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

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Originally Posted by 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.

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+ 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.

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

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Originally Posted by 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

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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."

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

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Originally Posted by 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.

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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.

Musicphan, it sounds like you have some valuable insider knowledge. When you say you are a commercial roaster, I assume that means you sell coffee to coffee shops? What are some characteristics of successful small town coffee shops based on your observations?

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Originally Posted by coffeedog

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.

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Don't assume that those who moved on the other opportunities you passed up are succeeding. Just because a business is opened and operating doesn't mean they are making a dime or aren't losing their shirt. There are lots of people out there with inherited money who go into businesses they know nothing about but feel as though they have to show their family members that they can actually succeed at doing things. I know because I spent 35 years working with ultra high net worth individuals and would sit with entire families talking about their lives and how they use the income, and sometimes principal, distributions from their trusts. One woman was buying individual condo apartments in NYC and renting the out. When we went over the number it turned out she was making 1% on her investment. And that was based upon a casual discussion about her expenses. I would not doubt that she was actually losing money because she probably was not forthcoming about other funds she had put into the units. And there are countless other conversations that were very similar. You get the point. Stick to your own business plan. It's good to know that you are being very careful and thorough in your review of each opportunity. When the right one comes along, you will know it. Until then, happy hunting. The process of looking is a learning experience in and of itself.

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Originally Posted by coffeedog

Musicphan, it sounds like you have some valuable insider knowledge. When you say you are a commercial roaster, I assume that means you sell coffee to coffee shops? What are some characteristics of successful small town coffee shops based on your observations?

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Yes, I sell to individuals and supply several cafes in my market. I don't know if I have tons of wisdom... LOL... but I constantly talk to people starting up cafes/coffee shops. Those who really know their numbers, how many transactions they need to cover, etc. are generally more successful. I'm not saying a $8K rent can't make it... but man that's a lot of volume. When you get into high volume scenarios you also have limitations of equipments / staffing / throughput, etc. It's good your asking question and don't let it get discouraged. Make sure you know your customers - the only way to do that is to talk with them. Stand outside the proposed location and ask people their thoughts on coffee / price points / etc. Wake up at 5 am and do your own traffic count - when I'm serious about a location I sit for hours counting cars. It not only tells you how much traffic but what type of traffic and the flow of traffic. For example, I was approached by a developer that had the "PERFECT SPOT" for a coffee shop (I.E. all commercial real estate reps will tell you that at some point). When I really watched traffic it was mainly blue-collar workers on the clock leaving for jobs. I soon found out that the area was full of supply houses for plumbers / mechanical and that was driving traffic. I'm sure i could have picked up some of those people as clients, but a vast majority had timetables to meet. It just goes to show you its necessary to roll the sleeves back and dive into every aspect of the business.

Of course, that t will be great as much as it is possible. Will you work just for the rent or for everything? First of all, you have to think that you want to make money it is not just for rent and after that, you will think about the location of the services that you will provide, about the coffee that you will sell and everything from this. But don't forget that everything needs investments. You have to be ready for the hard moments that will come from the beginning. You know I suggest you read about the best deal to invest in your funds. I guess that there you will find a lot of interesting things for your future investment. Good luck!

I think that the question is very complex. Anyway, I've read here a lot of useful opinions.