Keep the Drinks Flowing: How to Make Cafes and Coffee Shops More Profitable
If you’re wondering how to make a coffee shop profitable, start with the basics.
Whether you are opening a coffee shop for the first time or hoping to grow your existing concept, there are some areas of low-hanging fruit that can help make your business more profitable — such as updating your menu pricing strategy or consistently breaking down costs to track fluctuations in coffee prices.
But what about more creative, out-of-the-box ways to appeal to your customer base and strengthen your brand while increasing revenue?
In this article, you will learn how coffee shop owners can help encourage more profits by embracing a brew-first concept — expanding their beverage options from specialty coffee to craft cocktails and beer.
Toast is the point of sale (POS) system built for your coffee shop, cafe, and bakery. We've conducted research on key trends in coffee shops, cafes, and bakeries, and we’re sharing it below. We’ll also cover some of the other interesting ways coffee shops and cafes can explore additional revenue streams from offering SKU-based inventory to catering online ordering.
Restaurant Profit and Loss Statement Template
Understanding the brew-first trend in coffee shops and cafes
Beer, wine, and liquor have been showing up more frequently in the coffee industry for a few years now. It’s a trend Bon Appetit highlighted years ago.
“It used to be that you’d spend about six minutes in a coffee shop. Enter. Order. Pay. Add your cream or sugar (or just leave it black!). And get the hell out. But that was when coffee shops were places that sold coffee and not much else. Now that you can grab a drink that’s as good as the specialty coffee you’re drinking, there’s not much reason to leave.” — writes Alex Delany
Just as coffee and common cafe menu items are fuel for the day, alcohol beverages are fuel for the evening. Craft beer, fun wines, and creative cocktails can lead you into this brave new world — enabling operators who lean into this brew-first approach to expand their hours with evening offerings.
Craft beer has especially ground out its place in coffee shops. There’s similar craftsmanship in brewing a great cup of coffee and a crisp pilsner — and that likely translates into an expanded, likeminded customer base.
Expand your brews to help bring in the bucks
The brew-first concept can offer plenty of benefits to operators — especially if you’re looking to boost revenue or exploring strategies that may potentially help make your coffee shop profitable.
Here are a few factors that contribute to the success of brew-first concepts.
Revamping your cafe or coffee shop business plan with extended hours
Cafe and coffee shop operators may be able to lean into literal “money left on the table” by simply increasing their hours of operation. Even if all you do is stay open another three hours, this could be a way to bring in more sales and boost key metrics such as gross profit, revenue per square foot, overall transactions, and more.
Toast analyzed transactions at cafes and bakeries over the last year and found that Monday and Tuesday are the slowest days, averaging about 10% and 9% fewer transactions than the weekly average.
On the flip side, Toast’s research found that the busiest days at cafes and bakeries are Saturday and Friday, averaging 15% and 9% more transactions, respectively, than the weekly average. These busy days could be a great opportunity to run some high-margin specials that can help boost weekly performance.
The choice is up to you whether to buck the slow day trends and increase sales on those days, close down on your slow days and focus on maximizing your busy days, or go for both.
Doubling down on high-margin beverages
Coffee shop profit margins can be significantly more favorable than the restaurant industry average — around up to 70% to 80% margins.
Average bar profit margin can hit a similar number of around 70% to 80%.
Brew-first concepts essentially double down on the high-margin products shared across coffee shops and bars. This can create a fruitful endeavor for coffee shop and cafe owners — especially if it aligns with your restaurant target market demographics.
Sustaining increased average ticket spends
Toast’s research shows that guests spend $6 per beverage on average in cafes and coffee shops that offer just coffee. That number skyrockets over 65% to $10 per beverage for cafes offering alcoholic beverages.
That’s a significant increase in spend per beverage. And it showcases what you may be able to achieve by implementing your own flavor of a brew-first concept at your business.
Checking the boxes on your path toward a brew-first concept
Shifting your business into a brew-first concept doesn’t have to be a total overhaul.
It can be as simple as getting the required permits for the alcohol you choose and then simply stocking and selling it. But to really do it right, there may need to be some additional upskilling and investment.
There are some important considerations to keep in mind. Coffee shop owners may need to focus on managing startup operating costs in order to capitalize on the full potential of the concept.
Upskilling baristas into bartenderistas with training on bar best practices
Expanding hours and adding alcohol to the menu can require new skill sets for your team.
It’s possible that you’ve employed some hardcore baristas that have no experience pulling draft beers or mixology. Luckily, there may not actually be that wide of a skills gap between baristas and bartenders. It’s the same general movements and philosophies, just different ingredients and equipment.
A simple staffing solution could be to keep your existing crew intact and build a new team for the afternoon and evening hours. Or you may be able to tap your existing team members for the new services by providing some upskilling on preparing and serving the new beverages.
Managing new startup operating costs and ongoing costs tied to brew-first concepts
The expanded drink menu may likely lead to higher operating costs, given the additional cost of goods sold (COGS) and increased labor requirement. Cafe operators and your teams may need to be mindful of costs and consider ramping up cost control tools in order to protect these above average profits.
For COGS, you may consider tuning into your restaurant supply chain and tracking ingredient prices as they fluctuate from month to month. Invoice automation can be a great tool to implement for helping with COGS tracking.
For labor costs, you may consider thinking through if/how current wage/salary structures translate into evening and catering shifts. Are tips currently involved? Will they be in the new hours? An automated, restaurant-specific payroll solution may be able to alleviate any stress here and help operators make better decisions.
Expanding beyond coffee shop equipment and adding new bar equipment kitchen equipment, as well as glasses, dishware, etc, may all contribute to prolonging the breakeven point for this new venture — which can be totally fine if it’s driving increased sales, there just needs to be shared awareness of these costs.
Other tactics to help brew up new revenue streams
Outside of offering alcohol, there are a few more creative ways coffee shops can explore new revenue streams and create loyal customers, including:
Supplementing coffee shop revenue via merchandising hats, mugs, bags of beans, and more
Retail can be another answer for how to make a coffee shop profitable. This can mean a ton of different things, so let’s dive in.
Perhaps the most obvious retail play for cafes is selling coffee beans — especially if you’re roasting your own high-quality beans or at least curating them from select coffee roasters. Coffee shops that sell a lot of pour overs, distinct espresso, and cups of single-origin brews may be particularly well off to package and sell beans.
Custom syrups could similarly be an effective retail item. They can be great upsell items for your lattes and cups of coffee — so why not try them out on your shelf too?
Grab-and-go items can be another retail play for coffee shops. These items could include premade salads and sandwiches, canned coffees and lattes, and baked goods.
Similar to selling beans, coffee shops that serve hardcore coffee lovers may consider selling coffee brewing equipment — anything from filters and pour over instruments to milk frothers and other hand tools and even electric kettles, coffee grinders, and other powered products.
Brand merchandise may be another retail avenue for coffee shops to consider. Textiles such as t-shirts, hats, and other clothing accessories can be a great way to foster loyalty and enable your regulars to give your brand some love. Success here may depend on the existing strength and aesthetics of your coffee shop branding — essentially whether or not you have the vibes.
Operators going down this road may want to test different iterations of their coffee shop logo and aesthetics.
Then there’s potential to curate and sell your own retail offerings that have nothing to do with your food or brand. This approach can be a great way to develop partnerships with creators in the area, such as artists, jewelry makers, and other customer crafters making quality products. Or you could simply find a product niche that you know your customers will purchase and go for it.
Capitalizing on catering services to help boost overall profitability
Catering and hosted events can be another potential route when wondering how to make your coffee shop profitable. You can set catering menu prices in order to precisely control profit margins and ensure any events you take on are worthwhile.
Approximately four out of five small-to-medium-sized cafes and bakeries derive a portion of their sales from catering — generating 12% to 32% of their revenue from this channel, according to a recent Toast survey*.
Expanding into catering will require some reconfiguring of your business plan to accommodate this new sales channel. There may also be additional permits and licenses you’ll need depending on your location.
And you’ll want to think through your catering order intake process. It should be as easy as possible for potential customers to submit an online catering order request. Operators may consider a platform to enable and manage these requests while tying into the same backend — such as how Toast’s new Catering and Events offering integrates with the Toast Point of Sale (POS).
Hosting events can be another source of revenue
You’ve already got the space — why not see if people would be interested in paying you to rent it out.
Similar to catering, renting out your space for private events can be a great way to bulk up revenue. This tactic of course will result in you being closed to the public, so you may consider a minimum fee that’s inline with what you’d typically make on the day.
Another consideration is whether you’ll work with outside caters or mandate that anyone renting your space must work with your business for food and drink.
Pour it all together with restaurant management systems purpose-built for growth-focused coffee shops and cafes
A powerful POS platform can help owner/operators:
Explore new revenue streams (like retail and catering mentioned earlier)
Speed up service with things like kiosks, handhelds, or mobile ordering
Delight guests and create regulars with email marketing and loyalty programs
Picking the right POS for your cafe, bakery, or coffee shop is key to help ensure you can unlock new growth without creating an operational headache. Check out this page to learn more about the products and features we recommend for cafes and bakeries on Toast.
*Methodology: To help better understand the restaurant industry, Toast conducted a blind survey of 847 vSMB/SMB restaurant decision-makers from May 26, 2023 to June 20, 2023. Respondents were not made aware that Toast was fielding the study. Panel providers granted incentives to restaurant respondents for participation. Using a standard margin of error calculation, at a confidence interval of 95%, the margin of error on average is +/- 3%.
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which are not guaranteed, and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Forward-looking statements are based on our current expectations and assumptions, which may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties, and changes and we assume no obligation to update or revise any forward-looking statement, except as required by law. Specific factors that could cause actual results to differ materially from forward-looking statements include, but are not limited to, the effect of economic conditions in the United States and globally, general industry conditions and the other important factors disclosed previously and from time to time in Toast’s filings with the Securities and Exchange Commission. Toast does not guarantee you will achieve any specific results if you follow any advice herein.
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