Coffee shop economics
Coffee Shop Running Costs: Where the Money Actually Goes
A coffee shop can take in thousands of dollars a week and still leave its owner with very little. The reason is always the same: the running costs. Here's a plain-English breakdown of where a café's money actually goes, and roughly what share each cost should take of your revenue.
Revenue is the loud number — it's what you watch on a busy Saturday and what you tell people when they ask how business is going. But revenue is only half the story. What determines whether you actually make money is the quiet half: the running costs that come out before anything reaches you. Understanding where the money goes is the first step to keeping more of it.
Here's the rough anatomy of a coffee shop's revenue — where each dollar tends to go in a healthy independent shop. Your exact numbers will vary with your rent, wages, and format, but the shape is remarkably consistent.
1. Labor — roughly 30–45% of revenue
Usually the single largest cost, and the one you can most directly control. It covers wages, payroll taxes, and benefits. Many shops aim to keep it around 30–35%, though plenty run higher as wages climb. The danger isn't the headline percentage — it's labor scheduled during hours the sales don't justify, which quietly pushes the number up.
2. Cost of goods sold — roughly 25–35% of revenue
The beans, milk and alternatives, cups, lids, syrups, and food. Green coffee and dairy prices have been elevated and volatile, so this bucket has been under pressure. Waste lives here too — the milk poured down the drain, the pastries that didn't sell — and it erodes margin a little every day without ever showing up as one big line.
The number pros watch: labor plus cost of goods together is your prime cost, and a common target is to keep it at or below roughly 60–65% of revenue. Because the two trade off, watching them together keeps you from cutting in the wrong place when costs move.
3. Rent and occupancy — roughly 10–15% of revenue
Rent, plus utilities, insurance, and other occupancy costs. This one varies enormously by market and is mostly fixed — you signed the lease. A great location with a heavy rent can quietly cap your margin no matter how well you run the floor, which is why the occupancy math matters so much before you ever sign.
4. Everything else — the costs that hide
The remaining slice covers the easy-to-forget stuff: card processing fees, POS and software subscriptions, repairs and maintenance, cleaning supplies, marketing, accounting, licenses. Individually small, collectively real — and often the least-watched part of the whole picture.
5. What's left — your margin
After all of that, a healthy independent shop keeps 10–20% as net profit. Thin, but that's the business. It's also why small leaks matter so much: when your margin is 15%, a few points of labor creep or ingredient waste isn't a rounding error — it's a meaningful chunk of everything you take home.
When your margin is 15%, every few points of waste or overstaffing isn't a rounding error — it's a real slice of what you actually keep.
Watch the costs that quietly move
Second Manager reads your Square export every week and flags the running costs that are drifting — the labor ratio creeping up, the mix shifting — as questions worth asking, so the quiet leaks don't stay quiet.
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Which costs to watch weekly — and which to leave alone
Rent, insurance, and software are mostly fixed; there's no point staring at them week to week. Put your weekly attention where the money actually moves: labor as a percentage of revenue (especially by daypart), your cost of goods and waste, and your prime cost as the combined check. Those are the buckets that drift, and drift is where margin goes. Watch them consistently and the running costs stop being a mystery.
Common questions
How much does it cost to run a coffee shop?
Running costs are best understood as shares of revenue rather than fixed dollars, since they scale with your size. In a healthy independent shop, labor runs roughly 30 to 45 percent, cost of goods 25 to 35 percent, and rent and occupancy 10 to 15 percent, with the rest going to smaller overhead and 10 to 20 percent left as profit.
What are the biggest expenses for a coffee shop?
Labor and cost of goods are the two biggest by far, together making up your prime cost. Rent is usually third. Labor is the largest cost you can actively control week to week, which is why it deserves the most attention.
What percentage of revenue should a coffee shop's rent be?
Rent and occupancy commonly run around 10 to 15 percent of revenue for a healthy shop, though it varies widely by market. If rent is consistently eating a much larger share, it can cap your margin no matter how well the rest of the shop is run.
What is prime cost for a coffee shop?
Prime cost is labor plus cost of goods sold combined. A common target is to keep it at or below roughly 60 to 65 percent of revenue. It's the single most useful cost figure to watch, because the two components trade off and together they largely determine whether a shop is profitable.
More reading: What's a healthy coffee shop labor cost? · Coffee shop profit margins in 2026 · See how Second Manager works →