Understanding Coffee Shop profits: a Complete Guide

Opening a coffee shop is a dream shared by many coffee lovers, but one crucial question every aspiring entrepreneur should ask is: what are the real coffee shop profits? Or more practically: how much can you actually earn?

A business often less profitable than expected

The truth is that compared to other retail and food industries, coffee shop profits are often lower. It’s rare for the ROI (Return on Investment) to exceed 10–12%, whereas in other sectors like mid-to-high-end restaurants, it can go beyond 30%.

This means that even with a decent revenue stream, the actual earnings for the owner are often limited. There are many reasons for these modest coffee shop profits: low product margins, high overhead costs, and seasonal variations.

And yet, many still choose to open one. Why? Because of passion. Passion for coffee, for hospitality, and for creating a welcoming space. A coffee shop is not just a business; it’s a place where communities are built. This emotional connection often drives people to invest, even when profit margins are tight.

But can passion alone support a business? Let’s find out.

How much can you really earn?

To understand this better, let’s assume a standard scenario where your coffee shop generates a revenue of 100. Here’s how the costs typically break down in a mid-range café.

Variable Costs: Food Cost

The first thing to consider is food cost—the cost of ingredients relative to the final sale price.

Practical Example:

A cappuccino sold at €2.00 has an ingredient cost of about €0.30 (coffee and milk). This means a food cost of 15%.

Food cost varies greatly depending on the type of shop:

• A high-end café with premium pricing usually has a lower food cost ratio because of higher margins;
• A high-volume café with affordable prices will have a higher food cost percentage due to lower margins.

On average, food cost ranges between 20% and 35% of total revenue. Efficient stock management, smart sourcing, and recipe optimization are key to keeping this cost under control.

How to calculate cost in coffee shops: Staff and Wages

Labor cost is a major expense that directly impacts coffee shop profits, and it is not always proportional to revenue. For instance, you might schedule an extra barista expecting a rush, only to face a rainy day with few customers. Conversely, an unexpectedly busy day can lead to poor service quality if you are understaffed.

In any case, labor is essential and hard to cut without compromising service quality, speed, or hospitality. On average, labor costs range between 25% and 35% of revenue. When analyzing how to make your coffee shop profitable, you should focus on optimizing these costs through smart scheduling, productivity training, and using technology to automate repetitive tasks.

Fixed Costs: Rent, Utilities, and Coffee Shop Profits

Fixed costs remain constant regardless of daily foot traffic. To understand how to calculate cost in coffee shops, you must account for several structural expenses:

• Rent: This varies widely depending on the city and the specific location.
• Utilities: Electricity, water, and gas.
• Admin & Compliance: Licenses, insurance, and administrative consulting.
• Technology: Software subscriptions for POS systems, inventory, and booking tools.
• Marketing: Basic expenses to maintain visibility.

In regions like the Middle East, it’s common to see very high rents but low labor costs. In Europe, it’s often the opposite: more affordable rents but higher employee costs.

On average, fixed costs account for 25–40% of revenue. Managing these expenses is the first step in protecting your coffee shop profits. Key strategies on how to make your coffee shop profitable include choosing a strategic but sustainable location and investing in energy-efficient equipment to reduce long-term utility bills.

What’s left?

Let’s do a quick calculation:

• Food cost: 30%
• Labor cost: 30%
• Fixed costs: 30%

That leaves a 10% margin, from which you often have to subtract initial investments, equipment maintenance, financial costs (leasing, loans), extra marketing, or unforeseen expenses.

A slim margin, which in many cases makes this business more of a passion project than a purely financial decision. But with a strategic location, an outstanding product, effective communication, and conscious management, it is absolutely possible to stand out and build a sustainable, long-term business.

How to make your café more profitable?

1. Cost Control: Minimize waste, optimize inventory, and train staff to operate efficiently.
2. Diversified Offering: Host latte art or brewing classes, themed evenings, sell whole-bean coffee and branded merchandise.
3. Customer Loyalty: Develop a digital loyalty program, engage on social media, and create memorable experiences.
4. Local and Online Marketing: Collaborate with nearby businesses, maintain strong presence on Google Maps and TripAdvisor, and create SEO-rich website content.
5. Staff Training and Growth: A well-trained team boosts quality, speed, customer satisfaction, and overall profitability.

Even when profit margins are tight, it is possible to identify professional strategies to improve the financial health of your business. You can learn how to maximize your coffee shop profits by joining our specialized Coffee Shop Management courses.

One of the most important lessons we teach is that many of these strategies must be implemented before opening. The evaluation and ideation phase is fundamental: making the right choices during the planning stage is what truly determines how to make your coffee shop profitable in the long run.

Let’s find out how to balance these financial challenges with your vision.

How to calculate cost in coffee shops: Mastering Food Cost

Understanding your margins starts with a precise calculation of your expenses. How do you calculate cost of goods sold (COGS) for a café? The basic formula is straightforward:

Food cost = (Ingredient cost / Sale price) x 100

For example, if an espresso costs €0.15 in ingredients and sells for €1.50, your Food Cost is 10%. However, calculating coffee shop profits accurately requires a deeper analysis. To get a professional overview, you can use specialized tools for food costing, which help automate these complex calculations.

To truly optimize your margins, every single product should be analyzed individually, taking into account:

• Waste and yield: Such as leftover milk after steaming or spent coffee grounds.
• Accessory costs: Often overlooked items like take-away cups, stirrers, lids, and napkins.
• Unsold or expired items: Fresh pastries or milk that go to waste at the end of the day.

Monitoring your food cost regularly is one of the most effective ways to improve margins and make smarter decisions about your menu engineering and stock management. This data-driven approach is essential for anyone learning how to make your coffee shop profitable.

Conclusion

So, do coffee shops profit? Often only a little, sometimes not at all. But with passion, a clear strategy, and a deep understanding of your numbers, you can build a sustainable and satisfying business—personally and financially.

Running a coffee shop requires awareness, adaptability, and a lot of hands-on work. But it can become an entrepreneurial journey full of rewards, not just monetary but human as well.

Are you ready to run the numbers on your dream? Discover our online management course