Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Updated on September 25, 2023
$61,700 - $229,300
$110,000 - $1 million p.a.
Time to build
$55,000 - $250,000 p.a.
How to Start a Coffee Shop
Decide if the Business Is Right for You
Hone Your Idea
Brainstorm a Coffee Shop Name
Create a Coffee Shop Business Plan
Register Your Business
Register for Taxes
Fund your Business
Apply for Coffee Shop Business Licenses and Permits
Open a Business Bank Account
Get Business Insurance
Prepare to Launch
Build Your Team
Run a Coffee Shop - Start Making Money!
Coffee shop FAQs
More than half of all Americans drink coffee every day. Coffee shops and cafes are everywhere, but many of them are about more than coffee. A good coffee shop is an experience, and a community, and offers an attitude of its own in addition to appealing snacks and coffee-based drinks. Opening your own coffee shop could be your opportunity to create a uniquely appealing experience in your town or neighborhood.
Keep in mind, starting any kind of business takes a lot of work. The key is to have the knowledge and patience necessary to move deliberately through the development and process, as detailed in this step-by-step guide.
Looking to register your business? A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple.
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. And 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.
Offer your community a new coffee experience
Flexibility, as you determine your own hours
Healthy profit potential.
Express your creativity with your coffee shop concept.
Everybody drinks coffee, so competition will be strong
Marketing will be required to build your reputation and clientele
You’ll need significant capital to get started
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. But now the industry is on the rebound.
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, counter, refrigerators
Kitchen utensils and cleaning materials
Setting up a business name and corporation
$200 - $200
Business licenses and permits
$200 - $300
$100 - $500
Business cards and brochures
$200 - $300
$1,000 - $3,000
Space lease security deposit or purchase down payment
$5,000 - $50,000
Space remodeling and preparation
$20,000 - $100,000
$10,000 - $25,000
Equipment and roasters
$20,000 - $40,000
Initial inventory of coffee beans and food
$5,000 - $10,000
$61,700 - $229,300
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 be selling 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 do 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 get to 500 sales per day, bringing $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
Related Business Ideas
If you’re still not sure whether this business idea is the right choice for you, here are some related business opportunities to help you on your path to entrepreneurial success.
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.
For example, combining a coffee shop with an internet café can be a good business opportunity, because of diverse revenue streams and longer customer stays, which can lead to increased sales.
Next, come up with a concept and environment that will be appealing 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 products
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 $2.99, or about $4.25 at more gourmet shops. Once you add in food items and specialty drinks, $6 per sale is a realistic target.
Research other coffee shops in your area to determine the best prices for your market. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up 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
Your business name is your business identity, especially for a coffee shop. It’s best to choose a name that encapsulates your objectives, services, and mission in just a few words. It should also be easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.
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”
Avoid location-based names that might hinder future expansion
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and 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
Every business needs a plan, a rough outline that helps guide a startup through the launch process while maintaining focus on key goals. A business plan is also crucial for helping potential partners and investors understand your company and vision:
Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
Product and Services: Describe your shop’s services in detail.
Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
Competitive Analysis: Analyze main competitors, assess their strengths and weaknesses, and create a list of the advantages of your services.
Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
Appendix: Include any additional financial or business-related documents.
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
Registering your business is an absolutely crucial step — a prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
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, 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 Corp – 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 Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, 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.
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 or 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 strong credit history.
SBA-guaranteed loans: The Small Business Administration can act as 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 an increasingly popular low-risk option, 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 options, 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
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.
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 a client who says 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.
If you are unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for 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 services like WordPress, Wix, or Squarespace. 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.
They are unlikely to find your website, however, 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.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
Instagram: Same benefits as Facebook but with different target audiences.
Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Order Now”. This can sharply increase purchases.
Google and Yelp: For businesses that rely on local clientele, getting listed on Yelp and Google My Business can be crucial to generating awareness and customers.
Take advantage of your website, social media presence, and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:
Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as a free cup of coffee on the fifth purchase.
Signage – Put up eye-catching signage at your store and website.
Flyering – Distribute flyers in your neighborhood and at industry events.
In-Person Sales – Offer your coffee at local markets and trade shows.
Post a video – Post a video about your coffee shop. Use humor and maybe it will go viral!
Press releases – Do press releases about new products, sales, etc.
Paid ads on social media – Choose sites that will reach your target market and do targeted ads.
Influencer marketing – Pay people with large social media followings to promote your coffee shop. You can find micro-influencers with smaller followings and lower rates.
Make a podcast – This allows you to make a personal connection with your customers
Testimonials – Share customer testimonials about how they love your coffee.
Create infographics – Post infographics and include them in your content
Focus on USPs
Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to 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
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 – Take orders, prepare 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 15,000 stores across the country. But 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!
Coffee shop FAQs
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 any business has challenges. It’s not complicated to start a coffee shop compared to some other types of businesses because the business model is straightforward. However, you need a thorough plan, a creative menu, and a unique concept if you’re going to be successful.
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.