketing to drive sales and ensure that your business is sustainable. 

One of the best ways to increase your profitability as a coffee shop is to find the right technology. Our coffee shop employee management software helps you communicate schedules to your coffee shop team, ensuring that your store is appropriately staffed at all times. 

7shifts puts everyone on the same page about shift assignments, scheduling, and pay, reducing friction in coffee shop workflows.