How to Open a Coffee Shop: The Ultimate Guide

How to Open a Coffee Shop: The Ultimate Guide
Alex Fainblum

By Alex Fainblum

So you want to open up your very own coffee shop. We're all here for it! Coffee shops can be so much more than a place to grab a cup of joe and a croissant.

They are places where friends and family gather, where ideas are formed and spread, and where important work gets done. At their best, they're an essential part of their community—a third place beyond work and the home.

For your coffee shop to reach that status, it has to be done right. In this guide, we'll go through everything you need to open a new coffee shop, from market research to buying coffee to hiring the best team.

Coffee Shop Concepts

Below is a list of the potential coffee shop concepts to think about when conducting your market research.

  • Coffee Bars
  • Coffeehouses
  • Cafes
  • Mobile Coffee Shops (Carts and Trucks)
  • Drive-Thru Only
  • Animal Cafe

Research the Market

Before you can hit the ground running, it's important to understand the ground itself. This step and research component is the foundation behind your business, and should be taken seriously!

Get to know your future customers, before they even step foot in your door. You'll want to learn everything about their coffee preferences. From the most popular preparation methods to the most coffee-consumed time of day, this information will help you build a coffee shop perfect for them.

Don't stop there! Take it one step further by diving into their lifestyle habits and spending patterns. You may discover that your target customers enjoy an afternoon pick-me-up and are sensitive to price. This research will dictate your hours of operation and pricing plans!

How can you conduct this research? Reference secondary research studies or create your surveys and questionnaires to send out to a select group of people!

But, don't limit your research to just that! Know of any local coffee shops? Visit them to learn more about what drives their business. Do they serve just coffee or small foods as well? Do they have indoor seating or are they takeout-only? This knowledge will help you answer these questions and more– helping you differentiate yourself from the competition and best cater your coffee shop to the community's needs.

When it comes to research, the more you have, the more knowledge you'll gain. So, make the most of this step– gathering this information will help you plan, operate, and run a successful coffee shop.

Find the Right Location

You could have the best coffee, tastiest treats, and the most innovative concept, but all of that can be easily compromised if your shop isn't in the right location.

But, now that you know the market, you can better understand where the right location is for you to reach your desired target market.

Demographics

After analyzing your market research, you'll have a better understanding of who you want to target. Now, it's time to consider where that target market is located and how you can best integrate your coffee shop into its community.

Are the avid coffee drinkers University students? Then, having a location next to campus would be the perfect spot for you! Or, does your target market spend most of its time working from home? In that case, a local corner coffee shop might be calling your name.

Competition and neighboring businesses

You want your coffee shop to be the go-to spot around the block! How can you make that happen? Choose a location that has little-to-no competition.

When scoping out the zones, take note of which areas have already existing coffee shops. Keep track of how many are in each area and how busy they are. Chances are if there are two or more shops on one street, your barrier to entry will be much higher and it'll be a challenge to stand out.

Traffic times

As nice as it would be to have a rush of customers throughout the day, chances are, your coffee shop will be experiencing bursts of traffic based on where you decide to be located.

Coffee shops on one end of the city might be jam-packed before 8 am, while on the other side, they might notice a mid-day rush.

It's important to consider the peak coffee times in the different areas you're looking into, and base your decision on which one makes the most sense for you and your hours of operation!

Examples

Before you can truly decide where to locate your business, it is important to consider all of the options available, which include the following:

  • Business centers
  • Shopping malls
  • Neighborhood shops
  • College campuses / school zones
  • Residential areas

Conduct a Feasibility Study

Your next step is to conduct a feasibility study. The purpose of this study is to analyze various factors that will help determine the likelihood of your coffee shop succeeding in the market.

Below you will find a high-level feasibility study outline:

Section 1: Executive Summary

This short section is the summary of your findings from the market research you conducted and can be written after the main feasibility study. The findings will guide you to best answer the following question: “Is my idea worth pursuing?”. The executive summary will also include crucial financial information (i.e. revenue projections) and will detail your coffee shop's unique selling proposition.

Section 2: Market Overview and Analysis

This section will cover relevant market research findings such as the demographics and competition in your area.

Section 3: Business Explanation

In this section, you will want to explain your concept, amplify your competitive advantage and detail the steps you'll take to satisfy the needs in your market. You may even want to include a mission statement.

Section 4: Financial Projections

This is the key section for determining the potential profitability of your business. The main sections to include are your break-even point, capital requirements, expenses, and income. A great tool for this is to use a projected profit and loss statement.

Expected Expenses

The typical coffee shop costs anywhere from $200,000 to $375,000 to start. But, to determine the specific costs for your coffee shop, you'll need to establish your expected expenses. To do so, you will need to list all your costs. This includes but is not limited to your equipment, permits, menu, and marketing.

Beyond the equipment, there are other costs to consider:

  • The rent or build costs of your location. As a general rule, rent shouldn't be more than 15% of your projected sales
  • The cost of coffee beans
  • Any fees for professional services, e.g., architect or accountant
  • Payroll costs
  • Income taxes which is roughly 35% of your operating profit
  • Other expenses like insurance, office supplies, and business permits.

Given the above cost considerations, you're likely wondering: How much does it cost to open a coffee shop? Unfortunately, there's no exact answer— it depends on several factors including the cost of retail space, the equipment you decide to use, your marketing budget, and even the type of coffee shop.

That being said, there is a cost range you can use for guidance. Expect to pay anywhere from $60,000 to $275,000 to open your coffee shop, depending on the type:

  • Coffee kiosk: $60,000 to $100,000
  • Mobile coffee shop (food included): $50,000 to $100,000
  • Coffee shop including seating: $80,000 to $250,000
  • Coffee shop excluding seating: $80,000 to $275,000

Income Projections

Make conservative revenue estimates. You'll need to review various measures to pull these numbers. These elements include the following:

  • Number of guests you expect to serve in a day
  • Seating capacity
  • Average check size
  • Expected menu prices
  • The average number of guests
  • & other elements you see fit!

Break-even Point (BEP)

BEP is the point where your total costs equal your overall revenue. The calculation establishes how much coffee you need to sell to turn a profit.

Make this calculation using the following formula:

BEP =Fixed Costs / (Sales Price Per Unit - Variable Costs)

Capital Requirements

Detail how much you need to start your coffee shop and what portion you need from private investors and banks.

Section 5: Conclusion

Once you have completed the previous steps, it's time to decide whether it's worth starting your coffee shop or not.

Do the benefits and projected earnings outweigh the costs? Then that's your sign to open right up!

Obtain Funding for the Coffee Shop

Opening a coffee shop costs money. Rent, equipment costs, supplies, marketing, and paying staff are among the costs you'll incur when just starting. Before you can obtain the funding you need, you should know how much to raise. According to Crimson Cup, here are a few ranges to keep in mind, depending on the type of shop you want. This will, of course, depend on your location and other factors.

  • Coffee shop with seating: $80,000 to $300,000
  • Coffee shop with a drive-thru only: $80,000 to $200,000.
  • Coffee shop with both seating and a drive-thru: $80,000 to $300,000

After you do your market research and determine how much you need, these methods can help you get there. Keep in mind that you don't have to lean on just one method—using a few money-raising methods can help mitigate risk and get you there faster.

Personal savings

Consider starting with what you already have saved. While it may be tough to provide all of the funding, it can kickstart the money-raising process. But where using personal savings may come up short in value, it provides the benefit of no incurring risk from anyone but yourself—no banks or investors to pay back, and no fear of losing money from family or friends.

Business loan

A common way for coffee shops to get financed is through business loan programs. For example, the small business administration has many options available from microloans to large-scale. Check out the Small Business Administration site for more details.

You may also choose to seek a loan through a more traditional bank. These can have low-interest rates but may take a longer time for approval.

Find an angel investor

It can be difficult to get an investor in the hospitality business, as it's an industry with a relatively low rate of returns. However, a solid business plan can ignite the passion within someone like-minded and equipped to help you. That person may be an angel investor, who often looks to support high-risk endeavors with their own money.

According to Perfect Daily Grind, an angel investor might put $25,000 to $100,000 into a business with the hopes to see it grow. To find an angel investor, look to the network you've already built, and to your family and friends. There's a chance someone knows someone who wants to support a new business.

Crowdfunding

Finding a lender or person willing to give you the necessary funding may be daunting—but finding a lot of people to give you a small amount is much more palatable. That's the idea behind crowdfunding, which has enabled many restaurants to open their doors.


Many food businesses have gotten their start through sites like Kickstarter, Indiegogo, AngelList, GoFundMe. Share the link with as many folks as you can, and consider offering them an incentive like a gift card when you open, a swag bag, or exclusive perks for helping you get started.

Write a Coffee Shop Business Plan

You don't need a lengthy, detailed business plan that takes forever to complete. These plans are usually only required when you need funding from a bank. Instead, create a short or lean plan of a few pages to help validate your idea without getting caught up in the details.

Sure, details are essential, but what's more important is a plan that will help you move along intelligently from the start. View your lean plan as an ever-evolving document you can revisit, and revise, as new information surfaces. Creating this plan will ensure you remain nimble and can quickly take advantage of new opportunities.

But how do you create this plan?

Imagine you're having a conversation with a friend about your business idea. Now, tell him or her about these key areas:

  • Your unique selling proposition which details the value you're providing customers
  • Market need: Examples may include customer desires for unique flavor profiles and personalized coffee experiences, obtained from your market research
  • How you're filling the market need: You could offer alternative coffee brewing methods like pour-overs or batch brews
  • The competition: Think about direct (other coffee shops) and indirect (bistros) competition
  • Target audience: The demographics and psychographics of your audience
  • Planned marketing strategies: Will you have a loyalty program? Will you use social media marketing? Are you planning on having an official launch
  • Important milestones before and after the launch
  • Your team: Who do you need to make this work? List all employees and partners
  • Coffee startup costs: How much money do you need?
  • Funding: Do you need funding? Options include family and friends, the bank, or outside investors (more on that below)

Once you've validated your idea, you can dive into the nitty-gritty:

Obtain Permits and Licenses

In the process of opening your coffee shop, it's important to mitigate the potential risks affiliated with permits and licenses. As with any business, there are permits and licenses that you will be required to claim and obey to run your cafe. This step will require a considerable amount of research, as it will pertain to your specific whereabouts, but we've listed the basic ones you will need to operate risk-free.

Business License

Depending on where your business is located, you will need to register for a business license. This government-issued license varies in cost but is typically a requirement in the U.S. to run a business legally. Find more detailed information at U.S. Small Business Administration's website.

Liquor License

If you're considering serving alcohol at your coffee shop, you will need to get a liquor license. Once again, this varies by state, so be sure to check with your state's requirements!

Employer Identification Number (EIN)

The EIN is a required federal tax identification number that is associated with your business. Learn more about it and apply with the IRS.

Certificate of Occupancy

The certificate of occupancy also knows as the building permit, is issued by the local government building department certifying a building's compliance with applicable building codes and other laws.

Food Handler's Permit

If you're serving food at your coffee shop, your employees should complete a food handler's course. The course and certification are only valid for a few years and its cost differs by state.

Other

The permits listed above are a few of many that may be required to open your coffee shop. Make sure to research the permit requirements for your state, to mitigate your future risks!

“Less is more. Rather focus on doing a few things well, than a 100 half-heartedly.” - Alrishka Macaskill, Terbodore Coffee Roasters

Menu engineer Gregg Rapp, echoes this statement, mentioning that it's better to have a simple menu with no more than 7 menu items per category. The reason? Giving your customers more choice can overwhelm them, making it harder for them to choose a drink. And, when customers feel overwhelmed they'll likely revert to the familiar which can harm your profits if that familiar offering is a lower margin one (like regular coffee instead of a special drink).

A simple menu will help you whether you're following the full-service model or not. For more menu design tips, read 9 Restaurant Menu Design Tips That Will Help You Boost Profits.

Design the Floor Plan Layout

Visualize the Space You Want

An effective coffee shop floor plan lives on the delicate balance between getting people who want to grab-and-go through efficiently and is inviting to those who prefer to linger. It's important to use visual cues and leading lines, such as an exposed espresso machine or long counter, to guide customers and showcase your offerings as they do.

Put yourself in the customer's shoes and imagine the space you'd like to see. Visit busy coffee shops in your market and take notes on how it's laid out. Are tables close together or far apart? Are there high-top, bar-style tables, regular seating, or a mix of both? Couches and banquettes are also popular seating for coffee shops.

Another aspect to keep in mind is power outlets if you plan to offer your coffee shop as space for people to do work. Keep in mind that every coffee shop is going to be different, influenced by its location, size, and target market. Discover what you want yours to be, and you can create a floor plan to match

Create a Floor Plan

Once you have an idea of how you want to lay our your shop, you can design a floor plan. YOu can do this yourself with software like SmartDraw, or hire a restaurant architect to help you devise it. The former will be more cost-effective, but it's hard to put a price on the expertise a professional can provide. Below is an example of a coffee shop floor plan with a counter, banquette, and table seating, as well as outdoor tables.

Coffee Shop Floor Plan design on paper
Source: Smart Draw

Accessibility

In 1992, the Department of Justice passed the Americans with Disabilities Act (ADA) to ensure that employees and customers with disabilities have the same access to basic services as other people. ADA regulations can affect everything from doors, general layout, countertop and table height, and parking.

Find Quality Suppliers

Make sure you're paying as much attention to what's in the cup as everything else.

Major suppliers

Coffee

First and foremost, you're going to need coffee. Look to see what local coffee roasters in your area are doing, and reach out to them. Joe's Garage, a wholesale coffee supplier, recommends “when seeking a supplier that will provide delicious coffee beans, let your taste buds do the work. Whenever possible, visit your supplier's warehouse and taste the coffee first-hand.” If you can't visit in person, request they send you some samples (some will even come to you).

It's not just about taste, either. Make sure you're diligent about asking what a wholesale supplier's order minimums are as well as their order turnaround time. The last thing you want to be out of is coffee (next to dairy).

Private Label or Not?

Some wholesale roasters, like Joe's Garage, will roast coffee for you and allow you to use your own coffee shop's branding. They'll often work with you to create signature blends and offerings that you can be proud of, too. Customers and coffee drinkers will choose a brand over taste, so putting your brand on the beans will only help your business thrive in the long run.

Dairy & Milk Alternatives

Six out of ten coffee drinkers add milk or milk alternatives to their coffee, and four in ten add some sort of sweetener, according to the National Coffee Association's 2021 study. Make sure you have a steady supply of both dairy (cow's milk) as well as options for milk alternatives. Almond milk remains the most popular milk alternative, closely followed by oat milk's soaring popularity. Other options include coconut milk, hemp milk, soy milk, and hazelnut milk. This may depend on your market—see what comes up in your market research to understand what the demand is.

Pastries

Many coffee shops also sell pastries such as croissants, muffins, cookies, and brownies for guests to enjoy alongside their beverages. This can help increase check averages and provide another reason for guests to enjoy your shop. Most coffee shops partner with local bakers to provide them with items to sell. Follow the same strategy as you would for your beans—visit local wholesale bakeries, try out items you might sell, and chat with them about order minimums, delivery times, and more.

Coffee Shop Equipment

The list of equipment you'll need depends on the type of coffee shop you want. Will it be a coffee kiosk, mobile coffee shop, or a coffee shop with or without seating? Get your head wrapped around the concept to help you pinpoint your equipment needs, which may include:

  • Automatic drip coffee maker to serve black coffee
  • Espresso machine: You'll need this as many types of coffee will include espresso
  • Industrial coffee grinder
  • Refrigeration system to keep milk cold
  • Containers and pumps to store syrups and other items
  • Kitchen equipment (like ovens) if you're serving food
  • Shelving if you're selling merchandise like hats or t-shirts
  • Freezers you can, among other things, use to store employee food
  • Industrial blenders for making smoothies and shakes
  • POS system which includes both the hardware and software to process orders, manage staff and run your business

Sourcing Equipment: Should You Buy, Lease, or Rent?

When it comes to big equipment like an espresso machine or automatic drip maker, you have a few options for getting in your shop: buying, renting, or leasing.

When you rent coffee equipment, you pay a monthly fee to use it. This has the advantage of being able to try out different machines for your shop to decide what you like. Maintenance, too, is often included in rental agreements. The downside is that you have to return the machine and never end up owning it.

Leasing coffee equipment is similar to renting, but the monthly payments eventually give you ownership of the machine. This allows you to get brand-new equipment at a lower cost. The downside to this is that throughout the lease, you may end up paying more with interest than if you just bought the machine.

Buying the machine outright is the most expensive up-front option, but once you own it, it's yours. The downsides to this are that maintenance costs are also covered by you.

Coffee Shop Technology

Every hospitality business needs a reliable tech stack. That all starts with the brain of your operation—the Point of Sale system. Your POS should not just take orders and process payments. It should be flexible, allowing for integrations with either restaurant tech like online ordering, scheduling, and inventory management. Look for companies that integrate with other tech platforms to streamline your business.

Online Ordering

As an extension of your POS system, online ordering tech can help meet your customers where they are. According to the Specialty Coffee Association, coffee shops have seen a 5,380% sales increase in curbside and pickup orders—and when there's demand from the market, you can put yourself in a successful position by meeting it.

Scheduling Software

A coffee shop is nothing without its team of baristas, and they have some of the earliest shifts in the hospitality business. Avoid any confusion (and 5 AM calls) by using coffee shop scheduling software for your team.

Restaurant scheduling software allows you to easily make schedules and track your employees' time and attendance for easier payroll. Scheduling software like 7shifts can also pull data from your POS to track labor against sales and get a more accurate picture of your labor cost—saving your coffee shop money and time.

Staffing: Find, Hire, and Schedule

Finding and hiring the right team helps you deliver on your concept, ensure customers always receive stellar service and keeps your coffee shop profitable.

But who exactly do you hire? How do you approach the hiring process? And, once hired, how do you schedule employees effectively, so you're never over or understaffed? Let's have a look.

Find Great Employees

Before you can hire great team members, you need to know where to look. Here are a few tips to find great applicants:

Determine the roles you need to fill

It's helpful to have all of the roles you need to fill before starting the hiring process. This will keep you organized and avoid overlap with roles. Common roles in coffee shops are baristas, cashiers, general managers, and if you're serving food, cooks, and dishwashers.

Write a great job description and post it on industry boards

Take time to write a job description that reflects your business and what you offer a prospective applicant. In the current labor market, employees have a lot of choices. Make sure you hone in on what makes you stand out from the pack.

Once you're happy with your job description, post it on industry-specific job boards for better quality applicants. Take advantage of 7shifts hiring tools to post jobs, track applicants, and make hires in one place.

Hire the Right Team

Once you have applicants to your role, it's time for the real decisions: who will you offer the jobs to? Here are a few tips to make sure you're hiring the right team.

Prioritize fit over skill

Just because someone has the right skill set, doesn't mean they reflect the values of your business. Skills can be taught—but attitude can't. In his classic book, Setting the Table, Danny Meyer outlined his process for hiring at Union Square Hospitality Group—the 51% solution. The 51 percent rule is Meyer's personality-based hiring principle that he used to grow his business. Read more about that process here: https://www.7shifts.com/blog/restaurant-hiring-guide/

Ask great interview questions

When it comes time to interview candidates, make sure your questions reflect your values as a coffee shop owner. Don't ask someone if they're hard-working—have them demonstrate it through answers to your questions. Questions should leave room for explanation and storytelling—not simple yes or no answers.

Schedule Effectively

After hiring the right employees, it's time to create your shift schedules. You'll need to:

  • Choose the right mix of work schedules. For example, your mix can be a combination of fixed schedules where employees work a predictable amount of hours each week and rotating shifts, where they switch with other employees on a set schedule

  • Choose your scheduling method. Methods include no formal method, pen and paper, spreadsheets, and scheduling software. Each method has its pros and cons, but if you want to spend less time scheduling and better optimize your schedules, consider investing in restaurant employee scheduling software

  • Ensure your schedules factor in staff and business needs. For example, staff will want advance notice about schedule changes while your business balances this need against having the right mix of schedules to maximize efficiency

Want to learn more about creating optimal shift schedules to reduce labor costs? Then read our complete guide to shift schedules.

Market and Promote the Opening

Now that you've got all your bases covered, it's time to hit the home run and score tons of customers!

There is no right or wrong formula to marketing and promoting your coffee shop. The strategy you create will be unique to your restaurant's goals and allocated budget.

Let your creativity run wild with this one! But, in case you need a kick start, we've included 10 initiatives that you can choose from to promote your coffee shop's opening day!

  1. Keep your friends and family in the loop
  2. Build a clean and easy-to-follow website
  3. Extend invites to local businesses for your opening day
  4. Create a press release for local journalists and industry-websites
  5. Generate a buzz on social media
  6. Send personal flyers, letters, or invites to residents in your community
  7. Partner with influencers to spread the word about your business
  8. Host a soft opening to test out your operations
  9. Create a digital menu to share with your customers
  10. Share items from your digital menu on social media to generate interest

Providing Quality Coffee

“We roast our beans in small batches in Portland, which is extremely important to us. Our freshness and quality are always at the highest level—small batches allow more control over temperature and flavor profile.” Clay Geyser, Black Rock Coffee Bar

It goes without saying: You need quality coffee.

Some coffee shops, like Black Rock Coffee Bar, will have their own roastery. Others will get already-roasted beans. In either case, you need to find a supplier that has quality beans or understands the roasting process.

You also need to understand that the roasting process and how suppliers treat their beans impact the flavor profile of your coffee. Why? This understanding will help you find the right beans for the flavor profiles you want. Consider these examples:

  • Light acidic roasts give you fruity flavors
  • Medium to dark roasts provide nutty and caramelized flavors.
  • Lighter roasts are better for pour over coffee
  • Darker roasts are more versatile and better for espresso-style coffee

Invest in the Right Tools to Manage Your Operation

Opening a coffee shop - machines and equipment

Finally, you'll need good systems that provide structure, so your entire operation runs smoothly. These include systems for opening and closing, employee communication, employee schedules, and order processing.

The now successful Black Rock Coffee Bar learned the importance of these systems the hard way. When they started:

  • Managers spent hours flipping between multiple documents—time-off requests, availability calendars, and schedule pages, to create schedules
  • They had no automated process to compare actual labor vs. scheduled labor. Instead, they relied on manual procedures
  • Team communication was slow—the team relied on direct text messages—making it time-consuming to organize shift changes
  • Managing labor costs was even harder as they depended on spreadsheets which made finding the right numbers hard

However, after using the coffee shop employee scheduling tool, 7shifts, Black Rock Coffee bar improved these processes and saved time and money:

  • The scheduling tool helped managers create detailed schedules for an entire week in less than 30 min
  • Comparing actual vs. schedule labor became a breeze thanks to the ability to run variance reports using the 7punches time-clocking app
  • Team communications became smooth as the team could communicate “in-app,” receive real-time notifications, and adjust shifts on the fly. Plus, staff became more accountable as they weren't referencing time sheets from three weeks ago
  • Most importantly, managers got a firm handle on their labor costs with the labor budget tool. Managers could now enter their projected sales and view labor percentage while creating schedules

As the owner, Cley Geyser notes: “When payroll went through, we would have a look and find the number we needed, but by that time, you may have wasted 2 weeks or even a month knowing you've had high labor costs. With 7shifts, we can look at it day by day and week by week. It's current.”

Frequently Asked Questions

How much does it cost to open a coffee shop?

The typical coffee shop costs anywhere from $200,000 to $375,000 to start.

Can You Make Money Running a Coffee Shop?

Yes! A well-run coffee shop can bring in an average of $60,000 to 160,000 dollars a year for the owner.

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Alex Fainblum
Alex Fainblum

Hi! I'm Alex, 7shifts' digital marketing specialist. I've been working in the restaurant-tech industry for over 4 years & am a foodie at heart. Stay connected with us, @7shifts on Instagram & LinkedIn