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. This guide provides the financial analysis and industry benchmarks you need to evaluate your cafe concept before investing.
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
For detailed guidance on building accurate revenue projections, see our startup financial projections guide.
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 |
Related food service business guides: restaurant feasibility study, bakery feasibility study, and food truck feasibility study.
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