The bar and nightclub industry continues to grow with 2019 seeing a 1.4% growth.
And while it doesn’t seem too bad, this growth is below the US inflation rate (2.3% in 2019). So, on average, costs have risen more than industry revenues. This suggests a significant strain on bar profit margins when we look at the big picture.
In this article, we’re going to review the average profits for several types of bars and provide some guidance on maximizing yours in light of macro circumstances.
We’ll start by defining profitability so we have a common measure to aim for.
Next, we’re going to compare traditional bars with pubs and wine bars to give you a better overview of profitability for different types of establishments.
Lastly, we’ll then dive into the main costs that affect profit margins and some tips on how to control them while growing revenue.
Ready? Let’s go.
What Is Profit Margin?
Before you can improve your business profitability, you need to have a clear understanding of what profit margin is all about and how to calculate it. Profit margin is expressed as a percentage – the higher the percentage the more profitable your bar is.
There are two types of profit margins you need to know: gross and net profit margin:
Gross Profit Margin
The gross profit margin is what’s left over after you deduct the cost of drinks and food sold, then multiply the sum by 100 to get a percentage ratio. The average gross profit margin for bars and nightclubs is 70 to 80%. You’ll want to aim for a gross profit margin of around 80% if you want your business to continue to be a success.
Net Profit Margin
Net profit margin is the percentage ratio of the business revenue remaining after you’ve deducted all the expenses from your sales, dividing by the gross revenue:
- Gross revenue – total expenses = profit
- Profit / gross revenue = profit margin
- Profit margin X 100 = your restaurant profit margin percentage
The average net profit margin for bars and nightclubs is 10 to 15%. However, the average profit margin for your business will depend on what type of establishment you’re operating.
Average Bar Profit Margins
Profit margins will vary across the bar and hospitality industry. According to Binwise, these are the average profit margins for different types of establishments:
Traditional bar – 10 to 15%
Bar serving food – 7 to 10%
Pub – 7 to 10%
Wine bar – 7 to 10%
Bar Profit Margin
While the average profit margin for a bar is between 10 and 15%, profits are less for those bars that also sell food. Why? Because you’ll need to factor in costs other than alcohol that include food costs, costs of running a kitchen, and additional employee costs.
With all of these costs calculated in, the average profit margin for a food-serving bar is 7 to 10%.
Pub Profit Margin
Owning and operating a neighborhood pub is similar to running a bar, with the same costs whether you’re serving food or not. Pubs usually have a more casual atmosphere, offering pub-style food for patrons while they enjoy a drink.
The average profit margin for a pub is comparable to a bar at 7 to 10%.
Wine Bar Margin
Wine bars continue to be popular, featuring a wide selection of local and global wines. Typically offering wine by the glass along with small food options, such as tapas plates, wine bars have lower operating costs than bars and pubs. However, the average pour cost for wine is higher than other beverages, which brings in the average profit margin for a wine bar at 7 to 10%.
Costs Of Running A Bar
Once you know your profit margins and how they compare to industry averages, you’ll need to understand the exact costs that go into running your bar in order to control them. They include the following:
If you’re just starting on the road to opening your own bar, startup costs and startup financing will lower your profit margins in the first year. Take these high startup costs into account when determining if you have enough revenue to make it into your second year of ownership without seeing a significant loss that puts your business at risk.
Startup costs include:
- Rent or leasing costs.
- Equipment and bar tools.
- Hiring, training and early payroll.
- Alcohol and food inventory.
- Branding and marketing.
Licensing and permits need to be renewed every year if you want to keep your doors open, so you’ll need to calculate this cost into your annual expenses. Based on the type and size of establishment you’re running, licensing fees will vary from state to state.
You’ll also need to factor in other administration costs, such as insurance, worker’s compensation, and taxes, including city, property, and sales tax.
The cost of managing your bar will also vary depending on type and size. Management costs to consider include:
- Accounting services – hiring accounting services ensures you’re doing everything right.
- Payroll services – leave payroll and deductions to someone experienced.
- Legal services – the legalities of running a bar can be complex and intricate – use legal services for ongoing advice or one-time information.
One of your biggest expenses will be employee costs. To be a success you need to staff your bar with the right number of employees so you can provide exceptional customer service. This includes bartenders, managers, and servers.
Increasing Your Profit Margin
When you know all the costs that go into running your business, you can focus on increasing your profit margin with these tips:
Lower Your Pour Cost
Paying attention and lowering your pour cost can help to increase your profit margin. What is pour cost? A pour cost percentage is a measurement of your gross profit margin on the drinks you sell. This means that if your pour cost is 21%, the remaining 79% is your gross profit from drink sales.
Costs will vary from beer to wine to spirits, but you should aim for an average pour cost of between 18 to 24%, with a goal of 20%.
How to lower your pour cost? When the cost of making a drink increases, so should the price you’re charging your customers. Otherwise your pour cost will rise, and your profit margin will start to diminish.
Review Drink Prices
Every couple of months take the time to review your drink prices. The prices you charge will be determined by several factors, such as your location, the type of establishment you’re operating, and if your customers have a higher preference for beer, wine, or spirits.
You’ll also want to price your drinks by taking into account every ingredient that goes inside, divided by the pour cost of 20%, to come up with the most profitable price.
Standardize Drink and Food Recipes
Taking the time to standardize your drink and food recipes helps to control the consistency and quality of each drink and cocktail your bartenders make. When every drink is prepared the same way, the consistency helps you manage your inventory more effectively, keeping your costs in good order.
Monitor and Reduce Bar Loss
One of the biggest ways to see a dip in your profitability is through bar loss – those drinks that are overpoured, spilled, or given away for free by your employees to friends and family.
One of the ways you can monitor and reduce bar loss is through video cameras that keep track of drinks that cross the bar. Using advanced software like Glimpse, you can determine what items were served but not recorded to your POS. This helps you manage your staff and keeps your employees honest.
Maintaining a healthy profit margin is reliant on careful inventory management. Close monitoring of your inventory lets you see what’s selling well and what isn’t. When you have this information, you can make changes to your purchase orders and avoid tying up money in inventory that sits on the shelf.
For effective inventory management, use techniques such as the FIFO (first in, first out) principle and unplanned inventory checks in tandem with your POS system.
Train Your Employees
The employees you hire can have a big impact on increasing your profitability. You need a team behind you that you can rely on, all the way from your bartenders to servers to front of house managers.
Not only is it crucial that your staff provides great customer service, they should be trained in best practices for your business. This means knowing every item on the menu, how to recommend and upsell drinks, and how to avoid over pouring and reduce spillage.
Weekly meetings can keep everyone on the same page, as you outline your expectations, reinforce guidelines, and provide encouragement.
Boost Your Marketing Strategy
Don’t overlook the power of marketing to increase your profits. Marketing strategies will let you reach new customers and connect with your regular clientele, giving them the incentive to come through the doors.
Market your brand and bar on social media platforms to promote Happy Hour, announce the creation of your new cocktail, and advertise your upcoming trivia or karaoke night.
Owning and operating a bar could be a good investment – with the right knowledge about managing costs and growing revenue.
When you understand the average profit margin for other bars, you can use the tips listed here to improve your own profitability by focusing on making a few key changes to your business operations.
Keeping your costs in check is the first step, but you should also strive to continuously improve each area such as inventory management, HR, and enforcing your operating procedures.
We hope this article was the next step in the right direction for your business. To learn more about Glimpse and how we can help you improve efficiency and profitability, book your free demo below.
You might also like:
- How to Use Data Analytics to Grow Your Bar and Restaurant
- How to Calculate the Break-Even for Restaurants?
- What Are the Most Important Restaurant Performance Metrics?
- How to Calculate and Reduce Overhead Costs in Your Restaurant?
Glimpse provides business analytics and loss prevention technology for bars, restaurants and nightclubs.
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