How to Create a Great Business Model for Coffeeshops and Cafes

Thinking of setting up a café or coffee shop? Well, anyone might after seeing the success of Starbucks, but you can be a successful coffee s...

  • How to Create a Great Business Model for Coffeeshops and Cafes
    Manish Khanna Image Manish Khanna

    How to Create a Great Business Model for Coffeeshops and Cafes

    Thinking of setting up a café or coffee shop? Well, anyone might after seeing the success of Starbucks, but you can be a successful coffee shop entrepreneur operating something much smaller than that. Thanks to the rise in speciality coffee and speciality foods, as well as more healthy/organic options in general, there is often space for a new concept somewhere close to where you live. People are getting adventurous where coffee is concerned.

    The bottom line with all businesses though is the business model. Sure there are plenty of coffee shops out there, meaning there must be a model that works, but there are also many, many coffee shops and cafés that fail. Without a good business model you can say sayonara to success no matter how great your idea and how much demand there is. So have a look at the examples below to find out what makes for a good business model.

    1. Clients Don’t Come Just for the Coffee

    You may be passionate about coffee and your clients may be passionate about coffee, but by the end of the day there are also other reasons to frequent a coffee shop - people working from home want to get out, people in an office want a break, friends want to socialize and someone else might simply feel like chilling out and meeting people in a relaxed atmosphere. That’s the key word: atmosphere. You can’t put all the money in the coffee. You have to leave room for creating the right ambiance or people won’t show up. After all, why go to a place that makes them feel miserable?

    2. Coffee Does Sell

    Having said that, you also have to fork out for the coffee. Getting bad beans means less customers. If you are competing against Starbucks/chains and speciality coffee shops nearby, you really have to pick the best beans and hire the best baristas. Good espresso is one thing you can charge for and should - it’s the backbone of your business.

    3. Include Other Offerings

    Some stats say that only 40% of the revenue comes from drinks. The rest comes from other offerings. You need to get your clients to buy a sandwich, cake, or ice cream with their purchase. This needs to be taken into account in the business model, as well as in how you operate the shop - you have to push for those other purchases to accompany the coffee.

    4. Know Thy Pricing

    A mocha doesn’t cost that much more to make than a latte. Does it usually cost more to buy though? Yes. That means it targets people who are willing to pay. Others won’t be willing to pay and will look for the cheaper option. Keep some prices low and up others. Just make sure you don’t have the same pricing for everything and do make sure, even if you are selling speciality coffee or organic coffee, that some prices are really good in comparison to the competition. If all your prices are high, or low, you will miss out on revenue.

    Also, if you start at one price and get a large amount of steady clients, try increase the overall pricing with 5c per cup and see what happens. If you have a loyal following by then, you shouldn’t lose them. It’s better to slowly raise your prices by $0.20 than to start high and having to lower them. Put this in the pricing model.

    Pricing also has to do with the area your business is intended to be in (the kind of people you are targeting) and the competition in that area. If there are only diner like cafés selling french fries with their coffee, using poor quality coffee and have low prices then you could say there’s a need for a better coffee shop. However, are there clients in that area interested in good coffee? If so, how much are they willing to pay? People aren’t necessarily willing to part with their money just because the quality is better as it may not interest them. Put a gourmet burger company next to McDonald’s and some people will still choose McDonald’s.

    If, on the other hand, you are in an area where there are other speciality coffee shops your competitive edge might be to offer lower pricing together with an innovative concept.

    5. Take Aways

    Take aways are kind of what online retailing is for clothing shops - it offers quick sales with no need to keep clients in the shop. You need to focus on this, because it is not going to be enough to make money from the people who hang about your coffee shop all day. Your coffee shop needs to be large enough to fit some clients as some will come there to sit down, but having everyone who buys something sitting around for hours won’t help you. You need more clients than that. You need more clients than your coffee shop can fit. You need the takeaway clients. Ensure that you catch the people who walk or drive by. There’s a reason some Starbucks coffee shops now offer drive by locations, just like McDonald’s.

    6. Size

    Check the area where you intend to have the coffee shop set up and see how many people you think you can convert into clients. Then calculate how many sales you think you will make. Then check how much retail space costs and how much space you can afford when looking at your sales estimates. Focus on what you think will bring you the best revenue - you need enough seating to satisfy those who come to sit down, but not more as you want to push takeaways and you definitively don’t want to pay for empty space.

    7. Keep Tabs on the Variety of the Assortment

    You may be passionate about cakes and cool coffee flavored drinks, but that doesn’t mean you should have 500 items on the menu. It will only confuse customers. Offer choice, just not too much choice. It will cost less to have a smaller assortment so don’t go overboard.

    8. Marketing

    “Build it and they will come” is a great concept in some cases, just bear in mind you can have the greatest product in the world, but if no one knows about it, no one will buy it. They won’t come unless they know it’s there. Sure, your café or coffee shop is probably strategically located, but you should still have a marketing budget in place. Think further than just opening the doors - you have to invite clients in. Then you have to convert them into life long customers, which is also part of marketing efforts. Loyalty cards and other perks will help with this. So use them. You will lose a dollar or two to marketing, but gain life long customers, meaning, really, you will increase your profits in the long run.

    9. Value

    Entrepreneurs, like artists, often want all the details “just right.” It’s true you might want the best coffee and the best ambiance, but you still have to look for value - how can you find the best value products to realize your dream? What you truly want is to give your clients the highest perceived value for the lowest possible price for you - it’s a tricky task, but as the numbers will show you, it will be worth it.

    10. Cut the Waiters

    You don’t need dedicated waiters to take orders, unless you have a very special concept. Today people are used to ordering at the counter and picking up their food there. If you are serving food that takes a long time to prepare, use an electronic system that alerts the customers as to when their food is ready for pick-up by the counter. Even if you offer a service delivering the food to the table, don’t offer an ordering service by the table. It costs too much and you will end up losing profits. If you had waiters in your business model - cut them out if possible.

  • Author Info Manish Khanna

    Manish Khanna is a serial entrepreneur, philanthropist and genuine Australian success story. In a decade he has built an online empire unlike any other. He is currently the Managing Director of more than 10 individual companies. These include the flagship Business2Sell which operates internationally in 6 countries. The others include CommercialProperty2Sell, Million Dollar Mansions, Netvision, BCIC Pty Ltd and Better Franchise Group, to name a few.

    With more than 21 years’ experience developing web applications plus very successfully creating, managing and growing start-ups, he is forging ahead to turn more of his innovative ideas into future success stories.