On the Line / Operations / How to Run a Coffee Shop

How to Run a Coffee Shop

If you’re an early bird who thrives on community and caffeine, opening a coffee shop might be for you.

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DISCLAIMER: This content is provided for informational purposes only and is not intended as legal, accounting, tax, HR, or other professional advice. You are responsible for your own compliance with laws and regulations. You should contact your attorney or other relevant advisor for advice specific to your circumstances.

There are so many types of coffee shops. Some are inspired by diners, with friendly but speedy service, drip coffee beverages, and breakfast sandwiches to-go. Some have a strong Italian influence, offering espresso beverages and imported sodas. Others, like third-wave coffee shops, strongly emphasize the sourcing and flavor profiles of several different types of coffee and sometimes partner with local bakeries to serve next-level croissants.

No matter what kind of coffee shop you want to open, running one will always involve early mornings, people management, and plenty of caffeine. 

In this piece, we’ll go over the fundamentals of running a successful coffee shop in 2022. New owners will come away with a good understanding of the various operational costs and moving pieces involved with owning a coffee shop. Longtime coffee shop owners will pick up some new tips on growing their business and setting it up for long-term success, even amid all the challenges in the industry today. 

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8 Tips for Managing and Optimizing Key Coffee Shop Operational Costs

1.Keep a close eye on paying rent and overhead

Finding a great location is a critical step in opening a coffee shop. But, don’t let the perfect space sweep you off your feet if there are any red flags with the price, the lease, or the landlord. Paying rent will be a monthly reality of operating your business, so consider negotiating your lease and working with a lawyer to make sure you’re signing a contract that won’t cause you trouble down the line.

2. Maintain legal permits and licenses

All food and drink businesses need licenses and permits to get off the ground. Some of these documents will also need renewal every so often. Look into local regulations and permitting needs of your area, and find a lawyer to help you if you hit any snags.

Here are the 10 Licenses and Permits Needed to Open a Coffee Shop - give it a read and start checking off the requirements for your coffee shop.

3. Find, train, and retain coffee shop staff

Your team is the bedrock of your operations, so treat them as such. New coffee shop owners should plan to pay their staff a living wage for their area - even if that’s well beyond minimum wage - and find ways to provide benefits like health care coverage. 

For longtime coffee shop owners, increasing staff pay and adding benefits can be difficult because coffee shop margins are already tight. However, coffee shops everywhere are testing out new staffing and operational models, raising prices, negotiating with vendors to get better deals, and generally finding a way to make it work. Creating a supportive work environment with as stable and generous pay as possible is the best way to combat turnover and strengthen your business long-term.

Watch our free video course on restaurant staffing to learn more about creative staffing models and hospitality businesses doing right by their staff.

4. Regularly analyze food costs

Coffee, like liquor, has a huge markup. On average, it’s 80%. This percentage alone can help financially savvy coffee shops generate enough revenue to become profitable.

Whether you’re importing your beans from an Italian brand, sourcing them through a local coffee roaster, or buying your coffee from a wholesale hospitality industry supplier, keep an eye on the prices and ensure they stay within a reasonable range for your business.

If you’re a cafe and bakery making fresh baked goods in-house, it’s important to track the cost of all your ingredients and menu items. If an item’s primary ingredient is getting too expensive, it might be time to find a new supplier or swap it out entirely. And if you’re seeing that an item or two is often going to waste, it might be time to modify or nix it entirely.

5. Market your coffee shop with paid and free strategies

Coffee shop marketing can be a lot of fun and a strategic method of increasing revenue. Social media pages are a great place to start with opportunities to show off your coffee’s best offerings with snazzy photos and videos. No matter what, be sure to keep your coffee shop website and your Google listing up to date with accurate hours of operation. You can also try setting up an email newsletter for your regulars who sign up for your loyalty program, including promotions, events, art shows, and team updates. Posting photos and videos on social media, tagging your location, and including relevant hashtags is another excellent way to draw people to your shop.

6. Design your coffee shop interior and create an inviting atmosphere

As mentioned above, there’s quite a bit of variety when it comes to styles of coffee shops, so choose a color scheme, a few materials you like, some decorative pieces like art and plants, and the right furniture. Altogether, your coffee shop design should align with the feel of your business and should also extend into your online presence since that’s where many of your customers will get their first impression of your coffee shop.

7. Allot budget for professional services

Espresso machines are a big investment in opening your coffee shop and the most important piece of equipment in your business. They also require servicing and repairs. So, work with a trusted repairman who knows your espresso machine well. Apart from espresso, your cafe will also need other professional services. An accountant, possibly a lawyer, coffee sourcing partners or importers, marketers, web designers, and social media managers can all help your business grow.

8. Invest in the best coffee shop technology and equipment

Aside from your espresso or coffee machine, your coffee shop will likely need an ice machine, dishwasher, cups and mugs, and cutlery. You may also need pastry equipment, an oven, and a toaster or two. Take the time to learn about coffee shop equipment needs so that you guarantee your shop has what it needs to succeed and satisfy customer demands. 

You’ll also need a great POS system because pen and paper just don’t cut it anymore. The best coffee shop POS platforms let your customers order ahead so they can grab and go and feature loyalty programs to encourage one-time visitors to become regulars.

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How to Successfully Run a Coffee Shop With No Experience

  1. Go to coffee shops all around your city. Find out what food they’re serving, what drinks are popular, and how they’re staffing their business.
  2. Shadow a coffee shop owner for a few days if possible. You’ll learn more on the go, watching everyone work, than you could almost anywhere else. 
  3. Learn from online courses about coffee and restaurant management.
  4. Learn from your staff. If you’re new to the industry, your staff will be more experienced than you will be, so approach all interactions with humility and learn from your team.

How Longtime Coffee Shop Owners Improve How They Run Their Businesses

Many longtime restaurant owners hit a profitability plateau after running their restaurants for many years. But costs continue to rise, and the industry is as competitive as ever, so it’s important to stay agile and try new things.

There’s a lot that longtime coffee shop owners can do to grow their sales and margins, and manage their costs to increase profitability and invest in growing the business. 

Tips to grow sales and improve margins

  1. Coffee shop marketing. Though a lot of your business may come from neighborhood walk-bys, it’s still important to invest time into marketing your coffee shop. Post photos and videos on your social media, partner with local organizations, sponsor events or send an email newsletter - and track how well these initiatives work.

  2. Add a loyalty program. People love a punch card (or a virtual one). Keep guests coming back with an enticing loyalty program with great rewards. 

  3. Partner with a nearby bakery. If you don’t have a pastry pro on staff, no problem. You can supply their coffee while they can supply you with delicious baked goods to sell. Not only do you build your industry community this way, but you’ll also cross-promote your businesses and expand your customer bases.

Tips to manage costs while increasing revenue

  1. Dive into your data. A reliable coffee shop POS offers a detailed reporting and analytics dashboard. This dashboard features insights like which drinks are selling the most, which hours of the day are looking too slow, how many of your customers are using that order-ahead feature, and how your business is doing this month compared to the previous months or year.

  2. Track and question controllable costs, manage supplier relationships, get alerted of price changes, and prevent food waste with a great inventory platform.

  3. Increase prices. The economic climate has led to a situation where virtually everything has gone up in price, so most customers will understand if you have to increase your prices, too. 


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Operating Costs Breakdown & Benchmarks for Successful Coffee Shops

It costs between $80,000 and $300,000 to start a coffee shop. Once you’re up and running, there are a lot more operating costs to consider. They can fit into five categories: 

  • Labor cost
  • Food and coffee cost
  • Overhead
  • Professional services
  • Technology and equipment

The average restaurant makes between 3-5% profit margin, and coffee shops can expect roughly the same. The average profit for a small, independent cafe is only 2.5%, though chains can go up to 15%. Coffee shops have smaller staff (aka lower labor cost) and much higher margins on their products (as the markup on coffee is much higher than that of food.) Yet, the average check size at a coffee shop is much smaller than at a restaurant, meaning lower revenue overall.

A very busy cafe can be quite profitable. But, if sales are dipping, profitability will dip very quickly too. Therefore, coffee shops need to prepare for slow days and holidays, building a sturdy financial plan to get through those times. 

How to Stay Up to Date on Restaurant Industry Trends

  1. Restaurant industry publications. References like On the Line, CoffeeTalk, and Barista Magazine can provide you with the news and updates you need to stay informed on the coffee shop industry.
  2. Social media pages. Follow your peers and fellow coffee shops in your area on Instagram and TikTok.
  3. Social media hashtags. It’s also a good idea to follow industry-specific hashtags like #latteart, #thirdwavecoffee, #coffeeshops, and #espresso to see how people all over the world are putting their spin on current trends.

Keep Your Coffee Shop Customers Buzzing

With a great team and the proper tools, your cafe can be a neighborhood fixture for years to come. Learn more about how a coffee shop POS can level up your operations and help you keep your customers caffeinated.

Related Restaurant Resources

Restaurant Metrics Calculator
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Restaurant Metrics Calculator

Use this free calculator to calculate the key restaurant metrics needed to understand the health and success of your business.

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