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This is a business, not a passive investment. At least in the early stages. You'll need to put in the time to make your bar successful. And that means a lot of bar, restaurant cleaning, and bar inventory work.
It requires a large upfront investment, which can be a tough barrier to entry.
Operating costs are high. You have to spend money to make money!
A restaurant marketing plan, including restaurant SEO, requires consistent effort.
For bar owners and operators, strategizing right now is a great way to increase your bar profit margin. One of the best steps to increasing your bar earnings is to look at the most profitable bar food you can serve. While classics like hamburgers and fries will never go out of style, some great options to try include:
Instagrammable food trends - customers will be looking for foods they can share on social media.
Comfort food options - we all need some cheese fries and a shake after the past few years.
Well-garnished cocktails - not technically a snack, but bigger, bolder cocktails are gaining some fame this year.
Expanding your menu to include these snacks and treats will help increase your bar profits this year.
Yet there is something that isn't complicated. When you open your bar, the best way to increase bar profit margins is to take control of liquor inventory control. That's why any bar manager or owner who wants to run a serious business should use liquor inventory software.
If you can manage your liquor purchase and price per pour, you can make the profit margin on alcohol sales work greatly in your favor. While replenishing your liquor costs is a fixed expense, it can be manageable if you buy wholesale and keep your inventory organized. If you can keep your drink costs low, you'll be well on your way to a good profit margin on alcohol sales. When planning your beverage costs, keep things like ingredient cost (including alcohol) and the number of drinks you sell in mind. By understanding the liquor cost formula, you can gain more insight and control over your profit margin on alcohol sales:
Liquor Cost = (Stock Used ÷ Total Sales) x 100
Using this formula will give you a good idea of how to run your bar business.
The average gross profit margin for a bar is between 70% and 80%. This is huge considering businesses like general retail and automotive are around 25%.
And this is mostly due to liquor cost. A drink with a low pour cost is the beating heart of a profitable bar or restaurant.
The average net profit margin for a bar is between 10% and 15%. Gross profit margin is the difference between total restaurant sales revenue and cost of goods sold (COGS). Net profit margin is what remains from gross profit margin after all operating expenses are taken care of. This number depends on the type of bar you run.
You can expect about a 7-10% net profit margin for a wine bar - a bit less than a standard bar. However, if you open a wine bar and wine shop, this can increase significantly. On one side of the space, guests can drink wine. On the other side of the space, they can purchase bottles of wine.
The gross profit margin at a wine shop will be smaller than a wine bar, but the net profit margin will be a bit higher. This is because you're likely selling more bottles of wine through retail than you'd serve at a bar.
Wine itself has a higher pour cost than beer and liquor pour costs.
Profit margins at a pub are fairly close to industry averages for bars at 10 to 15% net profit margin.
Beer pricing and alcohol pricing is where most of the pub profits come from. This assumes your bar doesn't serve food. If your bar serves food, this puts you closer to a bar and grill's profit margins.
Additionally, if you serve food, another profit lever you can pull is experimenting with different types of menus and limiting food costs.
Knowing all aspects of opening a bar will help you run a profitable bar. However, there are a few more ideas you'll want to consider:
As with all other businesses, you need to monitor finances to ensure you're making the best business and financial decisions. Consider reports such as:
Food and Beverage Sales Reports: These reports should be generated daily, weekly, and monthly.
Prime Cost Report: Prime cost is the total cost of goods sold (food and liquor) plus any additional labor costs.
Inventory Reports: Run inventory reports weekly. It's best to use inventory management software to help you. However, don't forget to get liquor reports daily.
Cash Flow Statements: Cash flow statements identify cash inflows and outflows for specific periods.
Profit and Loss Statement: Profit (or loss) is calculated by subtracting expenses from revenue.
If you know what you serve is a popular beer, make sure you always have enough high-demand product in stock to meet needs. Demand planning is crucial to keep your business at the top.
Over-pouring wastes hundreds, sometimes thousands of dollars. Your revenue and profit are easily affected by over-pouring. Use measured pourers and a liquor cost calculator to help you.
Also, consider putting time into bar staff training. Your bartenders should be using jiggers to prepare consistent cocktails every time.
It's best practice to optimize your restaurant menus. For example, you can track your menu item sales to calculate which products sell the most. This way you can price them accordingly.
Running bar promotions like happy hour allows you to offer drinks at discounted prices. The idea here is to attract customers to your bar to make purchases.
You can also host special holiday events or trivia nights. This keeps customers staying longer, which leads to more purchases.
Overall, the answers to questions like "Is owning a bar profitable?" and "How can a bar be more profitable?" are close to each other. This answer largely depends on how you decide to manage the bar. Also, net profit margin is variable; you need to compare it to the baseline of an investment in the stock market.
Owning a bar can be an exciting time for you as a business owner. Being your own boss is not only liberating but also a great opportunity to network and make money.
Owning a bar has the potential to be one of the most profitable investments one can make. When operated correctly, it usually yields good returns.
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