How Much Money Is Needed
To Start A Cafe?
Assessing how much money is needed to start a cafe is both a science and an art. Prioritising your spending will help you avoid going over budget while still meeting all of your needs. Managing emotions is key to ensure that only what is required is spend on the cafe.
If you already have some ideas on your ideal coffee shop, punch in some numbers at our cafe setup cost calculator to evaluate your startup and operational cost.
A successful business is more than just having an idea in your head; it requires careful planning, development, and strategic thinking, all of which add up to start-up expenditures that come at you from all angles.
You'll want to know how much it will cost to open a cafe in the near future. It's difficult to make an educated guess on how much money you'll need to put down because there are so many variables.
If you're trying to get started on a tight budget, plan for all of your cafe's big expenses as soon as possible. Make sure you have accurate estimates for everything from the lease, renovations, kitchen and front-of-house equipment, payroll, menu items, and the cost of inventory.
There is no point in giving any specific figures because the cost will vary depending on your location and the cafe concept (grab-and-go, co-working or cat cafe). Instead of focusing solely on the initial investment, consider the long-term effects of your choices and strategies on your cafe's start-up costs.
We breakdown the cost from a cloud kitchen (ghost kitchen) concept to a full fledge coffee shop setup with a structured coffeeshop startup cost breakdown.
Developing a business plan. . .
Creating a detailed business plan is the first step in beginning any new business. A business plan is more than just a request for financial assistance. ' The process of starting a business can be broken down into a series of steps. A good time to think about whether or not you want to create a coffee business.
Read more on creating your business plan:
First decide on your coffee shop value proposition.
Then download the Free Coffee Shop business model Canvas to start writing your business plan
Location and Space
For the longest time, your location is one of the key components (COVID changes that*). Thus, choosing the appropriate site is key decision and many times the ONLY decision by a cafe owner.
The often heard adage "location, location, location", it is the idea to lease a storefront in a popular area to boost your chances of early success but at the expense of rental costs.
Everyone wants to be in the prime location but being there will push up your startup cost considerably. Here is why:
When you pay a higher rent, your start up cost increases. This is because you are paying a higher deposit (landlord decides the months of deposit to go keep in order for you to lease the location).
And your operating cost also goes up. You will need to sell more coffee just to pay for the rent.
*Cloud kitchen or Ghost kitchen allows one to sell coffee in an area without the need to have a physical retail space. Read about the attractiveness of: the online food delivery market size.
Coffee Machines
The most challenging part of figuring out what equipment you need and how much you need for a coffee shop or other food and beverage in the first place is most challenging.
The expense of putting up all of the high-quality equipment needed to just make that cappuccino's or pretty latte can easily exceed $10,000 or more (for a cafe, coffee machine is a must). Some coffee related equipments you would need:
- Commercial coffee grinder
- Espresso machine
- Drip coffee maker
Although there are some free on loan coffee machines model, it requires a commitment to certain amount and blend of coffee beans.
Other Equipments...
Commercial kitchen equipment can be overwhelming, and it's important to meet as many vendors as possible in order to find the best fit for your cafe.
It will be much easier to choose equipment if you already have a menu in mind and a cafe theme, otherwise, one will be very susceptible to the many suppliers/vendors' sales talk. For a typical cafe, you will generally need this:
- Stove for open cooking
- Filtration system for water
- Freezers
- Ice-machines
- Ovens \ Refrigerators
It is also very easy to over spend and acquire top of the line equipments in the name of having better productivity for your cafe. The free calculator that we have build will help you break down and show the gross amount you need for a cafe setup (adjust the value for your kitchen equipment to lower your startup cost!).
Utilities...
The expense associated with paying your utility bills. While you are establishing your new store, you will need to turn on the gas, electricity, and water, which will add to your startup costs.
Other costs includes monthly fumigation, insurance etc.
The renovation cost...
Whatever decor you choose, transforming a blank-slate rental into something like a coffee shop will need effort. You may be required to pay for new lighting, cabinets, and decorations, in addition to functional installations such as coolers, freezers, and refrigerated display racks.
Marketing. . .
Marketing is equally important for a new coffee business wanting to build a name for itself. You can hire a marketing consultant or use tools to easily reach out to your customers.
You can record customer data, view purchase history, and develop marketable audiences using email marketing integration with MailChimp.
Here is what you can do to sell coffee online (via Instagram) based on a hypothesis we set up and execute successfully.
Manpower...
This is a perpetual woes for all cafe (F&B) owners. It is not only expensive, in many places such as Singapore, it is very difficult to get manpower!
We wrote an article giving you an idea on how much coffee shop employees make, to give you an idea on how much you should allocate for this expense segment.
Summary
Can you make money from starting a cafe?
Yes! Regular coffee drinks have an average margin of 15%–20%, while specialty coffee drinks have an average margin of 12%–18%. The drinks alone makes good money for a lot of cafe owners.
But...
Opening a cafe is a dream come true for many people. In order to get started, you'll need at least $150,000.
Cafés require a lot more capital than $150,000 to get up and running. You'll have to wait for months or perhaps years to see a return on your investment.
So...
Starting modestly and progressively increasing your spending as your budget allows is a good rule of thumb. Managing your firm's scope while operating within tight margins is attainable by gradually growing your operations rather than planning for unrealistically high quantities of income up front.
Learn more about running cafes/F&B in our F&B classes. Conducted by Mr Ebenezer Heng, seasoned F&B veteran and tertiary institution lecturer.
By Douglas
About US | OCM Profile
OCM (OnCoffeeMakers.com) was started in 2007 with the first webpage about coffee machines. And for a number of years, we focused on helping people find their desired coffee machine (we still are helping folks with that! So, if you are looking for coffee machines for office or restaurants - check out the link).
In 2010, we started getting enquiries on restaurant marketing and we start to help food and beverage brands with their marketing. Below are campaigns and events that we have done over the years:
OCM's campaigns: F&B Marketing Ideas by OCM
OCM's Events: F&B Industry events by or with OCM
Check out this restaurant marketing guide to learn more about the many campaigns and companies we have worked with.
Since then, we have also created many marketing workshops and classes for the F&B industry. Many of these modules are still running in tertiary institutions such as Temasek Polytechnic Skillsfuture Academy and also ITE College East COC classes, below are some snippets of our lectures and workshops:
OCM’s F&B workshops: Food and Beverage Marketing Lectures | Workshops - click to watch classes on customer journey map, JTBD and more.
So, if you are looking for industry practitioners to help you scale your coffee or F&B businesses, do drop us a message or book an appointment. Do also check out our various social media platforms on regular F&B and coffee market updates:
For regular coffee (F&B) related videos: OCM Youtube
For Daily Coffee Inspiration (fun coffee content): OCM IG
For insights into the coffee (F&B) industry: OCM LinkedIN
PS: For the coffee lovers, we continue to share coffee articles (and videos) and have also started a free coffee class section (with free online coffee training supported by coffee partners).
