Why Cafes Are a Popular Business Choice
Cafes and coffee shops are one of the most popular small business ventures. The global coffee market is worth over $450 billion, with specialty coffee growing at 13% annually. However, 60% of cafes fail within the first 3 years—usually due to poor location, undercapitalization, or unrealistic projections.
A thorough feasibility study can help you avoid these pitfalls.
Cafe Startup Costs (CAPEX)
| Category | Small Cafe (500 sq ft) | Medium Cafe (1,000 sq ft) |
|---|---|---|
| Lease Deposit (3-6 months) | $6,000-$15,000 | $12,000-$30,000 |
| Build-out & Renovation | $20,000-$60,000 | $50,000-$120,000 |
| Espresso Machine | $5,000-$15,000 | $12,000-$25,000 |
| Grinder(s) | $1,500-$3,000 | $3,000-$6,000 |
| Other Equipment (fridge, dishwasher, etc.) | $8,000-$15,000 | $15,000-$30,000 |
| Furniture & Fixtures | $5,000-$15,000 | $12,000-$30,000 |
| POS System | $1,500-$3,000 | $3,000-$5,000 |
| Initial Inventory | $3,000-$6,000 | $6,000-$12,000 |
| Licenses & Permits | $2,000-$5,000 | $3,000-$8,000 |
| Working Capital (3 months) | $15,000-$30,000 | $30,000-$60,000 |
| TOTAL INVESTMENT | $67,000-$167,000 | $146,000-$326,000 |
Revenue Model
Product Mix & Pricing
| Product | Price | Cost | Margin | % of Sales |
|---|---|---|---|---|
| Espresso Drinks | $4.50-$6.00 | $0.80-$1.20 | 75-80% | 50-60% |
| Drip Coffee | $2.50-$4.00 | $0.30-$0.50 | 85-88% | 15-20% |
| Pastries & Food | $3.00-$8.00 | $1.50-$4.00 | 50-55% | 20-30% |
| Retail (beans, merch) | $12-$20 | $6-$10 | 50% | 5-10% |
Revenue Calculation
Daily Revenue = Transactions × Average Ticket
- Small cafe (500 sq ft): 80-150 transactions/day × $6-8 = $480-$1,200/day
- Medium cafe (1,000 sq ft): 150-300 transactions/day × $7-9 = $1,050-$2,700/day
Monthly Operating Costs
| Expense | Small Cafe | Medium Cafe |
|---|---|---|
| Rent | $1,500-$4,000 | $3,000-$8,000 |
| Labor (including owner) | $6,000-$12,000 | $12,000-$25,000 |
| COGS (coffee, food, supplies) | 25-30% of revenue | 25-30% of revenue |
| Utilities | $400-$800 | $800-$1,500 |
| Insurance | $200-$400 | $400-$700 |
| Marketing | $300-$800 | $600-$1,500 |
| POS/Software | $100-$200 | $200-$400 |
Key Success Factors
- Location is Everything: High foot traffic, visibility, parking/transit access
- Coffee Quality: Partner with a good roaster, invest in barista training
- Speed of Service: Morning rush efficiency is critical
- Atmosphere: Create a space people want to stay in (or return to)
- Food Program: Good pastries increase ticket size significantly
- Technology: Mobile ordering, loyalty apps, efficient POS
Common Mistakes to Avoid
- ❌ Underestimating build-out costs (always 20-40% over budget)
- ❌ Choosing a cheap but poor location
- ❌ Not budgeting for 3-6 months of losses during ramp-up
- ❌ Overcomplicating the menu
- ❌ Skimping on equipment (cheap espresso machine = bad coffee)
- ❌ Not having a marketing plan for launch