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How Profitable is a Coffee Shop? Costs, Profits & Breakeven

If you are planning to open a coffee shop and/or you are preparing a business plan for a coffee shop, you may want to understand how you can turn your revenues into profits. In other words, you must know how much revenue you must generate to reach break-even and increase profits.

According to IBIS World, the US coffee & snacks shops industry represented $51.3 billion in 2022 (+2.8% from 2017-2022).

While the industry is massive, the competition is also very high. IBIS World reports that in 2022, there are 71,693 coffee shops in total (+4% between 2017 and 2022).

With such stiff competition, you might be wondering whether coffee shops are profitable. Let’s find out!

What is the average coffee shop turnover?

Assuming that you have a coffee shop that operates 365 days and serves 200 customers a day with an average bill of $6.20, the annual average turnover will be $446,400.

However, remember that the gross turnover will depend on various factors like:

  • Total customers you serve each day
  • Average bill size
  • No of days you are operating in a year
  • Location, etc.

The number of customers you bring in and the average bill size will depend on factors like your marketing & advertising efforts and your ability to cross-sell & upsell.

As for the take-home income of a coffee shop owner, Start My Coffee Shop states that coffee shop owners have a take-home salary of $60,000 and $160,000 on average.

Again, this is also a variable amount, and it will depend on your turnover and profits.

What is the average profit margin for a coffee shop?

Chron reports that the average profit margin for small coffee shops is as low as 2.5%. However, the larger coffee shops have much higher profits.

Since you want to start a coffee shop, it is reasonable to assume that you will start small unless you have a massive financial backing to start big. Thus, must be careful.

However, Esquires Coffee states that the average gross margin per cup of coffee can be as high as 93.5%. Indeed, the costs that go into producing and sourcing the coffee itself (coffee beans, water, packaging, etc.) are extremely low.

Chron puts the figure close enough at 85% gross profit for bigger coffee shops.

How much does it cost to run a coffee shop?

On average, it costs $31,000 to $40,000 per month to run a coffee shop with 200 customers a day.

Operating costsAmount (per month)
COGS$7,000 – $10,500
Staff$19,500
Rent$2,500 – $5,000
Marketing$2,000 – $5,000
Total$31,000 – $40,000

We’re including below the revenue to profits breakdown chart of a coffee shop generating over $675,000 turnover per year (~9% net profit margin):

The most important costs are:

1) COGS (Cost of Goods Sold)

The COGS are by definition variable costs. For a coffee shop, they can include the cost of sugar, coffee beans, milk, water, etc. On average, you should spend anywhere from 20% to 25% of your revenues in COGS.

Assuming 200 customers per day on average, and an average order value of $6.20, you should expect to pay between $7,000 – $10,500 in COGS each month (see above).

2) Coffee shop staff costs

With COGS and rent, payroll is undeniably one of the most important expense for coffee shops. According to salary.com, the average hourly wage for as of April 2022 ranges between $11 and $13, while a coffee shop manager earns between $31 and $44. However, the hourly rates vary based on the education level, additional skills, years of experience, among other factors. 

Assuming you need 4 baristas full time ($30,000 yearly salary) plus a manager ($75,000), you should be looking at $19,500 in salaries each month (including 20% taxes and benefits).

3) Coffee shop rent costs

Another high operating cost are the premises of which the cost depends very much on the location. As an example, the average asking rate to rent commercial space in midtown NYC is around $86 per square foot. 

So assuming you rent a 1,000 SF commercial space for $40 SF per year in a prime area of a major city in the US, the rent will represent over $3,500 per month.

How to forecast profits for a coffee shop?

In order to calculate profits for a coffee shop, you must first forecast revenues and expenses.

Profits = Revenue – Expenses

Forecasting revenue for a coffee shop

Revenue can easily be obtained by multiplying the number of customers by the average order value (AOV).

Revenue = Customers x Average Order Value

For example, if you have 200 customers in a day with a $5 AOV, monthly revenue is $30,000 (assuming you’re open 7 days a week for simplicity).

Forecasting expenses for a coffee shop

There are 2 types of expenses for a coffee shop:

  • Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
  • Fixed expenses: most salaries, rental costs, marketing expenses and all the other operating costs listed above

Calculating profits for a coffee shop

When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.

In order to get to EBITDA, we use the following formula:

EBITDA = Revenue – COGS – Operating Expenses

To make it clearer, we’ve included below the profit-and-loss of a coffee shop. Whilst gross margin (after variable costs) is rather high (~80%) as explained earlier, EBITDA margin can go up to 10-15% depending on the coffee shop, and net profit margin up to 5-10% usually.

What is the break-even point for a coffee shop?

Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.

Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.

Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs. As we just saw, coffee shops typically have very high gross margins (85-90%). That’s because almost all expenses are fixed costs (mostly salaries, rent and marketing).

The break-even point can easily be obtained by using the following formula:

Break-even point = Fixed costs / Gross margin

Using the same example earlier, let’s assume your coffee shop generates $30,000 in turnover per month and has the following cost structure:

Operating costsVariable vs. fixed costAmount (per month)
COGSVariable cost$4,000
StaffFixed cost$15,000
RentFixed cost$4,000
MarketingFixed cost$3,000
Total$26,000

The break-even point would then be:

Break-even point = Fixed costs / Gross margin %

= $22,000 / 85% = $26,000

In other words, you need to make at least $26,000 in sales to turn a profit. Assuming a customer spends $5 on average ($5 AOV), your break-even is 5,200 cup of coffees. In other words, you make profits once you have sold at least 5,200 cup of coffees in a month.

Coffee Shop Financial Model

Download an expert-built 5-year Excel financial model for your business plan

Coffee Shop Financial Model

Download an expert-built 5-year Excel financial model for your business plan

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