How to Start a Coffee Shop

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.

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. 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.

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.

Industry size and growth

• Industry size and past growth – Research firm Statista valued the US coffee shop market at $47.5 billion in 2019, with 3.3% growth from the previous year.((https://www.statista.com/statistics/1032200/coffee-shop-industry-market-size-us/))  
• Growth forecast – The US coffee market is predicted to grow 7% per year through 2027.((https://www.verifiedmarketresearch.com/product/u-s-coffee-market/)) 
• Number of businesses – More than 37,000 coffeehouses operate in the US.((https://www.statista.com/statistics/1000058/number-of-coffeehouse-stores-in-the-us/))
• Number of people employed – Between 2018 and 2028, more than 775,000 job opportunities for baristas are expected in the US.((https://www.zippia.com/barista-jobs/))

Trends and challenges

Coffee shop trends include:

• 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 in the coffee shop industry include:

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

Popular coffee drinks

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

1. Cappuccino (17%)
2. Latte (17%)
3. Espresso (16%)
4. Cafe mocha (13%)
5. Americano (13%)
6. Macchiato (9%)
7. Flat white (6%)

Consumer spending

• Average consumer spend – The average person in the US consumes at least two cups of coffee a day, spending around $2,000 a year.
• Potential customer base – 66% of Americans 18 years and older drink coffee.
• Average prices – A cup of coffee in the US costs an average of $2.70.((https://www.usnews.com/news/blogs/data-mine/2015/09/29/americans-pay-an-average-270-for-coffee-while-tipping-20-percent))

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 24 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, counter, 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 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

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, 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: 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, 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.

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 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

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 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.

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 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 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.

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. 

Marketing

For your coffee shop, the marketing strategy should focus on highlighting the quality of your coffee, the ambiance of your space, and the unique experiences you offer. Emphasize your commitment to creating a welcoming environment, serving high-quality and ethically sourced coffee, and fostering a sense of community. Here are some powerful marketing strategies for your future business:

Kickstart Marketing

• Professional Branding: Ensure your branding reflects the atmosphere of your coffee shop, whether it’s cozy and intimate, sleek and modern, or quirky and eclectic. This should come across in everything from your logo to your interior decor and staff uniforms.
• Direct Outreach: Network with local businesses, book clubs, and community organizations to offer your space for meetings or events.

Digital Presence and Online Marketing

• Professional Website and SEO: Develop an attractive website showcasing your menu, location, and unique features (like live music nights, art displays, etc.). Use SEO best practices to optimize your site for local coffee shop-related search terms.
• Social Media Engagement: Utilize platforms like Instagram and Facebook to share daily specials, events, and behind-the-scenes glimpses into your coffee shop life.

Content Marketing and Engagement

• Coffee and Community Blog: Share posts about coffee culture, brewing tips, your shop’s community involvement, and stories about your regular customers or staff.
• Customer Spotlights and Reviews: Feature customer testimonials and stories, showcasing the community you’ve built in your coffee shop.
• Interactive Social Media Campaigns: Run photo contests, polls, or coffee-related challenges to engage your audience online.

Experiential and In-Person Engagements

• Coffee Tasting Events: Host coffee tasting events or brewing workshops to attract coffee enthusiasts and provide an interactive experience.
• Community Events and Partnerships: Host local artist showcases, poetry readings, or live music nights to create a vibrant, community-focused atmosphere.

Collaborations and Community

• Partnerships with Local Businesses: Collaborate with nearby businesses for cross-promotion, like offering discounts to customers of a neighboring bookstore.
• Community Involvement: Participate in community events, sponsor local activities, or host charity fundraisers to build a strong local presence.

Customer Relationship and Loyalty Programs

• Loyalty Cards or Apps: Implement a loyalty program that rewards regular customers with discounts or free items.
• Customer Feedback Initiatives: Encourage customer feedback and suggestions to foster a sense of ownership and community among your clients.

Promotions and Advertising

• Targeted Local Advertising: Use local newspapers, radio stations, and community boards to promote special events and offers.
• Email Marketing: Build a mailing list to keep your customers informed about upcoming events, menu changes, and special promotions.

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

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 – 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!