How to Start a Coffee Shop: What You Need to Know

Here are the most essential factors to consider when starting a coffee shop:

1. Location — A spot that is easily visible and accessible to pedestrians and drivers can attract more customers. Consider locations near busy streets, in popular shopping areas, or close to public transportation.
2. Shop inventory and equipment — Key equipment includes espresso machines such as La Marzocco Linea Mini, Nuova Simonelli Aurelia II, or Victoria Arduino Black Eagle, grinders, brewers, and refrigeration units. Your inventory should include coffee beans, tea, milk, and sweeteners. 
3. Licenses and permits — You’ll need several licenses and permits, which can vary by location. These licenses include a health permit, food service license, and zoning permits.
4. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
5. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
6. Diversification of products — Consider adding baked goods and other products to diversify your income streams.
7. Online presence — Take your business online and get listed on Google Business, Yelp, and local directories. Encourage your customers to leave positive reviews and references.

Step 1: Decide if the Business Is Right for You

Starting a coffee shop is a major commitment. Before you jump in, it’s best to fully understand what’s involved — and whether it’s a good fit for you. For the record, a coffee shop is different from a cafe, which tends to focus more on food.

Pros and Cons

Every business has its pros and cons, which you should weigh before deciding if starting a coffee shop is your best choice.

Here are some basic pros and cons of starting and running a coffee shop.

Coffee Shop Industry Trends

Due to the pandemic, the US coffee shop industry shrunk by nearly a quarter in 2020 as many shops were forced to shut down. Now, the industry is on the rebound and is steadily growing.

Industry Size and Growth

• Industry size and past growth — The US coffee shop market is valued at $49.5 billion, with 8% growth from the previous year.((https://dailycoffeenews.com/2023/10/24/led-by-big-chains-us-coffee-shop-market-surpasses-40000-stores/))  
• Growth forecast — The total US coffee market is predicted to grow about 7% per year through 2031.((https://www.verifiedmarketresearch.com/product/u-s-coffee-market/)) 
• Number of businesses — More than 40,000 coffeehouses operate in the US.
• Number of people employed — There are more than 474,000 baristas in the US.((https://www.zippia.com/barista-jobs/demographics/))

Trends and Challenges

Trends

• Creative coffee flavors and styles are driving market growth
• Consumers prefer coffee shops that offer free internet as remote work arrangements prevail
• Drip coffee still leads as the favorite preparation method, followed by single-cup systems, cold brewing, and espresso machines

Challenges

• Building a brand in a highly competitive market 
• Increasing the profit margin

Popular Coffee Drinks

American’s most popular espresso-based beverages in 2022((https://www.ncausa.org/Portals/56/PDFs/Communication/20220315_media_highlights.pdf?ver=Xz7bwWmt8eAtyGxkFp30b))

Consumer Spending

• Average consumer spend — US women spend about $2,327 per year on coffee, while men spend $1,934 per year.((https://www.yahoo.com/video/much-americans-spending-coffee-smarter-181719981.html))
• Potential customer base — More than 70% of Americans drink coffee every day.((https://www.driveresearch.com/market-research-company-blog/coffee-survey/))
• Average prices — A cup of coffee in the US costs an average of $4.90.((https://www.businessinsider.com/coffee-prices-increases-inflation-drought-frost-2022-8))

What Kind of People Work in Coffee Shops?

A barista prepares and serves espresso-based coffee. 

• Gender — 70% of baristas in the US are female, while 30% are male.((https://www.zippia.com/barista-jobs/demographics/#gender-statistics))
• Average level of education — 43% of baristas hold a bachelor’s degree, and 30% have a high school diploma.((https://www.zippia.com/barista-jobs/demographics/#degree-level-types))
• Average age — The average age of an employed barista is 23.2 years old.((https://www.zippia.com/barista-jobs/demographics/#age-statistics))

How Much Does It Cost to Start a Coffee Shop?

Startup costs for a coffee shop range from about $60,000 to nearly $230,000. The largest expense is the space itself, so if you can find a place that needs few renovations you’ll reduce your costs.

In addition to the space itself, you’ll need several items to successfully launch a coffee shop, including:

• Coffee roasters and coffee makers
• Tables, chairs, counters, refrigerators
• Kitchen utensils and cleaning materials

Startup Costs	Ballpark Range	Average
Setting up a business name and corporation	$200–$200	$200
Business licenses and permits	$200–$300	$250
Insurance	$100–$500	$300
Business cards and brochures	$200–$300	$250
Website setup	$1,000–$3,000	$2,000
Space lease security deposit or purchase down payment	$5,000–$50,000	$27,500
Space remodeling and preparation	$20,000–$100,000	$60,000
Furniture	$10,000–$25,000	$17,500
Equipment and roasters	$20,000–$40,000	$30,000
Initial inventory of coffee beans and food	$5,000–$10,000	$7,500
Total	$61,700–$229,300	$145,500

How Much Can You Earn From a Coffee Shop?

Your profit will vary depending on how large your space is and the level of traffic.

The average profit margin for a coffee shop is 25%. You will sell drinks that vary in price as well as food items such as pastries and pre-packaged sandwiches. 

If your average sale per customer is $6 and you initially make 100 sales per day, your annual revenue will be about $220,000, giving you a profit of around $55,000. As your shop gains recognition, you could make 500 sales per day, bringing in $1 million in revenue and more than $250,000 in profit.

What Barriers to Entry Are There?

There are several barriers to entry for a coffee shop. Your biggest challenges will be:

• Finding a unique concept to help you stand out
• High startup costs
• Building a large customer base

Step 2: Hone Your Idea

Now that you know what is involved in starting a coffee shop, it’s time to hone your idea in preparation to enter a competitive market.

Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important because it can help you understand your customers better, who your competitors are, and your business landscape.

Why? Identify an Opportunity

Since you will have no track record in the business, you need to find a way to stand out from the competition. A good first move is to find a high-traffic area with little in the way of coffee providers.

Next, devise a concept and environment that will appeal to customers. Look at successful coffee shops in your area to see what they are doing and what concepts and products people respond to.

What? Determine Your Coffee Selection

You probably want to start with an up-to-date selection of coffee drinks and food items. Look at what’s trending and put your own spin on it. It’s crucial that you deliver the best possible coffee drinks, from drip to espresso, so perfect your methods and recipes by testing again and again with family and friends.

How Much Should You Charge for Coffee Drinks and Other Products?

In the US, the average price for a cup of coffee is $4.90. Research other coffee shops in your area to determine the best prices for your market. Once you know your costs, you can use our profit margin calculator to determine your markup and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.

Who? Identify Your Target Market

Your target market will be coffee drinkers and anybody else who appreciates your concept. You may want to research the preferred products of younger and older demographics, then offer and promote some of those drinks to draw that group. Once you open that door, word-of-mouth referrals and repeat customers will be your biggest source of business.

Where? Choose Your Coffee Shop Location

You will not need an office that is separate from your coffee shop, but the location of the shop itself is critical. The ideal would be a welcoming space in a neighborhood with high foot and road traffic yet minimal competition. Find commercial space to rent in your area on Craigslist, Crexi, and Instant Offices.

When choosing a commercial space for your coffee shop, you may want to follow these four rules of thumb:

• Central location accessible via public transport
• Ventilated and spacious, with good natural light
• Flexible lease that can be extended as your business grows
• Ready-to-use space with no major renovations or repairs needed

Step 3: Brainstorm a Coffee Shop Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better
• The name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords in the name, such as “coffee” or “beans,” boosts SEO
• Choose a name that allows for expansion: “The Coffee Collective” rather than “Espresso Express House” or “The Mocha Lounge”
• A location-based name can help establish a strong connection with your local community and help with the SEO, but might hinder future expansion

Once you’ve got a list of potential names, visit the US Patent and Trademark Office website to make sure those names are available for registration. Check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.

Step 4: Create a Coffee Shop Business Plan

Here are the key components of a business plan:

• Executive summary — A concise summary highlighting the coffee shop’s mission, goals, and key financial projections
• Business overview — A brief description of the coffee shop, including its location, concept, and target market
• Product and services — Detailed information about the coffee shop’s offerings, including types of coffee, snacks, and any unique features
• Market analysis — An examination of the local coffee market, customer demographics, and trends to identify opportunities and challenges
• Competitive analysis — Assessment of other coffee shops in the area, highlighting strengths, weaknesses, and differentiators
• Sales and marketing — Strategies for promoting and selling the coffee shop’s products, including advertising, promotions, and customer engagement
• Management team — Introduction to the key individuals running the coffee shop, emphasizing their qualifications and roles
• Operations plan — Details on day-to-day operations, including staffing, suppliers, equipment, and processes
• Financial plan — A comprehensive overview of the coffee shop’s financial projections, including startup costs, revenue forecasts, and profit margins
• Appendix — Additional supporting documents, such as resumes of key team members, market research data, and any other relevant information

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s done, you have your own business!

Choose Where to Register Your Company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to coffee shops. 

If you’re willing to move, you could really maximize your business! Keep in mind that it’s relatively easy to transfer your business to another state. 

Choose Your Business Structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your coffee shop will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the main options:

• Sole proprietorship — The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General partnership — Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) — Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.
• C Corporation — Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation.
• S Corporation — This refers to the tax classification of the business but is not a business entity. Either a corporation or an LLC can elect to be an S Corp for tax status. Here, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number or EIN. You can file for your EIN online or by mail/fax. Visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate on a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund Your Business

Securing financing is your next step, and there are plenty of ways to raise capital:

• Bank loans — This is the most common method, but getting approved requires a rock-solid business plan and a strong credit history.
• SBA-guaranteed loans — The Small Business Administration can act as a guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants — A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Venture capital — Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
• Friends and family — Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding — Websites like Kickstarter and Indiegogo offer increasingly popular low-risk options in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal — Self-fund your business via your savings or the sale of property or other assets.

Bank and SBA loans are probably the best bets, other than friends and family, for funding a coffee shop. You might also try crowdfunding if you have an innovative concept. 

Step 8: Apply for Coffee Shop Business Licenses and Permits

Starting a coffee shop requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your coffee shop as a sole proprietorship. Opening a business bank account is quite simple and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked, yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability — The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business property — Provides coverage for your equipment and supplies.
• Equipment breakdown insurance — Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation — Provides compensation to employees injured on the job.
• Property — Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto — Protection for your company-owned vehicle.
• Professional liability — Protects against claims from clients who say they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP) — This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Essential Software and Tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. 

You may want to use industry-specific software, such as Square, clover, and toast, to keep track of orders and inventory, engage customers, manage payments, and more.

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, FreshBooks, and Xero.
• If you are unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences of filing incorrect tax documents can be harsh, so accuracy is crucial.

Develop Your Website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.

You can create your own website using website builders. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech savvy, you can hire a web designer or developer to create a custom website for your business.

However, people are unlikely to find your website unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google. 

Marketing

Here are some powerful marketing strategies for your future business:

• Local SEO — Enhance your Google Business and Yelp profiles to improve local search visibility and encourage positive customer reviews.
• Professional branding — Reflect your coffee shop’s unique atmosphere through cohesive branding in your logo, decor, and uniforms.
• Professional website and SEO — Develop an attractive website with SEO optimization to highlight your coffee shop’s features and offerings.
• Social media engagement — Use platforms like Instagram and Facebook to share daily specials and give a behind-the-scenes look at your shop’s life.
• Customer spotlights and reviews — Showcase customer testimonials to highlight the community you’ve built around your coffee shop.
• Coffee tasting events — Attract enthusiasts by hosting coffee tastings and brewing workshops, offering interactive experiences.
• Partnerships with local businesses — Collaborate with neighboring businesses for cross-promotions to enhance community ties.
• Loyalty programs — Implement a loyalty system, like cards or an app, to reward frequent customers.
• Direct outreach — Network with local groups and businesses to utilize your space for events, increasing local engagement.
• Email marketing — Use a mailing list to keep your customers updated on new events and offers, enhancing customer retention.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Today’s customers are inundated with buying options, so you’ll have a real advantage if they can quickly grasp how your coffee shop meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your coffee shop could be:

• Creative signature drinks
• Unique environment with comfortable seating
• Homemade food choices
• A mission-based concept, such as providing jobs to at-risk youth

Networking

You may not like to network or use personal connections for business gain, but your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a coffee shop, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in coffee shops for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in coffee. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.

Step 12: Build Your Team

You probably can’t operate and manage a coffee shop on your own, so you’ll need to hire some staffers right off the bat. Potential employees for a coffee shop include:

• General manager — Scheduling, ordering, hiring and firing
• Baristas — Taking orders, preparing food and drinks
• Marketing lead — Social media marketing, SEO

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Run a Coffee Shop — Start Making Money!

Competition is tough in a market dominated by giant coffee shop chains such as Starbucks, which has more than 17,000 stores across the country. Still, there’s always room for something new and unique. If you can come up with an innovative concept for your coffee shop, offer an interesting flavor or style, and get creative with your marketing campaign, you can still develop a coffee shop brand that can hold its own. 

Now that you have the knowledge needed to start your own business, it’s time to roll up your sleeves and brew your own formula for success!

Common Questions

Can I make good money with a coffee shop?

The average profit margin of a coffee shop is 25%. The profit for a new coffee shop can range from $27,375 to $54,750. Popular, established coffee shops can have much higher profits.

Is opening a coffee shop a good idea?

Coffee shops face a lot of competition and need to have very high-quality and creative products to succeed, as well as an excellent location. They also take a good amount of capital to start. Profit margins are relatively high, however, and the lifestyle of a coffee shop owner is good.

Is it hard to start a coffee shop?

Starting a coffee shop is not overly complicated compared to other types of businesses due to its straightforward business model. However, like any business, it has its challenges. Success requires a thorough plan, a creative menu, and a unique concept.

What is the secret to a successful coffee shop?

There is no magic formula to create a successful coffee shop. But most successful coffee shops offer an appealing experience for customers created by the ambiance and environment, rather than just great coffee.

Do small coffee shops make money?

Even small coffee shops can provide a comfortable living for the owner if they are successful. With one small coffee shop you’re not going to be a millionaire, but if your small shop does well you could make a decent living — and then maybe expand or franchise your business.