In 2019, expansion in the bar and nightclub sector was 1.4%. For a market estimated at $27.1 billion, that is substantial. It's a sizable and increasing industry, making the prospect of starting a bar business appealing. The question is, how profitable are individual bars? Also, how much do bar owners and managers benefit from this success? Together, we can solve this. We'll start with what it takes to run a bar and how much money they typically make before we dive into the business itself (the most important restaurant KPI). Finally, we'll discuss the annual income of bar owners and whether or not it's a good idea to open a bar.
How To Open A Bar?
You may have always wanted to open a bar because you are an innovative entrepreneur with a penchant for making new friends. You've always been intrigued by the buzz and camaraderie of the hospitality industry, whether it's a quiet wine bar or a lively beer garden. While the idea of opening a bar is exciting, you likely have many questions. The complexity of launching is challenging for anyone, regardless of experience or entrepreneurial spirit.
This book will help you make your dreams a reality by providing an in-depth breakdown of the steps required to launch a successful bar.
Determine what kinds of authorizations or permits you have to operate. All bars, in addition to requiring registration with the appropriate authorities, also necessitate a liquor licence from the relevant state authority; for details on the specific licencing requirements in your state, see here. If you plan on serving food or playing music in your establishment, you will need to apply for the appropriate licences before beginning any renovations.
Think about different ways to finance your bar. The costs of opening a bar and keeping it running should be taken into account. In order to get the business off the ground, you will likely need access to capital, and many new bar owners turn to investors for this purpose. Many business owners also investigate the possibility of obtaining a loan for their enterprise. It's not just the start-up costs that can be covered by a business loan; later investments in things like advertising, equipment, and expansion can all be made with the money as well.
Identify an appropriate site. The location of your bar is crucial to its success. When scouting potential spots for your bar, keep in mind the target number of customers, the local competition, the demographics of your ideal clientele, and the expected length of time they will spend there. In light of these considerations, you can zero in on the optimal square footage and neighbourhood for your needs. Make it a point to avoid places that seem to always be under construction.
Make a plan for your company's success. A business plan is a blueprint for the future of your company. The goals and strategies you have for your bar are laid out in your business plan. It's a management tool for getting things done, both quickly and over the long haul. Market and competitive analysis, product and service descriptions, financial projections, and an outline of how you intend to run your business should all be included in your business plan.
Protect your brand by getting a trademark. Value can be increased through the establishment of a memorable brand when opening a bar. A customer's first impression of a company is formed by its logo and the name it chooses to do business under. When starting a business, it's important to choose a name carefully and register it as a trademark.
Pros And Cons Of Owning A Bar
Reasons To Open Your Bar
- The average annual return of profitable bars is higher than that of the stock market.
- You'll be entertaining people and establishing a secure neighbourhood area where they can unwind. That benefits humanity overall.
- An employer will be your bar. You'll support the growth of your town, neighbourhood, and community.
- The potential upside is huge. If your bar is well-liked, your nett profit margin ceiling is higher than the typical mutual fund.
- Profits can soar if you and your staff know how to upsell.
- You'll be able to do what you enjoy while making money.
- It contrasts with a desk job. The layout of the bar, its theme, and its specials will all be different every day.
- You must be able to control a restaurant's balance sheet.
- Issues with Bar Ownership
- It's not a passive investment; it's a job. at least in the beginning. You'll need to invest time if you want your bar to succeed. And that entails a significant amount of cleaning and inventory work for bars and restaurants.
- It has a high entry barrier and requires a sizable initial investment.
- The cost of operations is high. To make money, you must first spend money.
- It takes consistent work to implement a restaurant marketing strategy, including restaurant SEO.
- You must work on the weekends, holidays, and in the evenings. at least at first.
- You must remain vigilant if you want to succeed in the restaurant industry because failure rates are high.
- The Costs Involved In Opening A Bar
- Every would-be bar owner fantasises about running a successful business that brings in a lot of money. Prior to moving forwards, you must make plans for the expenses and financial effects of operating your bar. There are a few necessities every bar needs, even though the initial cost of your bar depends on the type of establishment you open:
- Your location, as well as any remodelling or construction costs
- Tables and chairs
- Coaster Supplies (ice bins, blenders, mixers, dishwasher)
The opening of a bar doesn't magically make costs go away. Consideration of ongoing expenses is recommended. Some typical operational expenses are:
- Employee management
These expenditures need to be monitored and controlled closely to prevent a runaway spending spree. Why not plan ahead to save money by being as resourceful as possible? To begin, don't give too much thought to the drinks you intend to serve. Make your drink menu straightforward without sacrificing variety or flavour by sticking to the tried-and-true staples. Customers can be easily confused by lengthy drink lists, and you'll need to stock more of each item to accommodate them. You can also regularly provide seasonal specials or merchandise. Customers are more likely to return if your drink menu is always evolving, which is why experimentation is so important.
Bar owners can save money by using the sales data gathered from their point-of-sale analytics software on a regular basis. You can, for instance, see which drinks are popular and which aren't, allowing you to adjust your menu offerings. Determine your busiest and slowest times of day so that you can better allocate resources and staff accordingly. Money can be saved by reducing waste in your bar. Costs can increase on the P&L if there is a lot of waste from things like drinks being spilt, wrong orders being filled, or ingredients going bad. Observing an increase in these could indicate a need to rethink your approach to employee education.
Your patrons are accustomed to quick service and short waits at the bar. A POS system that is both reliable and quick to process transactions is essential for a successful bar. Payments processor integration and hardware that supports all major credit cards, debit cards, prepaid cards, and mobile payment systems are essential for any point-of-sale system (like Apple Pay and Android Pay). Added functionality tailored specifically to bar management can streamline routine tasks. Among the features you should seek out in a bar POS system are:
- The option to create "open tickets" so that customers can request open tabs at the bar. It is important for a bar's POS system to allow customers to add items to an already paid for ticket so long as the ticket is still open.
- Bar menus can be created on the POS system, and stock levels can be monitored with the help of inventory management. There are a lot of alerts that bar owners can set up for their inventory to let them know when they're getting low.
- With the built-in tipping system, customers are encouraged to leave gratuities for the service they received. The tipping feature in Square can be enabled or disabled at the point of sale, giving you the freedom to choose whether or not to make it available to your customers.
- Knowledge of Stock
- Talk to distributors about stocking your bar after it's opened. It might seem like a simple solution to inventory management to just take occasional glances at your stockroom to see what you have. The reality, however, is that bar stockpiling can be a much more convoluted affair. The first thing you need to do is choose the kind of alcohol you'll be drinking. Most bars have at least three tiers of alcohol available: house, on tap, and top shelf, regardless of whether they serve beer, wine, or spirits.
It's also important to think about the kinds of alcohol you'll be selling. If you're serving a vodka cocktail, for instance, you might suggest three different labels to your customer. The same concept applies to wine: Put three distinct pinot noirs on the menu to give customers a range of pricing options. You should then examine your drink menu and compile a list of all the non-alcoholic ingredients you'll need. Mixers and cocktail ingredients, such as syrups and fruit, could fall under this category. Seeing the overlap between ingredients for various drinks helps you gauge the depth of your stock.
The time has come to determine how much stock to order. You must first estimate the amount of alcohol and other ingredients needed based on the number of drinks ordered each night throughout the week. Even though it's tough to predict inventory when opening a bar, you'll be able to use POS analytics to do so on a weekly basis after the first week. Though it's a pain, learning how to better manage your bar's stock and track the life cycle of your inventory is essential for saving money and avoiding waste.
Making Money At Your Bar
When you see a bar like this, you might start to wonder how much money they make. When first opening a bar, it's common for profits to be reinvested in the business. It's fine if you don't, by the way.
As you work to establish your bar's identity and see its popularity grow in the neighbourhood, you will inevitably see it turn a profit. On the other hand, if you want to increase your profits, you can take deliberate action and change the way you normally do business.
Examine drink costs.
If you're opening a bar, you need to figure out how to charge customers a fair price for drinks while still making a profit. It can be done by adding up the individual costs of the ingredients that go into making a single drink. That means figuring out how much each cocktail costs per gramme or per garnish. A detailed breakdown of your earnings may sound boring, but it can help you plan your budget more effectively. In response, you can adjust your prices as necessary.
Value customer service.
The success of your bar hinges in large part on the quality of the service you provide to your patrons. Bartenders who seem disinterested in their customers may be losing business. When hiring and training new staff, it's important to be specific about the level of service you expect. The point-of-sale system can also be used to add tools that will assist in enhancing the quality of service provided to customers.
In a busy setting like a bar, upselling can be difficult but is essential for increasing profits. Motivate your staff to subtly upsell by putting high-end liquor at eye level behind the bar and mentioning different brands when customers place orders. Bonuses and additional vacation time are just two examples of the kinds of incentives that can encourage staff to upsell.
So, Are Bars Profitable? Like most big questions, the answer is nuanced. Once you're past breaking even, profitability is relative. There are pros and cons to opening a bar. The net profit margin is variable. And you have to compare it to the baseline of an investment in the stock market.m There is one thing that's not complicated, though. When you open your bar, the best chance of increasing the bar's profit margins is getting a hold of liquor inventory control.
FAQs About Nightclubs In Melbourne
The average cost of opening a bar is $420,000. Therefore, the average cost of opening and running a bar for the first year is about $710,400.
These numbers consider the cost of both renting/leasing and buying and labour costs. They're meant to give a ballpark figure regardless of how you secure a property and play a major role in your p&l restaurant statement.
It costs about $24,200 per month in recurring operating costs to run a bar. That includes alcohol costs, staff wages, licensing fees, and rent or mortgage payments. This is also called the prime cost. Therefore, it's important to learn how to manage costs for restaurant businesses to succeed.
The average gross profit margin for a bar is between 70 and 80%. That's enormous considering businesses like general retail and automotive are around 25%. And that's mostly because of liquor costs. A beverage program with low pour cost is the beating heart of a good bar or restaurant.
The average net profit margin for a bar is between 10 and 15%. The gross profit margin is the difference between total restaurant sales revenue and the cost of goods sold (COGS). The net profit margin is left of the gross profit margin after all operating expenses have been taken care of. This number depends on the type of bar you're running, though. So let's look specifically at wine bars, pubs, and bar and grills.
Wine Bar Profit Margin
You can expect a net profit margin of around 7–10% for a wine bar. Just a little less than a standard bar. But that can increase considerably if you open a wine bar and wine shop. On one side of the space, guests can drink wine. And on the other side of the space, they can buy bottles of wine. So the gross profit margin on a wine shop will be smaller than a wine bar. But the net profit margin will be a little higher. That's because you'll likely be selling more wine bottle retail than you'll be serving at the bar.
The wine itself has a higher average pour cost than beer and liquor pour costs. But a wine bar has fewer overhead expenses, and markup can be substantial for both wine by the glass and wine price. Read more about how to price a menu. In addition, there's no expensive draft beer system to maintain—and no having to calculate how many beers are in a keg for inventory purposes—and less bar equipment is needed. Think a three-compartment sink, an ice bin, etc. The wine industry is one of the brightest spots in the bar industry. The wine industry growth rate is substantial, and you can be forgiven for wanting to enter the space.
Average Profit Margin For A Bar And Grill
Food has a lower profit margin than alcohol. Restaurants typically fall between 3–5% net profit margin. Food is not marked up as much as alcohol. And the overhead cost of maintaining a kitchen, licensing, and skilled food service workers are substantial. Using LTO (see LTO meaning), bar promotions like happy hour can increase this margin. Just make sure you know happy hour and the best happy hour times. Subtracting the average restaurant net profit margin from a bar's average net profit margin, a bar and grill's average net profit margin is about 7–10%.
Pub Profit Margins
The profit margins on a pub stick pretty close to bar industry averages, which is between 10 to 15% net profit margin. Beer pricing and alcohol pricing are the sources of most pub profits. This is assuming your pub doesn't serve food. Suppose your pub serves food, which puts you closer to the profit margins of a bar and grill. Also, if you serve food, another profit lever to pull is experimenting with different menu types and limiting food costs.
A bar owner's yearly salary will be drawn from or be the bar's net profit margin. The average bar revenue is $27,500 per month, which translates to an average of $330,000 annual revenue. The average monthly bar expenses are $24,200. That leaves about $39,600 net profit annually. If a bar owner took all the net profit, instead of reinvesting some of it back into the bar, the average bar owner makes just shy of $40,000 per year.
Those numbers are based on a 12.5% net profit margin, the average between 10 and 15%. And an annual revenue of $330,000. So if revenue is higher, you can approximate the salary using these numbers.
Yes, opening a bar can be a good investment. The average net profit of a successful bar is more than the average annual return from the stock market, which is the best frame of reference for determining if an investment is good. Over the last century, the stock market has returned an average of 10% on investments. You lose about 2.5% of your purchasing power annually due to inflation. That means you can expect an effective return of 7.5% annually from the stock market. This does not consider the large upfront costs opening a bar requires, though. This only considers annual profits once a bar is up and running.