As the term value implies, you should not only search for a location taking into consideration the costs that you will pay, but also what you receive in return for that cost.
Pop Quiz
Which of the following locations makes more money?
A) 1,500 Sq. Ft @ $10 Sq. Ft location that attracts 150 customers daily; or
B) $20 Sq. Ft location of same size that attracts 300 customers daily; or
C) Both make the same amount.
Pencils down! (Sorry, got a little carried away there).
If you said “B,” you’re right - very right. In this scenario, that extra $1,500 you commit to pay each month generates approximately $13,000 in additional gross income (after the cost of goods sold!) each month at reasonable coffee shop product prices and conservative profit margins (~65%). Even if that higher customer volume requires more staff hours and other increased demands such as electricity and water, the vast majority of that $13,000 will end up in your pocket at the end of the month: that’s good value for your investment dollar.
So how exactly are you supposed to estimate the number of customers that may visit your business? Some traditional texts estimate that average retail coffee shop are frequented by .2% to 1% of proximate vehicle traffic (higher for pedestrian traffic). As the law of averages goes, this estimate is pretty reasonable. For the best accuracy, you will need to take make adjustments accounting for local area demographics, visibility of the location, traffic patterns (in addition to volumes), accessibility and competition – this is best done by with the assistance of a professional. If you have nearby competitors, it is always a good idea to take a seat in their shop or parking lot and count the volume of customers they serve at varying times of the day and days of the week.
We recommend that rather than take a best guess on any single number that you should create projections for conservative (low customer volume), moderate (reasonable volume) and aggressive (high customer volume) scenarios. Develop your response to each of these situations and be prepared to act; you will find that the stress and uncertainty often associated with financial planning of a new business will be significantly reduced when you have a pre-developed response policy that is understood and ready to execute.