What No One Tells You About Opening a Coffee Shop Until You Lose Money
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Hey beautiful humans, BrandON here. Let’s talk about a little dream that so many of us carry in our caffeinated hearts: opening our own coffee shop. You see your favorite spot packed with people ready to pay five bucks for a latte that might only cost around a buck-twenty to make, and you think, “that’s got to be an easy money-printing machine!” But hold up—if it was really that simple, why do so many cafés close down before they can even celebrate their first birthday?
The truth is, coffee shop success isn’t just about perfectly pulling espresso shots or swirling milk hearts in latte art. Nope. It’s about knowing your numbers. I’m talking about that annoying yet oh-so-crucial “financials” stuff. Trust me, these digits can make or break you faster than you can say “double-shot, soy macchiato.”
In this article, I’m going to break down the three key costs that can determine if your café thrives or tanks: Gross Profit, Labor, and Rent. So stay caffeinated and let’s make sh** happen.
1. Know Your Profit & Loss (P&L)
First things first: open your accounting software—or that stack of paperwork your accountant gave you—and check out your Profit & Loss Statement (P&L). The P&L has two main sections:
Sales & Gross Profit (the top section).
This tells you how much money your products are bringing in, minus the direct ingredient costs (a.k.a. the “Cost of Goods Sold” or COGS).Operating Expenses & Net Profit (the bottom section).
This is where expenses like labor, rent, marketing, and that fancy yacht (kidding, but hey—dream big!) live. Subtract those costs from your gross profit and you’ll find your Operating Profit (a.k.a. EBITDA).
Translation for us humans: The P&L helps you see if your business is actually profitable and by how much. It also helps you figure out what your café is worth if you ever decide to sell—cool, right?
2. Gross Profit: The Lifeblood of Every Latte
Let’s say you sell a flat white for $5. After you take off sales tax (say 10%), you’re left with about $4.55. Then deduct the cost of coffee beans, milk, paper cup, and lid—roughly $2.00—leaving $2.55 in gross profit. That’s around 56%. In theory, that’s sweet!
But in reality, your café doesn’t just sell coffee. You’ve got pastries, sandwiches, retail coffee bags, bottled drinks—some more profitable, some less. Once you average it all out, many coffee shops end up with a gross profit of 50% to 55%. If you dip below 50%, you’ll struggle to make enough net profit after covering overhead expenses.
Action Steps to Boost Gross Profit
Calculate the profit on everything: Yes, it’s time-consuming, but weigh and cost every single item on your menu. Then you’ll know which items pump up your profit and which drag you down.
Don’t fear price increases: Raise your prices at least once a year to offset creeping ingredient costs. Trust me, a small bump in price—done steadily—usually doesn’t scare away your regulars.
Weigh pre-made vs. in-house: Sure, pre-made items cost more, but might save on labor. Do the math to see which approach works best for your shop.
3. Labor: The Budget Buster
At 787 coffee, labor can be a silent killer. In many regions, wages can chew up 40% or more of your sales. Unlike ingredient costs, labor doesn’t automatically adjust to your daily sales. If it’s slow on Tuesday and you’ve still got a full roster of staff on the clock, you’re bleeding dollars. We Have 18 locations in NYC where rent and labor costs are higher than the rest of the nation*
How to Manage Labor
Roster to a budget: Don’t just schedule the same shifts every week because “that’s how we’ve always done it.” Start with a daily sales forecast, then allocate staff hours to hit your target labor percentage.
Be flexible: If certain days are slow, brainstorm ways to boost traffic—maybe balloons outside or a special event. Or consider simplifying your menu so fewer staff can handle the rush.
Invest in systems: Time-tracking software, training programs, and streamlined processes can save you hours (and dollars) in the long run.
4. Rent: Location, Location, Location (aka Occupancy)
We all want that sexy corner spot with floor-to-ceiling windows. But prime locations come with prime rent. Occupancy costs can swallow 15% or more of your sales, which is huge if you’re not pulling in enough customers.
Assessing Your Rent
Aim for 15% or less: That’s a good target for occupancy as a percentage of your sales. If it’s higher, you need to increase sales quickly or renegotiate.
Fixed cost means risk: You can’t turn off the rent tap when business is slow. A high rent is only worth it if foot traffic (and conversions!) are high enough to justify it.
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5. Making Sh** Happen
So, humans, if you’re dreaming of opening a coffee shop—or if you’re already knee-deep in espresso grounds—don’t be fooled by that $6 price tag on a latte. There are sneaky, crucial costs that can eat into your profit margins: ingredients, staff wages, and the roof over your head. The good news is, once you know where your money goes, you can start taking actionable steps to fix it.
Remember:
Keep an eagle eye on Gross Profit (COGS).
Control that Labor cost by scheduling smart.
Keep your Rent in check, or make sure you’re bringing in enough sales to afford it.
Armed with these insights, you’ll be more than just an Instagram-friendly café. You’ll be a profitable, thriving business that keeps co-workers paid, customers caffeinated, and your entrepreneurial heart beating strong.
Now go out there, humans, and do what you were born to do—brew up good vibes, serve great coffee, and make sh** happen.
To Summarize…
Ready to take it to the next level?
I’ve got a bunch of resources and tips on soybrandon.com to help you rock your coffee business. Come hang out, learn the ropes, and let’s keep brewing success together.
Stay awesome,
B- ON
Let’s create something unforgettable—one connection, one coffee cup, one human at a time.
YOU Got This!
