Starting a coffee shop is equal parts exciting and daunting – especially during the first few years. There is a lot of unpredictability and a seemingly constant stream of new problems that need to be resolved in that volatile period. Getting past the start-up phase and transitioning to a successful business is what this article is about. Whether you’re at the beginning stages of opening your coffee shop with a crisp, new business plan in hand or are a few years into the black and want to have quicker or more steady growth, this is for you.
Cafe Business Fundamentals
Each business that has succeeded has successfully differentiated itself from the competition and effectively communicated why customers should come to them instead of someone else. Despite each café being unique, there are a handful of fundamentals that every shop needs to be profitable – a recipe for success, if you will. Here are seven:
Define your USP
Your café business needs to be able to articulate what value you offer that others do not. What sets you apart from the standard coffee shop that’s on every corner? Maybe your coffee beans come from a local producer. Maybe you add extra spices or aromas in your coffee. Do you have a large variation of tea selections? Will your teas be served in unique teapots that follow the look and feel of your coffee shop? You might know why your café is special, but no one else will unless you tell them! Don’t make them figure it out on their own – it’s a gamble you can’t afford to take when starting out.
Identify the Ideal customer
Based on your business plan and location, are you interested in attracting commuters, families, connoisseurs, or tourists? Saying your shop is for anyone who wants good food and coffee is probably too vague. By trying to appeal to everyone, you end up being bland and appealing to no one. Identify the profile of your ideal customer, including their interests, demographic, location, etc. This will help you effectively target them and be where they are.
Determine your channels
Once you’ve determined who you want to target, build a consistent marketing strategy that has a uniform look and feel. You need people to be able to see you, your logo, your content (posts, ads, emails, etc.) and easily recognise you anywhere. This includes both online and offline channels such as social media, on-premise signage, email marketing and mailouts. There is no right or wrong answer on where you should spend your marketing budget other than you should be where your customers are. If they’re online – be online. If it’s a local residential area, then a mailout might be more effective. Consistent messaging and branding will allow you to test out the channels without needing to start over regarding brand recognition. Don’t reinvent the wheel with every new platform – people who find you on Instagram should be able to recognise you and your brand when they come into the café.
Obtain a Cafe Licence
All businesses need licenses or permits to legally operate in their location. The details of those requirements and how to apply will vary per state. Go to your local council or visit their website online to get the specifics. Quite often there will be license fees attached to those applications – don’t forget to add them into your budget.
For example, in Melbourne a sole trader with employees needs an Australian Business Number (ABN), Individual Tax File Number (TFN), Pay As You Go (PAYG) Withholding and Fringe Benefits Tax (FBT) if you provide benefits to your staff.
Choose a Location
Everyone knows location is one of the most important components in running a successful café, but how do you know if your spot is in a prime location before tying yourself up in a lease? Doing a bit of research first and knowing the answer to these questions is a good start:
- Who will be your competition in the area?
- Is it a high foot traffic location?
- Is it close to your ideal customers?
- How much is the rent? (ask nearby stores and consult other property agents to grasp the market rate)
- Interior space: How many café tables and seats can you fit in the space?
- Utilities: Will there be bathrooms?
Invest in your equipment
There are so many components to a successful coffee shop that you inevitably will need to prioritise your funding. It might be tempting, but your equipment is not where you should be cutting corners! Consider taking out an equipment finance loan to invest in the right POS system, computers and cash registers that are user-friendly, reliable and will eliminate unnecessary frustration. Remember that the vibe of your store will help attract customers, which means picking comfortable furniture and the right music system shouldn’t be afterthoughts. Finally, your coffee machines. Invest in machines that makes beautiful coffee because in Australia no food is good enough to make up for a bad cuppa.
Loss Prevention and Security Measurements
After putting in all this effort to perfectly execute your vision – the last thing you want is to have it taken away or ruined by vandalism or theft. Taking preventative measures will help minimise the chances of that happening. This could include installing cameras or alarms and taking out insurance. While it might be tempting, be sure not to overdo it with the cameras as it could make customers uncomfortable.
Implement a Marketing Strategy
Your marketing strategy should cover all interactions with your customers – encompassing each touch point both in the store and online. These strategies will develop over time and will grow as your café does. To ensure you’re getting the most out of your marketing spend, regularly re-evaluate the success and progression of each campaign.
Intentionally decide what experience you want your customers to have when they’re in your store and buying your coffee. Think about what you are displaying at the counter and if you’ll place your pastries on it or in a separate bakery display. Decide if you’re going to make sugar sachets available for takeaway coffees and teas – and if so, where will you put them? Another question to ask yourself is if you’ll make water jugs and cups accessible to your customers on the countertop or if your staff will personally bring them out to the tables? The interactions you have with customers when they order off your menu need just as much attention to detail as the actual food they’re buying.
Promotions are a fantastic way to draw in new customers and establish loyal ones. Who doesn’t love a festive café that has promotions based on seasonal foods or who spontaneously puts best-selling items in a ‘two for one’ deal? Don’t forget the draw of loyalty cards (buy 10 coffees get 1 free) or discounts like half-priced refills either. Promotions are just one way you can shake things up and keep customers interested.
Word of Mouth
In today’s world of sceptical buyers, there’s nothing more foolproof than a referral from friends or family. Even strangers’ opinions can sway us! Encourage your customers to leave reviews online by making it easy for them to do so, such as adding your social media handles to your menu so you’re easy to find or leaving feedback slips on the table. You can also encourage people to bring in their friends or co-workers by putting on a buddy BOGO (Buy One Get One) deal (e.g. bring a friend and get both coffees at half price!).
Developing online marketing strategies to promote
While online reviews and word-of-mouth referrals are gold, there’s a good chance they won’t bring in enough business for your coffee shop to live off alone. Cue the music because this is where your marketing strategy takes over as the leading lady. Focusing specifically on your online marketing, here are two places you need to be and what they should have:
- Google My Business
- Website URL
- NAP (Name, Address, Phone Number)
- Menu and services – which should include messaging around how your café is unique
- Social media accounts
- Social Media (e.g. Facebook, Instagram, Pinterest)
- Business details such as NAP
- Push current promotions, products and information
- Share pictures of your food and coffee
Recruit High Quality Staff
Unless you plan on never getting sick or taking a day off, you’ll need to hire staff members sooner rather than later. While it can be a daunting process, it’s important to hire the right people and train them properly.
High Quality Employees
Your staff determine the level of service and experience your customers get when they come to your store. Hiring high quality employees will ensure the best delivery and minimise human error (inventory count, sales, etc.). When looking at CVs, keep an eye out for people with previous experience as a barista. Having similar work experience and good references may be preferable if you’re looking for experienced staff. Employees that you can rely on to do the job correctly and professionally are worth their weight in gold. They might be more expensive to employ, but they will prove their worth time and time again.
Once you’ve filled your roster, make sure to give each person the same training and set the same expectations. This will ensure the quality of their work and the processes they follow are uniform. It will also mean a seamless shift transition during the day and from closing to opening. Not only will this make it easier for you to manage, but your customers will appreciate the consistently high-quality experience.
It can take a while to get the hang of inventory management with a café start up because each month can be so different at first. To manage your cash flow and stock levels, make sure they match up with market/customer demands and avoid overstocking. This can be an unnecessary drain on your budget. Once you’ve tested out your suppliers and are happy with their products, try negotiating for bulk deals.
While looking over previous months’ numbers for help determining inventory, also keep track of business expenses to help you forecast for future ones. Keep in mind that not all bills will come at the same time or frequency so do this for the first few months when starting out. Saving money each month for the quarterly bills will make sure you have the money ready instead of needing to take a huge cut in your profits every three months.
There is a high-probability that your café shop will have busy and slow seasons based on holidays, weather, school breaks, etc. Remembering those periods and accommodating for bursts of seasonal demand will make it possible for you to take advantage of the increased business. One way to do this is by taking out a small business loan to increase your staff and service capabilities.
With weekly, monthly and quarterly costs it can be easy to underestimate or lose track of your expenses. Consider keeping a checklist to help you budget. It could include:
- Store Insurance
- Payroll & Accounting Costs
- Water Bills
- Credit Card Fees
- Bank fees
OnDeck offers flexible business loans that solve a need for extra funding. Whether it’s the cost of materials, covering a cash flow shortfall or getting some new equipment for a project, OnDeck can help you.
With an easy online application process, loans of between $10k and $250k, and terms of 6 to 24 months, we make it simple for businesses to get the extra funding they need.
Apply online in minutes at www.ondeck.com.au or call our helpful team on 1800 676 652 today.
Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at February 2020. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.