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The Complete Guide To Coffee Shop Profit Margins (And How To Raise Them)

A whopping 400 billion cups of coffee are consumed worldwide every year—with 450 million consumed in the U.S. every single day. Barring water, coffee is the most popular drink on the planet, but despite this, coffee is still a notoriously difficult business. Profit margins are typically low, and increasing them isn’t necessarily as simple as selling more coffee.
Let’s break down how coffee shop profits work so you can build (and refine) your business to be financially sustainable.
In this article, we explore:
  • The numbers behind coffee shop profits
  • 6 tips for increasing your profit margins
  • Why roasting your own beans might be the most profitable decision you’ve ever made
Grab yourself some java and let’s get started.

Just How Profitable are Coffee Shops?

💸 The average profit for a cafe ranges between 2.5% (Chron estimate) and 6.8% (Specialty Coffee Association study), depending on where you’re getting your data from. For coffee shops that also roast their own coffee, the SCA study puts them at an 8.79% profit margin—a meaningful increase. 
For example, a coffee shop that generates $500,000 in revenue in a year with a generous 6.8% margin only comes out with $34,000 in profit. But the average coffee shop that roasts their own beans (saving on coffee costs) and profits 8.79% ends up with $43.950 in total profit—a nearly $10,000 increase.

How to Calculate Your Profit Margin

Coffee shops might be lower margin, but when done right, can provide a lifetime of reliable profit (and some of the most meaningful and satisfying work in the world). It all starts with getting clear on your margins so you can improve them. Here’s how to do it:
(Net Profit * 100%) / Total Revenue = Profit Margin
  1. Assume $10K revenue in a week.
  2. Subtract your costs of goods sold or COGS (46%, or $4,600).
  3. Subtract your operating costs like rent and wages (50%, or $5,000).
  4. Equals your net profit ($400).
  5. ($400 x 100%) / $10,000 = 4% profit margin.
Essentially, for the average coffee shop generating $10,000 in revenue in a week’s time, only $400 remains as net profit after all expenses. Remember, these numbers are specifically for coffee shops and cafes that do not roast their own coffee (they buy wholesale from someone else).
Margins in the coffee industry are tight. Your goal is to increase sales and decrease costs. We’ll explore how to do that later—for now, let’s dive into the gross profit margin on coffee products.

What’s the Gross Profit Margin On Coffee Products?

💸 The average gross margin on coffee products specifically is 54%.*
It is a healthy margin. But the overall low transaction value (sub $7 for most coffee shops) and additional expenses of running a physical store explain why the actual profit margin is closer to 2.5% to 6.8%. That’s why we recommend coffee shop owners also stock higher‑margin products that also increase the overall ticket size, like pastries and sandwiches. 

How Much Do Coffee Shop Owners Make?

💸Based on our network, owners of independent, single‑location coffee shops earn between $40,000 to $60,000 per year. With two or more locations, owner salaries can rise to $100,000 or more. 
This is very location‑dependent, of course, with owners often earning more in high cost‑of‑living cities. Coffee shops that also have a roasting operation with wholesale sales typically lead to higher owner salaries as well.

6 Strategies Coffee Shop Owners Can Use to Increase Margins

1. Roast Your Coffee In‑House

Roasting your own beans saves you 30% to 50% on coffee costs and can triple your sales. That’s because 1) customers prefer in‑house blends and 2) You can sell them your beans.
When you reinvest those same dollars you were spending on wholesale beans into roasting your own, you invest money directly back into your business, create a fresher product than before, and increase revenue potential across multiple channels.
Roaster retailers (cafes that roast their own beans) that serve their own coffee average an 8.79% profit margin. It really does pay to roast. Not only does your margin grow, but you also have complete control over costs and quality. Roasting in‑house something you might be interested in? That’s something we can help you with—without crazy startup costs.

2. Add High‑Margin Food Items to Your Menu

Adding higher‑margin food items to your menu makes it that much easier to turn a profit. You don’t have to open and operate your own bakery inside your cafe—instead, source premade wholesale items like:
  • Macarons
  • Sandwiches
  • Smoothies
  • Croissants
Pick foods that don’t require additional prep. If your team has to spend fifteen minutes prepping a sandwich by hand it’s not very efficient. But pre‑packed foods that customers can grab and go frees you up to position your employees where they are needed most.

3. Create a Culture of Recommendations and Upsells

Upselling increases revenue by 10% to 30%. The best way to do that is train your baristas to do it regularly and rewarding them when they succeed.
It’s as simple as reminding and educating your staff on good food pairings and asking customers if they’d like a larger coffee, or adding a pastry to their order, or getting something for the road on their way out. It’s also another way to better your customers' experience by highlighting products or flavor combinations they might have otherwise missed.

4. Increase Efficiency to Minimize Time and Food Waste

Engage staff during downtimes with projects and incentives that enhance profitability, like updating retail displays or monitoring inventory to make sure all ingredients are used or sold. With a Bellwether Roaster, idle staff can even roast and package coffee behind the bar to keep retail coffee bags in‑stock.
You can also invest in your internal processes to enable your staff to work more efficiently and serve more customers per hour. Automatic tamping devices, clear brewing parameters for coffee makers, and recipe booklets that are easy to find in a flash are great ways to minimize questions, hesitations, and service slow‑downs. 

5. Branch Out to Adjacent Products

Coffee Bean & Tea Leaf is a great example of a coffee shop that branched out to their pet‑loving Korean audience. They identified that a large portion of their customers are pet lovers and capitalized on this by selling:
  • Pet backpacks and clothing
  • Pet water bottles and toys
  • Even pet food
Not sure whether your customers are cat‑lovers or dog‑lovers? Don’t worry about it. Try selling branded tumblers and mugs as a safer choice. High‑profit margin items like these can make a difference in your store’s revenue.

6. Offer Educational Classes to the Public

Most coffee shops aren’t busy 24/7. But that doesn’t mean you can’t drive revenue during dead times. One option might be to run classes at quiet times in your schedule. You could offer barista training or coffee tasting sessions for curious customers.
It doesn’t even need to be coffee‑related. Consider renting out your space after hours as a meeting space for businesses or communities—like the local board gaming society, for example.

Turn A Higher Profit by Roasting Coffee In‑House

The core of any successful coffee business is, well, coffee. How good are your beans? A poorly roasted bean might mean the difference between someone coming in just once or being a loyal customer for the next 20 years.
Coffee shops that want to set themselves apart from the competition need to be roasting their own beans in‑house. With the Bellwether coffee roaster, you can roast incredible beans that your customers will love for an investment of less than $10,000.
Oh, and it won’t take you six months to learn how to be an expert bean roaster—we can get you there in a matter of weeks. Customers using Bellwether roasters increase their sales by three to five times.