How much do I need to sell to pay $8K/month rent?

[coffeedog]

I'm looking to open a coffee shop in the mountains of Northern California. I am looking at a site with a drive through. The rent is high, $8000/month. I could probably have it ready to open for about $20K in equipment and updates. It used to be a fast food place. I estimated that I would need to sell 200 cups of coffee per day to make a go of it. There is a Sbux in a grocery store right next door that does $10K/week on a good week, sometimes up to 12. However, when there is severe weather revenue there has fallen at times to $1K/week. I suspect this would be pretty rare, maybe a monthly gross of $10K a couple of times per winter.

There is a second site that I think I could rent for less than $1K. No drive through but it might be possible to add one. I think I could get this place ready for about $30K. The site probably would have 1/4-1/3 the traffic of the one mentioned above.

What are some ideas/measures I can use to choose the right place? I would also consider buying a shop that is up and running if I could find one in an area where I want to live.

I'd be happy with a net income of $3000/month, as I have other passive income.

 

[MntnMan62]

You just need to sit down and add up all of your costs. That means your investment costs which can be amortized over time. So if you invest $20,000 in equipment and updates, amortize that amount over say 5 years which works out to $333 per month. And then add up your ongoing operating expenses. Besides rent you have insurance, salaries of employees, utilities if they aren't included in your rent, any maintenance and upkeep expenses that you would be responsible for such as landscaping, snow removal, etc. And make sure there aren't other hidden costs in the lease such as percentage rent or real estate tax increases. Lastly, you need to figure what your cost of goods sold is and other normal supplies such as cups, straws, napkins, the actual coffee, milk, etc. Let's just say that number is another $5,000 a month. So for arguments sake, let's say all your operating costs are $12,000 per month (rent and all the rest), add your amortized investment costs plus your cost of goods sold and your break even point is now $17,333 per month. Add in your desired income of $3,000 and you need to clear $20,333 per month to achieve your desired level of income. I have no idea what the numbers should actually be. This was just to give you an idea of how to go about factoring in everything to determine if the deal makes sense.

Good luck. Starting a new business is exciting.

 

[wmark]

Wow...........that is pretty steep rent. 10k a week is $43,333 a month is sales. Your rent would be 18.6% of gross sales if you could match Starbucks' sales of $10,000

If it were me, I would be looking at 4k rent or need 20k a week in sales

 

[coffeedog]

Wow...........that is pretty steep rent. 10k a week is $43,333 a month is sales. Your rent would be 18.6% of gross sales if you could match Starbucks' sales of $10,000

If it were me, I would be looking at 4k rent or need 20k a week in sales

Thank you. That's the sort of rule of thumb I was looking for. So you're saying 43k/month sales could support a rent of 4k/month. Is that to say that a rough guide is that sales should be in the neighborhood of 10x rent for a coffee shop?

 

[coffeedog]

Isn't $15/hour minimum wage in CA now? With that rate, $*43,680‬/year is minimum wage. I don't see any sense to run your own business if that can only provide you less than minimum...

Wouldn't $15/hr be 30k/year? 50 weeks (2 weeks vacation) of work @40 hours per week = 2000 working hours per year. 2000x$15=$30000. What's wrong with my math? Or does your $44K include benefits?

And, honestly, I'd probably be happy if I made minimum wage. I am ending one career and will have passive income from that as I start a new part time career. It doesn't take up enough of my time though. I need something to do with my excess time.

 

[MntnMan62]

Rules of thumb are fairly general and don't really take local factors into account. When considering any potential business investment it is much more important to break down and estimate the anticipated revenues and expenses as close to what they actually will be than to rely upon generalizations.

 

[Musicphan]

I'm not trying to sound like a stick in the mud, but it sounds like you need to be doing a lot more research before diving into either location. You should have good estimates of all your variable and fixed costs and see if that works for your sales projections. There is no magic button - you have to simply start documenting all your costs. And, It's difficult at best to give you information that is accurate without living your scenario/town/traffic / etc.

But let's just start with the big expenses - your rent $8K a month is PRETTY high. Labor will be your next highest cost - assuming you have a minimum of two people (one taking orders / one prepping orders) - at 40 hours a week / $20 an hour x 2 people = $1600/week ~ $7K a month. Yes, you won't necessarily be paying $20 an hour but you have taxes/payroll services/taxes / etc. I would imagine your landed cost will actually be above $20/hr. You're easily going to pay $500-1000 for utilities / internet / misc services. So right there your about $16K/month. At $4 a cup and let's say you're making $2.50 (roughly 1/3 cost) a cup, you will need to sell 6400 cups a month to break even / 213 cups a day. That's a big number, and realistically I don't know if two people could even handle the production of drinks. You have to keep in mind there will be an hour or two rush that will generate a big chunk of your sales. If your customers weight - they will walk.

 

[coffeedog]

I'm not trying to sound like a stick in the mud, but it sounds like you need to be doing a lot more research before diving into either location.

I thought that's what I was doing by posting here?

You should have good estimates of all your variable and fixed costs and see if that works for your sales projections. There is no magic button - you have to simply start documenting all your costs. And, It's difficult at best to give you information that is accurate without living your scenario/town/traffic / etc.

But let's just start with the big expenses - your rent $8K a month is PRETTY high. Labor will be your next highest cost - assuming you have a minimum of two people (one taking orders / one prepping orders) - at 40 hours a week / $20 an hour x 2 people = $1600/week ~ $7K a month. Yes, you won't necessarily be paying $20 an hour but you have taxes/payroll services/taxes / etc. I would imagine your landed cost will actually be above $20/hr. You're easily going to pay $500-1000 for utilities / internet / misc services. So right there your about $16K/month. At $4 a cup and let's say you're making $2.50 (roughly 1/3 cost) a cup, you will need to sell 6400 cups a month to break even / 213 cups a day. That's a big number, and realistically I don't know if two people could even handle the production of drinks. You have to keep in mind there will be an hour or two rush that will generate a big chunk of your sales. If your customers weight - they will walk.

The 213 you came up with is interesting because I did some calculations in my head on my morning bike ride a few days ago and came up with a figure of 200 cups/day. I was able to talk to the manager of the Sbux next door in the grocery store. She didn't know how many cups/day. She thought in terms of gross weekly revenue, which is where I got the 10k/week.

So using her 10k/week and your $4/cup, that's 2500 cups per week, or 357 cups per day average over 7 days. I'm hoping to meet with her again to get a yearly gross sales estimate. She rarely has 3 people working. Most often 2 and only 1 at times. I would like to think that I could get at least 50% of Sbux current business and add another 25%. So if I could do 75% of 357 that would be 267 cups/day.

Other factors are that I wouldn't be selling all the food items that they sell. Maybe some pastries and rolls that are easy to handle. I also considered having self serve froyo but I don't know if that's getting too diversified.

The owner of the building asked me to submit a proposal to him, suggesting that he would accept less than the 8k.

 

[MntnMan62]

I thought that's what I was doing by posting here?



The 213 you came up with is interesting because I did some calculations in my head on my morning bike ride a few days ago and came up with a figure of 200 cups/day. I was able to talk to the manager of the Sbux next door in the grocery store. She didn't know how many cups/day. She thought in terms of gross weekly revenue, which is where I got the 10k/week.

So using her 10k/week and your $4/cup, that's 2500 cups per week, or 357 cups per day average over 7 days. I'm hoping to meet with her again to get a yearly gross sales estimate. She rarely has 3 people working. Most often 2 and only 1 at times. I would like to think that I could get at least 50% of Sbux current business and add another 25%. So if I could do 75% of 357 that would be 267 cups/day.

Other factors are that I wouldn't be selling all the food items that they sell. Maybe some pastries and rolls that are easy to handle. I also considered having self serve froyo but I don't know if that's getting too diversified.

The owner of the building asked me to submit a proposal to him, suggesting that he would accept less than the 8k.

Asking prices are always negotiable. In fact, everything in real estate is negotiable. Always keep that in mind.

 

[Musicphan]

When I say you need to do your research... I was implying you should know what rates for real estate are in your area / what your wages will be / taxes / insurance / food costs/drink costs / professional services... all those things. Asking questions will give you feedback but even then you have to know this stuff for your location. When I see a number liked 20K for equipment, that's simply not realistic, especially for the volume you need to make this location work. You probably could spend close to that just on your espresso rig for that volume... The last cafe I looked at the building was $160K w/o equipment. Just trying to prevent you from going bankrupt... I've seen it so many times being a commercial roaster.

Comparing yourself to SBUX is comparing apples & oranges... yes they are selling the same core product but drastically diff. SBUX makes as much money in food/merch as they do coffee - that's why they have an extensive selection of food items. And are you SURE they run with that few of people? It was SBUX policy to never have less than 2 people (for safety reasons)... mine near my shop typically has 6-8 people during peak rush.

If your still set on this location, get a good real estate rep and have them pull comp rates / etc.

 

[MntnMan62]

When I say you need to do your research... I was implying you should know what rates for real estate are in your area / what your wages will be / taxes / insurance / food costs/drink costs / professional services... all those things. Asking questions will give you feedback but even then you have to know this stuff for your location. When I see a number liked 20K for equipment, that's simply not realistic, especially for the volume you need to make this location work. You probably could spend close to that just on your espresso rig for that volume... The last cafe I looked at the building was $160K w/o equipment. Just trying to prevent you from going bankrupt... I've seen it so many times being a commercial roaster.

Comparing yourself to SBUX is comparing apples & oranges... yes they are selling the same core product but drastically diff. SBUX makes as much money in food/merch as they do coffee - that's why they have an extensive selection of food items. And are you SURE they run with that few of people? It was SBUX policy to never have less than 2 people (for safety reasons)... mine near my shop typically has 6-8 people during peak rush.

If your still set on this location, get a good real estate rep and have them pull comp rates / etc.

+ 1 million @Musicphan is totally correct. You can't consider investing your hard earned money in a business without having specific data relevant to the location. Rememeber that any owner of real estate can ask whatever they want for rent or selling price. But it doesn't mean the rent being asked is reasonable or the selling price representative of market value. Facts in this instance are not only your friend but absolutely necessary for fiscally prudent decision making.

 

[wmark]

According to a Roaster/Retailer Financial Benchmarking Report put out by the Specialty Coffee Association (SCA) .......... industry average for a retailer occupancy cost is in the 10% of revenue area. Average ticket was $6.02 with an average of 6.09 employees.

That said, assumptions that you are stealing Starbucks' business is rich. People that brand shop will take alot of persuasion to switch to your unproven coffee. If Starbucks is at $10k per week. I would assume that that is the upper benchmark, that is unless you have a wickedly good in house offering of baked goods or other such things.

As someone told me long ago. Walk outside.......your business is coming from within 6 blocks in every direction from your shop. Does the area have the population/business density ? The people that need coffee during their breaks ? Have you sat outside of Starbucks and counted the number of people going in over a two day period ? two week period ? What is the drive by traffic ?

You will need 1,661 customers every week or 237 every day if you are open everyday selling an average ticket of $6.02 to make that $10,000 weekly sales figure

 

[MntnMan62]

According to a Roaster/Retailer Financial Benchmarking Report put out by the Specialty Coffee Association (SCA) .......... industry average for a retailer occupancy cost is in the 10% of revenue area. Average ticket was $6.02 with an average of 6.09 employees.

That said, assumptions that you are stealing Starbucks' business is rich. People that brand shop will take alot of persuasion to switch to your unproven coffee. If Starbucks is at $10k per week. I would assume that that is the upper benchmark, that is unless you have a wickedly good in house offering of baked goods or other such things.

As someone told me long ago. Walk outside.......your business is coming from within 6 blocks in every direction from your shop. Does the area have the population/business density ? The people that need coffee during their breaks ? Have you sat outside of Starbucks and counted the number of people going in over a two day period ? two week period ? What is the drive by traffic ?

You will need 1,661 customers every week or 237 every day if you are open everyday selling an average ticket of $6.02 to make that $10,000 weekly sales figure

This makes a lot of sense in terms of the financial breakdown. However, I'm in the real estate business. Years ago I was taking classes towards a certificate and one of them was Marketing of Investment Real Estate. One of the case studies happened to be Starbucks. What they showed us was that in looking at existing coffee shops in an area, when Starbucks opened up nearby, the sales at the other coffee shops actually increased rather than decreased. The rationale was that the attention Starbuck's brand brought to the area attracted all sorts of coffee drinkers. And many people can't stand Starbucks, either because they don't like the mega corporate monster aspect or they just don't like Starbuck's over roasted burnt tasting coffee. Count me as one of those. So what do those people do? They go across the street to Big Joe's Local Coffee Shop instead. Obviously that assumes Big Joe's knows what they are doing, offers a quality coffee in the cup and a comfortable environment to compete with Charbucks. I thought "how can this be true?" It's counter intuitive. But the basis is that Charbucks actually draws more potential coffee drinkers merely with it's presence and all of the coffee shops nearby benefit from this. Plus, they had the stats to back it up.

So, wmark is kind of saying the same thing Musicphan is saying that you need to sharpen your pencil and really break down all your sources and quantities of revenue as well as itemizing all of your different expenses. And you also need to consider the fact that you will need to be able to grow your business and hence your revenues each year because as with everything else, your expenses will go up. Most landlords like to see incremental increases in rent each year. Labor costs always go up. Insurance probably goes up the most. And the last time I checked, the cost of coffee keeps going up. They also used to teach us that when you are done crunching all the numbers, either the numbers work, or they don't. If the numbers don't work, they used to say "this dog won't hunt."

 

[wmark]

There are always restaurants going out of business so there is always used equipment for sale if you want to go that route but you need to know the equipment. Ya, 20k seems light as far as equipment expenditures. What about renovations ? Are the waterlines where you need them ? Are the plugs where you need them ?

It is shocking how much inventory you have to carry and the cost of it.

You shiite yourself when 40 people roll in your first day in business

 

[coffeedog]

When I say you need to do your research... I was implying you should know what rates for real estate are in your area / what your wages will be / taxes / insurance / food costs/drink costs / professional services... all those things. Asking questions will give you feedback but even then you have to know this stuff for your location. When I see a number liked 20K for equipment, that's simply not realistic, especially for the volume you need to make this location work. You probably could spend close to that just on your espresso rig for that volume... The last cafe I looked at the building was $160K w/o equipment. Just trying to prevent you from going bankrupt... I've seen it so many times being a commercial roaster.

Comparing yourself to SBUX is comparing apples & oranges... yes they are selling the same core product but drastically diff. SBUX makes as much money in food/merch as they do coffee - that's why they have an extensive selection of food items. And are you SURE they run with that few of people? It was SBUX policy to never have less than 2 people (for safety reasons)... mine near my shop typically has 6-8 people during peak rush.

If your still set on this location, get a good real estate rep and have them pull comp rates / etc.

Did I somehow create the impression that I was an internet forum statement away from signing away my life savings? If so, that was not intended. I've been looking at getting into the hospitality business for 5 years now. I've looked and passed on several opportunities, some of which others have proceeded with and seem to be succeeding.

This particular building might not be good. But the town I'm considering has some advantages that I think are somewhat rare. It's on a major thoroughfare and there is no drive through of any kind in the town. It's kind of the last stop an hour before skiing destinations and a major mountain resort area. We have a major chain grocery store which is a reason for people to exit the freeway. Another thing we have is a fairly large retirement community and a small but consistent group of older dudes (I'm a younger sort of honorary member of that group) that hang out in the grocery store sbux everyday. I'm pretty sure I could capture that market.

Yes I'd like to talk myself into this, I won't hide that fact. But at the end of the day I'm pretty chicken when it comes to this kind of stuff. My research is in it's very early stages. And all those things you mention I appreciate and indeed will find them out before I put up any cash.