How to Open a Coffee Shop and Grow It to 19 Locations (2024)

by Brandon Boushy
How to Open a Coffee Shop and Grow It to 19 Locations (2024)

Whether you personally love coffee or are curious about capitalizing on the booming coffee and specialty drink market, you’re not wrong for thinking starting a coffee business could be the answer to all life’s problems.

Before opening super-successful Woods Coffee, Wes Herman was traveling all over the U.S. for work, not seeing his family as much as he’d like, and wanting to empower his kids to live better. You’ll never believe how he did it.

We started the company as a homeschool project to teach our four kids how to start a business. We hoped they would love it so much that we could work together for a long time as we grew this new brand.

The family started serving coffee in 2002 when their homeschool project got a $23,000 loan. Since then, Woods Coffee has steadily grown to 19 shops over the Northwest.

Here, Wes shares coffee business secrets like avoiding tying your funds up in real estate and buying used whenever possible. By the end of this article, you’ll know how to start the coffee shop of your dreams with any budget.

If you want to know how to start a coffee shop, keep reading to find out how Wes started his multi-million-dollar coffee empire without spending his own money.

What is a coffee shop?

Woods Coffee Blaine Location

A coffee shop is a small restaurant, cart, kiosk, or drive-thru that primarily sells coffee, tea, and other refreshments.

Popular styles of coffee include:

  • Espresso
  • Latte
  • Cappuccino
  • Cold brew

A coffee shop might also carry small snacks like cookie cakes. A coffee shop owner might also consider opening a café, which tends to have more tables and a full menu of food in addition to coffee.

Keep reading to learn about the coffee industry.

How to open a coffee shop business

Opening a coffee shop can be an exciting and rewarding venture, but it also requires careful planning and execution. You’ll need to perform the following steps to start a coffee shop:

  1. Research the coffee shop industry
  2. Create a coffee shop business plan
  3. Create a business structure
  4. Get your business licenses
  5. Fund your coffee shop startup costs
  6. Choose the right coffee supplier
  7. Plan the coffee shop layout and decor
  8. Buy coffee equipment and furnishings
  9. Hire employees
  10. Create a menu
  11. Start coffee shop marketing
  12. Comply with all regulations
  13. Soft launch your coffee shop
  14. Host a grand opening
  15. Manage your coffee shop business
  16. Provide excellent customer service
  17. Improve your coffee shop performance

Get ready to learn how to open a coffee shop.

Step 1. Research the coffee shop industry

The first step to starting a coffee shop brand is to research coffee businesses to understand how to place yourself within the industry. You’ll have two considerations during the market research phase:

  1. You’ll want to understand coffee industry earning potential and trends on both a national and local level.
  2. Choose a strategic location with high foot traffic, accessibility, visibility, and proximity to other businesses.

Identify how to make your new coffee shop unique

Opening a coffee shop can be a lucrative business, but a new coffee shop needs to understand the startup costs, earning potential, fixed and variable costs, and marketing strategies of a successful business.

Companies like Starbucks, Dunkin, and Tim Hortons make hundreds of millions, if not billions, of dollars each year.

That’s awesome for them, but an independent coffee shop will take years to reach that point. Here, we help you explore your business opportunities for becoming a successful coffee shop starting from scratch.

Cautionary tale about coffee shops

We use IBIS World for all of our industry reports. They provide multiple reports about coffee shops, and there is some contradictory information.

We used the following coffee shop reports in the Industry Section:

  • INDUSTRY REPORT OD6098: This report covers the retail market for coffee in the U.S. It was last updated in April 2021.
  • (NAICS) REPORT 72221B: This report covers coffee and snack shops in the U.S. It was last updated in January 2023.
  • INDUSTRY REPORT OD5552: This report covers coffee store franchises in the U.S. It was updated in January 2023.

We combined data from multiple reports because Starbucks gets nearly 40% of U.S. coffee and snack shop revenue. In addition, the NAICS report indicated that the industry operates at a loss when you exclude Starbucks.

The chart below is the coffee shop data from OD6098 and NAICS Code 72221B. This gives you a more adequate view of coffee shops by the numbers than including just one report’s information.

StatisticCoffee Retail MarketsCoffee & Snack ShopsCombinedStarbucksCoffee Retail Markets Plus Coffee & Snack Shops Minus Starbucks.Coffee & Snack Shops Minus Starbucks
Revenue$46,200,000,000.00$54,500,000,000.00$100,700,000,000.00$18,500,200,000.00$82,199,800,000.00$35,999,800,000.00
Profits$3,400,000,000.00$1,900,000,000.00$5,300,000,000.00$2,439,200,000.00$2,860,800,000.00-$539,200,000.00
Profit Margins7.36%3.49%5.26%13.18%3.48%-1.50%
Number of Locations455,92989,867545,79615,991529,80573,876
Number of Businesses342,12072,136414,2561414,25572,135
Location Rev$101,331.57$606,451.76$184,501.17$1,156,913.26$155,151.05$487,300.34
Business Rev$135,040.34$755,517.36$243,086.40$18,500,200,000.00$198,428.02$499,061.48
Loctions Per Business1.331.251.32159911.281.02
Rev Per Employee$24,200.00$59,100.00$35,522.27$46,020.40$33,787.58$69,197.65
Number of Employees1,912,595922,2462,834,841402,0002,432,841520,246
Average Number of Employees Per Location4.1910.265.1925.144.597.042151714
Profit Per Employee$1,780.95$2,060.37$1,869.59$6,067.66$1,175.91-$1,036.43
Profit Per Location$7,457.30$21,142.35$9,710.59$152,535.80$5,399.72-$7,298.72
Profit Per Business$9,938.03$26,339.14$12,794.02$2,439,200,000.00$6,905.89-$7,474.87

How much does a coffee shop make?

The average coffee shop location makes between $150K and $600K per year with 4-10 people working at the shop, but the exact amount will depend on the coffee shop concept, foot traffic, and number of employees.

If you’re opening a coffee shop or coffee cart as a solo entrepreneur, know that you might make as little as $24K a year, though.

Pro Tip: Plan ahead from the start. Scaling and acquiring an existing coffee shop is how most of the industry improves revenues and profit margins.

How much does a coffee shop make a month?

Depending on the coffee shop location and other factors, you can expect to make somewhere between $40K and $50K per month, but the average Starbucks location approaches $100K monthly.

These numbers will fluctuate seasonally and based on the number of days in each month.

Independent coffee shops will obviously make less in monthly sales than a Starbucks until they develop a reputation and get repeat customers.

How much does an average coffee shop make a day?

An average coffee shop makes between $410 and $1,650 per day, while the average Starbucks makes nearly $3,200 per day.

Coffee shops tend to have the most business when people go to work, during lunch breaks, and after work. Of course, a great coffee business in a place like an airport or casino might have different high-traffic times.

Get ready to find out if a coffee shop is profitable.

How profitable is a coffee shop?

It’s getting harder to measure profits because business owners have established that the ideal profit amount is zero to minimize their tax consequences. That said, a coffee shop can make up to 50% gross profit and 17% net profit.

Wes shared the following about the profit potential of a coffee shop:

You can operate a small business very efficiently in coffee, and if you get a lot of customers, then you can make some serious dough.

In Wes’s case, that’s definitely true considering he owns a multi-million-dollar coffee shop empire!

How much do coffee shop owners make?

Estimating how much coffee shop owners make requires analyzing various financial reports since a business owner may make money in the following ways:

Salary: $59,440 as General Manager or Comparable Position
Tips: 8-20% of revenue
Dividends: Up to $21,142 paid out above salary
Benefits: $17,565
Total: $59,440 to $120,000

You might make much more if you open a coffee shop like Woods Coffee. They have 19 stores and make millions per year. In that scenario, your salary would be comparable to a CEO or Operations Manager, tips would be removed, and dividends would be much higher. Check out our interview with Wes below to learn more:

Find a great location with reasonable rent

Just because a spot is centrally located doesn’t mean it’s the right coffee shop location.

High-traffic locations usually have sky-high rents and cutthroat competition. Meanwhile, a coffee shop starting as a coffee kiosk in a mall will have much lower costs and cover its operating costs quicker.

Pro Tip: Try to see potential in a location that nobody else appreciates. Wes has this to say about his Boulevard Park location, the crown jewel in his entire chain:

As an entrepreneur, you must trust what you see. It will always be different than what others see. There were quite a few businesses that passed on Blvd. Park because they couldn’t see it working. We saw it from day one, never wavered, and built one of the finest coffee shops in the world.

When you do your location analysis, consider the following factors:

  • Demographics
  • Regulations and zoning
  • How close you are to your target market
  • How far away suppliers are
  • Competition
  • Crime rates

Pro Tip: Learn more about picking locations.

Step 2. Create a coffee shop business plan

Virtually every entrepreneur will tell you to write a business plan when opening a coffee shop.

Wes is no different. However, his coffee shop business plan was only one page long:

I always like to think that a business plan can be put on one sheet of paper. It’s the difference between just driving aimlessly without a map versus having a map and understanding where you’re going. You’ll get there faster, you’ll get there more directly, and you won’t be distracted trying to figure out where you’re supposed to be going.

The beauty of the one-page coffee shop business plan is that it pares down your idea to its barest essentials. This helps you to focus on your vision with laser-sharp intensity. It makes opening a coffee shop so much easier.

elevator

You’ll want to include the following:

  • Your Elevator Pitch: Why you are opening a coffee shop and why investors should care
  • SWOT Analysis: An analysis of your coffee shop’s strengths, weaknesses, opportunities, and threats
  • Business Model: How your coffee shop will make money while increasing revenue and profit—the more disruptive to the industry, the higher the likelihood that your coffee shop succeeds
  • Unique Value Proposition: What makes you different from other coffee shops?
  • Target Demographic: Proof that you’ve performed market research
  • Budget: Financial analysis to help you manage coffee shop startup costs and ongoing expenses
  • Pricing Strategy: How will you approach pricing your coffee shop menu?
  • Marketing: A list of strategies you’ll use to market and become a successful coffee shop
  • Funding Plans: Statement of how much funding you’ll need, how you’ll get it, and how you’ll use it

Pro Tip: You can create supplemental materials such as income and cash flow statements for potential investors but save them separately.

Step 3. Create a business structure

A business structure is just how your business is treated from a legal standpoint. It can be considered a separate entity, like a limited liability company (LLC) or corporation. Alternatively, sole proprietors and partners’ personal and business interests remain legally connected.

Most business owners opt for an LLC through their Secretary of State website because it’s less costly than a corporation and limits their losses to the startup costs should the business fail. Your coffee business will also need an employee identification number (EIN) to file taxes.

Pro Tip: Learn more about the different types of businesses.

Step 4. Get your business license

SBA Office

Complete all necessary paperwork to register your business with the appropriate local and state authorities. This will normally include:

  1. A tax permit
  2. Local business license
  3. Fire inspection
  4. Health inspection
  5. Food serving license
  6. Liquor or beer license (if you plan to serve alcohol)

Check with your city and state to establish exactly what you need.

Step 5. Fund your coffee shop startup costs

How to start a coffee shop with no money

Wes started Woods Coffee using none of his own money. Here’s how he made it happen:

In those early days…we were on a very, very, tight budget. We didn’t have the money, and so we needed to find the money, and we needed to be creative on how we launched the first store. So, the initial budget was $23,000—that’s what we needed to pull this business off. We didn’t have the dough, so we went out and asked someone to partner with us that had the money. They weren’t coffee drinkers, but they decided that this would be a good investment, and it was.

That’s an excellent way to start a coffee shop with no money down! Of course, if you have savings or other sources of funding to work with, even better.

Cost of opening a coffee shop

Wes thinks it would cost $500,000 to start a coffee shop today.

In our interview with Joe’s Fine Coffee, Joe mentions that he was able to start his coffee shop for just $100,000. You can find that interview here:

Our research shows that it costs about $275,000 to open a coffee shop. However, this will vary based on your location, business needs, and several other factors.

To determine your budget, you need to figure out what it’ll cost to get your venture off the ground and calculate your ongoing costs. This will consist of the following three types of expenses:

  • Capital
  • Fixed
  • Variable

Capital costs are things you only buy once (unless there is something from your equipment list that breaks down). These are things like:

  • Espresso machines
  • Cash registers
  • Ice makers
  • Building (if you buy instead of rent)
espresso machine

Fixed costs are expenditures that stay the same from month to month. An example of this is rent.

Variable costs are expenses that fluctuate depending on how much business you do. These are things like labor costs because the more customers you have, the more employees you’ll need to hire.

Don’t forget ongoing costs

High startup costs mean that you’re going to need plenty of startup capital to get your business off the ground. Here’s what Wes has to say about that:

Most entrepreneurs forget about working capital and the need for a reserve to get you through the beginning stages of when you start your business… In most people’s cases, they have to reserve enough money to get them through the first year to pay themselves.

Set aside enough money to cover your expenses for six months (if not longer). An excellent strategy to minimize how much money you’ll need is only securing enough cash to take you to the next stage of your business.

This is known as “the lean startup” and will dramatically increase your chances of success.

Run your coffee shop as a side hustle

You can save money by holding down another job so you don’t have to siphon funds from your fledgling business (that’s what Wes did):

I worked for a good five years in another job so I wasn’t a drag on the company and I was able to keep the money flowing into the company and able to make the company successful before I started drawing salary. So, we actually got to store number six before I ever started earning money out of the company. And I worked another job during the day, and then at night I’d make all the deals, and put these things together, and before you know it, we have six stores.

How are you going to fund your venture?

With all this in mind, consider how you’ll fund your coffee shop. Your plan can include personal savings, loans, investors, or a combination of these.

Crowdfunding graphic

Are you going to take a crack at crowdfunding or find a friend willing to invest in your idea like Wes did? Or, perhaps you have relatives who can loan you some startup dough?

You can always seek out venture capital or try to get a bank loan. Whatever funding source you turn to, you’re going to need enough moolah to get through the inevitable lean times.

Pro Tip: If you think you need loans or investors, check out our blog on how to get a business loan.

Step 6. Choose the right coffee supplier

Serving up a superior coffee experience is undoubtedly the most crucial aspect of your business. That’s why you’ll need to find an excellent source for your coffee beans, milk, syrups, equipment, and other necessary supplies.

In the beginning, it’s probably best that you outsource the roasting of your beans.

When trying to find a supplier, look for:

  • Superior product
  • Price point that’ll allow you to maximize your profits
  • Exceptional assortment

Here’s what Wes advises:

You certainly can hire somebody to roast your coffee for you. In our case, we wanted ultimate control over the process, the quality, and the consistency. And we can do that with our own coffee beans coming from specific countries.

How we control the roasting process is really important because we want to know that the process is done correctly, that it’s fresh, and that it’s done in the way we want it to be done.

So that’s why we roast our own coffee. We didn’t originally—that was a process that we had outsourced in the beginning years—but eventually, we were able to bring it in house and roast all of our own coffee, and that’s been a huge advantage for us.

As your profits grow, you might want to start thinking about roasting in your shop so that you have a unique product to offer your clientele.

Step 7. Plan the coffee shop layout and decor

Woods Coffee Interior

Plan the layout of your coffee shop for both functionality and aesthetics. Consider factors like seating arrangements, counter space, and decoration. Check out some of these designs for inspiration.

Pro Tip: Want to get started with a coffee truck or cart? Get all the info you need from our Food Truck Ultimate Buying Guide.

Step 8. Buy coffee equipment and furnishings

Purchase essential coffee shop equipment like an espresso machine, grinders, brewing equipment, refrigerators, and furniture. Make sure they meet industry standards and regulations.

Wes says:

It’s really critical to have the right machines.

Check out part one of our interview with Wes below.

Try to get high-quality equipment, even if it’s not new. If you get the cheap stuff, you’ll only end up regretting it later on.

Here’s the list of equipment you’ll need to make your small coffee shop a resounding success:

  • Espresso machine
  • Coffee grinders
  • Drip coffee machine
  • Blender
  • Coffee brewers
  • Airpots
  • Hot water dispenser
  • Reach-in refrigerator
  • Ice machine
  • Bakery display case
  • Three-compartment sink
  • Frothing pitchers
  • Frothing thermometers
  • Tea and coffee mugs
  • Espresso cups
  • Cup, lid, and straw organizers
  • Microwaves or ovens (if serving hot food)
  • Point of sale (POS) system

As your business grows and your services expand, you might need other coffee shop equipment like coffee roasters.

One of the biggest lures of a gourmet coffee shop is the atmosphere. Create a relaxing physical space with the right décor, and make sure your café has lots of comfy seating, too.

Step 9. Hire employees

Hire baristas, kitchen staff, and any other necessary employees. Ensure they are trained in coffee preparation, customer service, and health and safety protocols.

Stellar customer service is crucial when you own a coffee shop, so be selective when hiring new staff.

Although your baristas must know how to make beverages correctly, they should also know a little about the coffee itself. These are things like the flavor profiles of each specialty coffee and where the beans come from.

During training, you might want to teach employees about latte art, quality beans, and how to encourage customers to keep coming back.

This is need-to-know information for coffee connoisseurs, so your baristas must be armed with this knowledge.

Pro Tip: Learn more about hiring before you open your own café or coffee shop.

Step 10. Create a menu

Woods Coffee Food

Create a menu that includes a variety of coffee beverages, tea options, snacks, and possibly light meals. Consider catering to different dietary preferences and restrictions.

When you open your coffee shop, you need to consistently serve the best coffee and snacks. If you succeed in doing this, you’ll have customers flocking to you.

When it comes to creating your menu, keep in mind that you’re not reinventing the wheel—you’re taking the best food and drinks offered by the top coffee shops and finding ways to make them better.

There’s no way a coffee shop can remain economically viable on coffee sales alone. That’s why you need to offer bakery items. Having a delicious assortment of quality baked goods near the cash register will tempt the customer to buy.

Try to come up with at least a few menu items that’ll dazzle customers with their originality.

Here’s what Wes has to say on this subject:

It’s how you can make something creatively different in this space that attracts people and maybe attracts a different market segment than you’re normally pulling.

Check out part two of our interview with Wes below.

Step 11. Start coffee shop marketing

Create a strong brand identity, including a memorable logo and a cohesive visual theme.

Develop a marketing plan that includes an online presence (website, social media), promotions, and possibly partnerships with local businesses.

You want to whip customers into a buying frenzy even before you open your doors.

One way to do that is a direct mail or email campaign sending out coupons for free coffee. Do a little research to find out what sort of marketing would be best for your coffee shop.

Here’s what Wes has to say about that:

We actually don’t spend a lot of money [on] marketing. It’s changed over time. So when we first started, we were looking at what are other people doing, how are they marketing themselves, and we realized we didn’t need to do a lot of marketing, we didn’t need to put advertisements in newspaper(s), that was a thing, back 18 years ago… there was no Facebook, there was no website you could put up, and people would understand what you’re doing. So, we actually realized that the best form of advertising for us was putting multiple locations within a certain geographic territory.

When he first started out almost 20 years ago, his only marketing was opening up new coffee shops! Which, of course, is an atypical way to market yourself. Today, with the advent of social media, Woods Coffee has changed its marketing tactics:

[Now], social media is big for us. We’re pretty dominant in our space in this area on social media, and that’s been a lot of fun. It’s a great vehicle for us to show some of our creativity and how people understand who we are and what we offer.

Step 12. Comply with all regulations

Obtain all necessary permits and licenses to operate a food and beverage business in your area. This may include health department permits, business licenses, and signage permits.

There are permits and licenses you’re going to need before you can start serving customers. This is a long and drawn-out process, so make sure you start early.

Here’s what you might need:

  • Business and liability insurance
  • Food and drink handler certificate
  • Health inspection certificate
  • Fire certificate
  • Kitchen insurance
  • Certificate of incorporation
  • Business license
  • Employment agreement
  • Building permit

Step 13. Soft launch your coffee shop

Chaotic Coffee Shop

Conduct a soft opening to test your operations, gather feedback, and make any necessary adjustments before the official opening. These are normally days when family and friends are invited to try the menu.

This will give your coffee business a chance to work with the POS system and inventory management system.

Step 14. Host a grand opening

Plan a grand opening event to generate excitement and attract customers to your coffee shop. Contact the local news or a PR firm to help you get the news out. Run paid ads with a promo.

Pro Tip: At the grand opening, encourage reviews by using a QR code to send customers directly to your shop’s review page.

Step 15. Manage your coffee shop business

You’ll need to establish efficient operating procedures for ordering supplies, scheduling employees, managing inventory, handling finances, and maintaining equipment.

There are restaurant management systems that combine many of these into one system, or you can choose systems that work best for each process.

Pro Tip: Learn more about restaurant management systems.

Step 16. Provide excellent customer service

Woods Coffee Barista

Focus on providing excellent customer service, quality products, and a comfortable atmosphere to encourage repeat business and positive word-of-mouth.

Your customer service at a coffee shop is heavily impacted by a few things, including:

  • Speed of service: Make sure to have enough staff to get people their coffee in a timely manner. To give you an idea, Dunkin serves customers in less than three minutes, while Starbucks takes about four minutes and 30 seconds.
  • Correctness of order: A study by Restaurant Business Online found that over 25% of orders have issues and 42.3% of errors were because restaurants messed up. The rest were due to delivery issues. Make sure to get it right.
  • Friendliness of staff: A polite, attentive staff goes a long way. One of the things many restaurants do that should be avoided is trying to dominate the order process. Let your customers order unless they communicate they need help.
  • Consistency of drinks: Make it easy for your staff to make the drinks the same every time. Provide recipes and utensils that show how much of each product to use.
  • Mobile ordering: Let people order online to save time.
  • Delivery apps: Find ways to make sure your cold drinks are cold and hot drinks are hot when they are delivered to a customer. You can’t count on the delivery driver to get that right.

Step 17. Grow your coffee shop business

Although opening multiple stores was always a part of the Woods Coffee business plan, it happened much sooner than Wes thought it would.

That’s because the opportunity to open a second coffee shop fell into their laps in the form of a perfect location they couldn’t let pass by.

They seized this opportunity and opened their second store. It was also a way to show the world they were aggressive, growing, and owned their market.

Put a second store in a 6,000-resident town, and you’re going to get a lot of attention. The bold move drove sales in both stores, and they both grew dramatically!

You can do the same thing—just make sure you open your second spot in a carefully planned way. Wes told us having multiple business locations isn’t always the best approach:

It has to be part of your business plan. If you follow your business plan and have it laid out exactly what you wanna do, then follow it. You can’t just change midstream. Some businesses are much more successful with just one location. In our case, it just happens to be part of our growth plan and part of our experience that we have multiple locations, and it was part of that original plan that we’re executing today. But the idea of ‘How do you scale? How do you grow?’—it’s really important. We don’t put a lot of money into real estate and buying things. We’d really like to keep our capital fluid and moving. And if we can open more stores, we feel that’s better for us.

Opening a coffee shop FAQ

Waiter at the coffee shop

What is donut shop coffee?

Donut shop coffee is typically an Arabica bean that pairs well with donuts. These can be anywhere from a light to dark roast, but they will normally be slightly sweeter than other coffee and work well with cream or milk.

What is a coffee shop bar?

A coffee shop bar is a section in a coffee shop where customers can order and enjoy alcoholic beverages in addition to coffee and other non-alcoholic drinks.

What is a café?

A café is similar to a coffee shop but will normally serve slightly more elaborate food than a coffee shop (without having either the size or the selections of a full restaurant).

Go start a successful coffee shop

If you do the proper market research, write and follow a solid business plan, and focus on continuous improvement, you should find success when you open a coffee shop.

Wes was able to open a coffee shop and grow it to 19 locations. That means you can, too!

What’s the signature drink you’ll use to build your multi-million-dollar coffee empire?


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Brandon Boushy

Our lead writer, Brandon Boushy, has been a business consultant, business owner, and marketer since 2017. Brandon is committed to the pursuit of knowledge and continuous improvement. He measures his success based on how many business owners he helps succeed. Brandon started Raising Daisy Photography in 2017 with Stephanie MacIver. His role was focused on marketing, estimating, and managing customer interactions. He is also a freelance business researcher and has provided over 3,800 hours of business research for more than 50 clients. His blogs are read by over 2 million people every year. Brandon told us: "My motto is never quit learning. I bring this motto to everything I do, and find writing the best way to help share the data I obtain to assist business professionals pursue their dreams." He empowers companies to improve their communication and brand awareness through creative content strategies and blog writing.

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Comments

Gloria Lamoa@ 2023-01-16 02:55:14

Need to start coffee shop I have no funds

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