Why do most café startups fail?
Poor pricing strategy - Cafes are already struggling with industry prices that make the establishment of a sustainable business difficult. Add to this some poor pricing strategies and you set up a guaranteed failure. For example, discounting your espresso coffee price to 'get business' when it is the one product that is least price sensitive if the quality is high. Also, charging an average price for products or basing the selling price on costs rather than on market expectation. Sustainable cafe pricing needs to be built on clever 'subjective margins'
The cafe with the staff that make a feature out of remembering customer names, their standard orders and yesterday's discussion succeeds, while those that don't fail. Customers in cafes may soon forget what you sold them but they will never forget how you made them feel.
Finally, remember that you open a new business to grow your life. It might seem strange to hear, but you should be planning your exit strategy from the business at the same time that you are planning its growth. If you’re passionate about your business, the long hours won’t bother you. However, if you continue working long hours, after three years you probably will begin to hate your business. Plan your exit strategy by hiring the best people, planning financially for the best and worst of times, and delegating much of the daily tasks. When you can spend more time with friends and family, then you may consider yourself a successful businessperson.
9. Be passionate and full of joy.
It is ideal if your team arrives one week before opening (so you need to have had your interviews and selection process about 6-7 weeks before opening)
During the week before opening you need to train the team, get them excited about the business and make them proud of the business.
An example of how this week could run effectively for you:
My most financially successful coffee shops had a limited number of not-so-comfortable bench & bar stools to make the coffee shop look lived in and loved, but I concentrated on building the takeaway business.
Pre-make as much as possible
Merchandise your margins – Price according to perceived customer value, not according to accounting determined markups. For some well known items you will need to be at (coffee) or even below market price (coke can), and this loss should be made up with high margins on other items that are exclusive to you or in the ‘don’t-care and addictive’ mindset of your customers. So don’t add a blanket markup to your entire assortment, but price line by line according to customer expectations and what the market will bear.
Use loyalty cards – I resisted using these for a long time … but they really do work. Make sure it is a quality card that will last the wear and tear and look good in a customer’s wallet. Nothing better than seeing a new customer’s face light up when you give them a buy seven get the eighth one free loyalty card, but tick off six of them so that on their very next purchase they get a free one. Cheapest customer acquisition ever.
Impressions are everything in the cafe business, making it vital for owners to understand the hurdles involved in becoming profitable. Average startup costs for new coffeehouses range from $150,000 to $500,000, according to Matt Milletto, a consultant interviewed for a March 2009 "Seattle Times" article. Insufficiently budgeting for these costs can leave a cafe owner unable to respond adequately when things go wrong, With proper management, however, a successful cafe's base profits should equal roughly 10 to 18 percent of its sales, Milletto says.
Coffee sales play a big role in boosting a cafe's profits, since the markup on coffee is higher than most food items. An average cup costs from 55 to 69 cents, which most cafes sell for $2.50 to $3.50, according to consultant Tony Eldred's analysis for the Beanzaround website. If the price is $2.50, selling 100 more cups per day would generate an additional $66,000 per year in profits. Based on these figures, Eldred estimates profit margins for cafes and restaurants should equal 25 and 7 percent, respectively.