So, How Much Does A Coffee Shop Owner Make?
I’m not sure if anyone that’s reading this blog has ever thought about opening their coffee shop.
Well I did, and I actually opened one.
There were many people (mostly other coffee shop owners) that told me not to do it, but I did it anyways. I didn’t listen. And I’m sure you won’t listen to me either. But I wanted to at least give you some insight to what to expect. I read a bunch about the stuff like this, but before I opened my business, it really did not register to me. And while I was operating my shop, I was too deep in day-to-day stuff to really analyze how my shop was doing. After closing, and looking at the coffee business with closer detail, I feel like now I understand it a lot better.
There are 4 major categories of expenses in coffee shop.
1) Rent
2) Cost of Goods Sold (COGs): This is like the cost of roasted coffee, milk, tea, packaging (cups/lids/boxes/pastry bags), pastry you bring in from a bakery, etc.
3) Labor: Some calculations include labor in COGs, but for today’s demonstration, let’s keep this category separate.
4) Overhead: This is any kind of expenses that is sort of baked in such as: business insurance (worker’s comp included), POS subscription program, alarm system, utilities, linen services, etc.
Rent
Let’s say you and I decided to open a coffee shop together. It’s modestly sized at 1,000 square foot. In a modestly busy part of a town, retail leases go for about $4/sq. ft. There are units that go as high as $10/sq. ft., but let’s say ours is $4 per. These lease agreements are probably gonna be what’s called “Triple Net” lease, which means the tenant also pays for insurance, maintenance, and property tax for that unit. It can go anywhere from $0.50/sq. ft. to $2/sq. ft. Let’s just say for this building, the NNN is + $1/sq. ft. This means that your monthly rent is $5,000.
COGs
I’m not gonna get super detailed about breaking down COGs because it varies so much from shop to shop. For example, how much are you paying for a pound of roasted coffee? Some shops may pay around $12/lb, while another shop pays around $14/lb. Is your cup double-walled and custom printed with your logo? That will cost more than your white, unlabeled hot cups you buy at Restaurant Depot. The pastry you’re bringing in from a third party vendor? You’re buying a croissant for $2.49 and selling it for double that ($5.00) at most—there are often delivery fees, and some of the fancier croissants set you back like $3.50 a piece.
We’re gonna just assume that your COGs are around 30% of your gross sales. It is hard to bring COGs down by a huge percentage because you will inevitably use more products as your business gets busier— you will save some money from bulk ordering and not having to waste a lot of things, but just know that 30% COGs is actually a realistic number.
LABOR
Labor is a tricky thing to calculate for a small shop that just opened. As the business becomes more stable, you will have a better understanding of how much percentage your labor is in comparison to your gross sales. Labor should be below 30%, hopefully closer to 20%. Let’s pretend that labor is at 25%.
OVERHEAD
Overhead is where most owners do not account correctly because it’s not something you see visibly most of the times. It accounts for stuff like utilities (water/electricity/internet/phone), any retainer fees for an accountant, alarm system, business insurance, stuff like that. Overhead should be under 10%, let’s just say 8% for this exercise.
Let’s put everything together:
COGs, labor, and overhead combined are 63%. So if rent was at 20% of your monthly gross sale, that means you will be profiting 17%! Great!
Now, how much coffee do you have to sell for your $5,000 rent to be 20% of your monthly sales? $25,000 in sales. We have 30 days in a month roughly, so that’s around $833.33 of sales a day. Not bad!
You will have 20% of $833.33 to spend on your labor, which means you have about $208.33 per day. If you’re paying someone $18/hour, you can spend 11.57 hours of labor per day. Except, as an employer, you also need to pay payroll tax to your state. Which, in California, is around 15%. Which means you can only spend about $177,08, or 9.83 hours per day on staff. So either you work the bar all 7 days to reduce labor, or that 20% labor we assumed will not be working out. Remember that 17% profit we calculated above? That will look more like 12% or even less. If you’re making 12% of $833.33/day average, you will be making solid $99.99 per day. Multiply that number by 30, you are making $3000 a month. And you have to be responsible for everything that happens in your business. So… next time you’re grabbing a cup of coffee, and you see the owner there working behind the bar, give them a hug. We all need one.
Oh, did I mention how much it costs to build out a coffee shop? That will be for the next blog post.