You are currently viewing Do Cafe Businesses Make Money? [Part 1]

Do Cafe Businesses Make Money? [Part 1]

The short answer is… yes and no. I get asked this question a lot from people. I hear all sorts of myths about owning a cafe from the media and from others. Articles like this make cafes sound like the gold mine business to get into and become rich:

“Australians who order a medium takeaway coffee each day spend $1522 a year on their habit…” 

Sydney Morning Herald – Would you pay $5 for a cup of coffee?

The Truth

Although the percentage margin (300 – 400% as quoted by other sources) of a cup of coffee seems very good, the media tends to take data out of context. If a cafe business makes $2 off a cup of coffee, a small cafe like our 50m2 store can serve a maximum of 160 cups a day (due to limitations in the size of our business and the size of the local population.) That’s 2 x 160 = $320 in one day of trading – not taking into account other costs such as rent, wage, insurance and council fees!

A more accurate way to look at profitability is to use the official benchmarks for all cafes in Australia:

Australian Taxation Office – Coffee Shops

This is the average reported value of all cafe businesses in Australia. According to the ATO, the average total expenses of cafe businesses range from 83 – 91% So that leaves a profit between 9 – 17% (for the well run businesses that actually makes a profit – most don’t.) This means that for every $1 you make, the profit after all expenses is 9 – 17c. So if you make $800 in sales for that day, your business makes a profit of around $80. This doesn’t sound much like the $320 earlier!

A Dream vs. Reality

With any career, the people who do well are those who do it for passion. It sounds cliché but it’s true. If you do it just to make money then you will find that money won’t come to you. Just like for many people wanting to become a doctor. If they think medicine makes them a lot of money, they will be disappointed. The long hours and overnight shifts at hospitals coupled with massive responsibility and sheer stress will leave them disillusioned, quitting the profession soon after.

Similarly, if you go into the cafe business industry thinking you will be rich, you will too be disappointed. First of all, the unearthly wake up call is usually at 5am. In the cold harsh winters, the sun is not even up yet and by the time you get home the sun is already down. The physically-intensive dirty work (your clothes will be stained with coffee, oil and other stuff you don’t want) will come as a shock to former white-collar professionals. In the beginning, you may have to work 7 days a week (which we have once done for 4 months in a row during our second year!) as you learn how to roster properly and manage your new business. Most owners say goodbye to their weekends when they first go into this industry.

After all this hard work and stress while only making 10c off the dollar as profit (minus owner’s wage – but some business owners don’t even pay themselves!), the majority who dived into this industry hoping to make heaps of money soon realised that they were disillusioned, pack up and leave. They realised that for these first few years they worked longer hours and for less pay than the job they left prior.

90% of businesses fail in the first year. What about the 10%?

It’s not all doom and gloom opening a cafe business. Just like how there are doctors out there who are really wealthy and successful, there are also some very wealthy and successful cafe operators as well. In the next blog I will talk about how cafe owners can properly make money by having the right mindset.

Share This Post!