Shopping Cart

No products in the cart.

How Profitable is a Coffee Shop? Profits & Break-even

If you are planning to open a coffee shop, you need 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 make 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?

There are several recurring costs to run a coffee shop and they are:

  • COGS: Cost of Goods Sold accounts for around 20% to 30% of the operating costs
  • Staff: You must pay staff salary (including your salary)
  • Rent: You need to pay rent for the commercial property you are using
  • Insurance: You will need business insurance and workers’ compensation insurance
  • Marketing: You need to spend money to advertise your coffee shop to attract new customers

Overall, total costs for a coffee shop with 200 customers a day is between $38,000 and $55,500 on average.

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):

For more information on how much it costs to run a coffee shop, read our article here.

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 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 (from our financial model template for coffee shops).

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

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.

How to increase profits for a coffee shop?

It is possible to increase the profits of a coffee shop using various strategies and they include:

  • Upselling & Cross-selling: Teach your staff to upsell and cross-sell
  • Customer Loyalty Program: Such programs help with customer retention and allows to increase their lifetime value
  • Gift Cards: This strategy can open a new revenue scheme
  • Improved Interior: This can help to attract new customers & retain existing ones
  • Renewed Menu: Keep introducing new menu items depending on seasonal demands
  • Limit Wi-Fi Usage: Tricky but necessary to make space for normal users, and allow free Wi-Fi only when something is ordered
  • Host Events: Host events to attract new customers
  • Introduce Game: This will make people stay longer and order more
  • Re-evaluate Existing Resources: For example, remove slow-moving items from the menu, bundle certain products, increase shop accessibility, etc.
  • Use Social Media: Encourage people to share their experience at the shop on social media, and ask for genuine reviews
  • Adjust for Inflation: Increase prices as necessary to adjust for inflation
  • Expense Tracking: Track expenses efficiently and find areas where you can reduce overhead
  • Eliminate Wastage: Include refrigeration and avoid overstocking
  • Employee Scheduling: Don’t be overstaffed during slow hours
To learn more about these strategies, read our post here.

Download the Coffee Shop financial model template

  • Lender & investor-friendly
  • Easy-to-use Excel template
  • CPA-developed financials
  • 30+ charts and metrics