Opening a cafe is hard, and the margins are slim. In this article I’m going to address some common issues that kill a cafes profit margin. This is an industry where 70% of cafes fail so don’t look at what everyone else is doing to succeed. We will look at the actual decisions that make owning a coffee shop a career not a financial black hole.
1. Adding Unnecessary Buildout Cost
It’s easy to think your space needs to be perfect before you open, but every improvement you make will add cost monthly in the form of loan payments. Start lean. You can always reinvest once you have consistent revenue. Your product and your customer service are way more important than the perfect tile backsplash.
2. Buying All New Equipment
New equipment is great if you can afford it without debt. It comes with a warranty which is always nice, but with the thin margins of a coffee shop a loan for new equipment can kill profitability. A quality used espresso machine is usually a smarter move. Most issues are fixable, and with regular care, they can last 20+ years. Used equipment often cost half the price which could save around $40k for most cafes. That is the salary most owners can’t pay themselves in the first year
3. Ignoring Labor Efficiency
Labor is your biggest controllable expense. Track labor as a percentage of sales (ideally 25–35%). If you’re consistently higher, you may be overscheduling, or your pricing isn’t keeping up with your wage costs. A good way to keep this down early is for you the owner to work often. Especially to get things off the ground I would expect 50-70 hours of work a week.
4. High Rent Payment
You need to aim for your rent to be 10% of your monthly sales. Too often people are looking for the “perfect space” and when they find it they feel like they need to agree to whatever the landlord wants so they can get it. As a coffee shop all of you Location cost (rent, utilities, equipment loans, buildout loan) needs to be 15% of revenue. Although that might seem hard to do it is possible just be patient.
5. Not Pricing for Profit
Too many cafés set prices based on what “feels fair,” not what’s sustainable. Price every item with a target gross margin. Here’s a breakdown: location cost 15% - labor cost 33% -COGS 40%. If your business does not hit these numbers it will be very hard to pay yourself or to survive an emergency expense.
6. Hopeful Projections
However much you think you will sell in a month, cut it in half and make sure you will be ok if that is the reality. The truth is some months will be a lot lower than others and you need to make it through every month
7. Make Sure your reporting is good or hire a bookkeeper/accountant
You need a profit and loss statement every month. If you can do it yourself that’s great! If not, you need to hire someone who can or else you won’t be able to adjust you spending or margins until its too late.
8. Expanding Too Soon
Adding a second location before the first one is fully dialed in is one of the biggest killers. Systematize everything: recipes, scheduling, supplier lists, and training before you multiply problems across two shops.
9. Not Accounting for Owner Pay
If you’re not paying yourself consistently, your books aren’t telling the truth. Owner compensation is a real expense, not “what’s left over.” Include it when calculating profitability, that’s the only way to know if your business truly works.
10. Skipping Professional Advice
Your CPA, bookkeeper, or financial coach costs money, but bad decisions cost more. Even one session with someone who knows café numbers can save you thousands.
In Summary:
Cafes don’t need to be fragile businesses. With tight systems, realistic pricing, and a watchful eye on your numbers, they can be sustainable. All you have to do is make sure your business structure is good, and your profit margin is healthy
Want to talk shop?
At Break Coffee Roasters, we’ve learned most of these lessons the hard way — from café buildouts to budget spreadsheets at midnight. If you’re building a café or refining your operations, we’d love to share what we’ve learned. Contact us and let’s grab a coffee.