“Cafes are popping up like zits on a teenage’s face.” There was almost a minor incident involving my coffee when I overheard that bit of a conversation during my morning commute. Naturally my curiosity was piqued. I want to know exactly how easy it is to start a cafe in Singapore. And this is what I found.
Before you start, be warned that cafes in Singapore has a success rate of 1 in 10 after the first 3 years. So yes, cafes are popping up all over the place but they are also dropping like flies.
Budget. The common mistake is of course underestimating your cost and overestimating success. It is wise to be thorough on this part. Let’s start with the fixed and variable costs such as rent, ingredients and labor cost and then work up to figure out optimal sales in order to sustain the business.
Rent. Land is expensive in Singapore. The average price per square foot (psf) at Plaza Singapura for example is $14. So if you are looking to rent a small space for a typical cafe, you are looking at maybe 800 sqft and that translates to over $11,000 per month on just rental.
Most successful cafes operate with rental topping at about 8% of their gross sales. Say we set it at 10%, that would mean that you should work towards getting $110,000 in gross sales a month or about $1.3Million per annum in order to survive the third year. That would mean charging $20 per customer for about 180 customers per day or $10 per customer for 360 customers per day.
Ingredients. Another rule of thumb here based on other successful model is to keep your ingredient cost to below 1/3 of your overall gross sales. When you are selling coffee and pastries, every cents count and customers are particular sensitive any price fluctuations. Though prices for coffee beans are generally stable there are incidence where political situation in places like the South African or South American countries cause prices to spike. Though customers are always attracted by low price, you shouldn’t compromise the quality of your products.
Labor. The same 1/3 rule applies but because you are operating a small cafe and assuming you are working full time, all you need is another helper. To further reduce costs, most owners would opt for foreign workers or family members. You can also look at automating your services using a self-serve model like some yogurt shops that are increasingly popular. But do bear in mind that coffee connoisseurs usually factor services as part of their coffee experience and may give your cafe a miss if it is too automated and lacking in common cafe niceties.
Marketing. Most small cafes opt for minimal marketing and often leverages on social media to advertise their brands. As a social media marketing consultant, I have helped many such small business owners successfully start and grow their online presence with minimal budget. One misconception is that social media marketing is easy. It is not. To grow a right audience that know, like and advocate your brand requires time and effort. Most business owners I know would rather spend their time on running the cafes and that is where I come in. (I advise businesses, execute campaigns and conduct training).
There are a lot of other factors to consider like renovation and equipments that are not discussed in this short article. I am by no mean an expert in the cafe industry but have advised many clients who are operating small eateries and food stalls.
One last thing. If you are thinking of starting a business today, you can save yourself some headaches by consulting professional service providers. These companies will help you register business entities and settle all the legal documents for you. It saves you time so that you can focus on what matters most; your business. I recommend Healy Consultants Group PLC.
– Keith Kok is an independent consultant and contributor at Healy Consultants Group PLC