Coffee Shop Profitability for the First Year

[cheetah79857985]

I've seen it mentioned time and time again that one should expect to make ZERO money for the first 6 to 12 months when opening a new coffee drive-thru/cafe. Am I misunderstanding something, or is this exactly correct? You actually LOSE money for the first 6-12 months? Why and where does this turn-around come from?

Or, does this reference to paying back debt? All being relative, if you borrow 100$ to open the business, you wouldn't be able to pay that back for 6-12 months?

I am confused on two accounts. One, why would anyone would open a business expecting to LOSE money for any amount of time. Wouldn't you set yourself up for success right from the start? Two, why does this seem to simply be an industry expectation? Have there really been no stores that have opened and been profitable from day one? I'd be astounded if that were the case, so are the ones that have been profitable simply considered a lucky fluke?

An un-related question, it seems that a good indidcation of daily traffic can be found by using somewhere between .5-1% of the daily traffic count of the area you are located. That half percentage difference can be huge. How do you best determine which side of the spectrum to use?

Thank you for your time everyone.

 

[Tophie2]

Cheetah, yes I too was in the niave catagory. How can you not be profitable? That the most f@#$%^ng ridiculous thing I had ever heard.

My how my outlook has changed. Dramatically. And not for the better.

I borrowed 23k and used 75k of my own $. I had purchased a very profitable coffee shoppe but 41 days to close I had to relocate. I should have killed the deal then.

Oh nooooooooooooo, I knew it was the best product in town and could make it work anywhere.
How wrong was I.

I had sales figures of 260,000$ for the previous location.

I figured I could at least get 1/3 of that else where right?
Wrong.

There is a theory that a buisness friend of mine said to me many years ago.
It is very hard to make a million dollars, and it is twice as hard to keep it, because everybody wants a piece.

This is the absolute fact.

I am in a plaza in line with no competition, I have very very little waste, I have no payroll, I have no health insurance, my COGS to date are 32% voted best coffee shop in St Augustine and I am still losing my ass.

It really is frustrating. There will be other members with different opinions, but remember, having optimism and having everything you want does not count.

I have what I consider a very fair breakeven point, open 12hrs a day and it is just me. Every day. All day. And business sucks. Bad. Real bad. This is the most stupid mistake I have made in my life and I considered myself a halfway intellegent guy.


Evertime I turn around somebody wants more money for something
Fuel sur- charge
Delivery fee
increased deposit
rentage increase
product price change
FOG
permit increase
tangible tax
maintance fees
millage rate increase
minumim on orders
on and on and on and on

I guess I am not smart enough to figure out how it's done, or how to embezzel, or how to cheat for profit.

As far as traffic is concerned forgetaboutit, you can use it for your business plan, which on paper looks good, as far as real life application................................ Location Location Location, thats what you need.


And money, lots of it, and expect to lose it all.

 

[amabuff]

Tophie2 - I surely understand your frustrations! I opened a mobile business this year- and am still stuggling at times! My biggest mistake was the debt I had to take on - if you take that out of the equation my bottom dollar looks pretty good. So Cheetah I would say if you are thinking of opening something try to get your personal finances in order first, and then do whatever you can not to have to borrow, for as like Tophie says, there are way more hidden costs than you realize opening up! If it means it will be longer till you get started, then be patient (I did NOT follow this advice myself - ). Experience is a good teacher! Just my 2 cents -

 

[Alun_evans]

This is good stuff, nothing makes sense more than reality and comments from those who have gone before you. What is the famous quote about learning from history? I would say that unless you have a retail outlet as an extension of your core business (ie like a roaster adding a retail branch) then you will have to generate volume through the tried and true method of establishing a name in the market. As Tophie2 as said, sometimes even having the best name in the market may not be enough in some coffee markets... sad and painful to be sure. Liquidity is very, very important and the estimates on just how much cash you need are nearly always worked on the low side of low. When we started our roasting business we burned through approximately 250% MORE capital than we projected we would need...thankfully we pulled through the other end ok but from that experience we have since setup retail businesses only when we had plenty of reserves- ie no borrowing needed. I am not saying do not borrow, only be very realistic. I would say do not set up a business if you dont have real liquidity of a minimum of 70%

 

[ElPugDiablo]

I've seen it mentioned time and time again that one should expect to make ZERO money for the first 6 to 12 months when opening a new coffee drive-thru/cafe. Am I misunderstanding something, or is this exactly correct? You actually LOSE money for the first 6-12 months? Why and where does this turn-around come from?

For most shops yes. You actually LOSE money for the first 6 - 12 months. You should see a gradual increase in revenues so that after one year you no longer pay out more than you take in. If by 18 months you are still in the red, time to exit.

Or, does this reference to paying back debt? All being relative, if you borrow 100$ to open the business, you wouldn't be able to pay that back for 6-12 months?

Nope. If you are super busy, you can pay it all back in the second year, but not in the first year.

One, why would anyone would open a business expecting to LOSE money for any amount of time. Wouldn't you set yourself up for success right from the start?

Because nobody know who the heck are you. People are not going to give you money simply because you have high expectation.

Two, why does this seem to simply be an industry expectation? Have there really been no stores that have opened and been profitable from day one? I'd be astounded if that were the case, so are the ones that have been profitable simply considered a lucky fluke?

Be astounded. I know of no one that is profitable from date one. I know plenty of places that are profitable after 6 months. And there is very little luck involved.

An un-related question, it seems that a good indidcation of daily traffic can be found by using somewhere between .5-1% of the daily traffic count of the area you are located. That half percentage difference can be huge. How do you best determine which side of the spectrum to use?

Foot traffic or car traffic? Take the lowest number and take half of that number. Always plan for the worst case scenario.

 

[coldskeet]

First you should have researched and accounted for hidden cost in your business plan. Who gave you a loan without that information? Second, You are in St. Augustine FL right? You are a male, and you are a barista. If you look at statistics almost 85% of drive through coffee shops are visited by male customers. I don't know about you, but I don't want to drive through anywhere for anything (especially coffee) and have my order handed to me by some dude!! May wanna look into hiring a female barrista... I've been to St. Augustine and sex sales.

 

[PinkRose]

If you look at statistics almost 85% of drive through coffee shops are visited by male customers. I don't know about you, but I don't want to drive through anywhere for anything (especially coffee) and have my order handed to me by some dude!! May wanna look into hiring a female barrista... I've been to St. Augustine and sex sales.

Hello "coldskeet"

Welcome to the Coffee Forums website.

You said, "almost 85% of drive through coffee shops are visited by male customers." Do you remember where you found that information?

Is there a particular reason why you don't want a guy (dude) handing you your order in a drive thru? I was surprised to read that. I didn't think it mattered to anyone now-a-days! I know some great male baristas and (hamburger flippers) who would certainly take offense to your comment!

Rose