The bar and nightclub sector in the US is enormous. In 2022, it stood at 26.67 billion dollars - after a sharp 27% decline in 2020.
However, the same statisticians suggest that an increase in the sector is imminent. That may have made you wonder, is it worth opening a bar?
If you’re new to the sector, you’ve probably heard about how stressful the bar industry is. And, if you’re already working in the industry, you’ll be acutely aware of that fact. But this makes it an excellent decision to enter as a new bar owner.
Today, we’ll focus on the potential profitability you can expect from a new bar venture. We’ll look at the following:
- How much it costs to open a bar
- The operating costs you’ll have to contend with
- The pros and cons of starting a bar
- The net profit margin you can expect owning a bar
So, let’s get into it and answer the critical questions about how to open a bar.
How Much Does It Cost To Start a Bar?
It’s challenging to settle on an average cost for opening a bar. There are so many things that can impact the cost of starting a bar, including:
- Where do you decide to open
- When you open your location
- The style of the bar
- Whether or not you’ll have wet and dry sales (or none of the latter)
- The type of venue you want to open
Despite this, it helps to have a number of you are working toward. According to accounts software firm Sage, the average cost is around $480,000. However, considering the above factors, this can range anywhere from $110,000 to $850,000.
There’s some good news if you’re taking over an existing bar and operation. With the proper planning, you can expect to get started for as little as $25,000. Now that you can estimate how much it costs to start a bar, let’s consider other vital factors for your business plan besides startup costs.
How To Open a Bar: Operating Costs
Opening a bar is just the start. Once you’re up and running, there are many recurring and ongoing costs to consider.
Here are some of the most common:
- Rent or mortgage payments: Budget for a surplus that enables you to cover at least the first six months.
- Insurance: Ranges from $2,000 to $6,000 annually.
- Utilities (gas, electric, water): Around $2,500 per month depending on location.
- Initial inventory: Keeping the bar stocked monthly could cost up to $10,000.
- Payroll: Retain talented team members by paying your employees on time.
The average bar owner needs to consider funds for marketing and promotion. However, much of that can be undertaken at a meager cost initially if you’re willing to put in a lot of time and effort yourself. Decide if you can fully oversee the bar’s social media presence and website.
Then, all the little costs can be easily overlooked. If unexpected problems arise, you need maintenance and repairs, office supplies, internet fees, and contingency funds. This is why having a surplus in your bank account is vital.
Are Bars Profitable? Pros and Cons for Bar Owners
If the above costs have you put off immediately, then hold your horses. Opening and running a new bar would never be a low-cost endeavor, but it is one of the best decisions many people make.
That could be you, so let’s dig into the pros of opening your bar. They include:
- Enjoy a higher average annual return than even the stock market.
- High profits if you know how to upsell on drinks with liquor costs.
- The ability to become a key employer in your area.
- Be your own boss and earn a living from something you love doing.
- The opportunity to build a vibrant, loyal, and delighted customer base.
Despite the benefits of opening a bar, it’s only for some. The disadvantages of opening a bar include the following:
- The fact that it’s not a form of passive income - you’ll have to work long, hard hours to make it work.
- Evenings, weekends, and holidays may be hard to come by during those early stages.
- You’ll need a big upfront investment to get going.
- There’s no escaping the fact operational costs are high.
- For as much as you can do some of the marketing yourself, you will need to invest in marketing materials and paid advertising.
If you’re still on the fence, let’s get into what you can make profit-wise when running your own bar.
How Much Does a Bar Make: Average Gross Profit Margin
Net profit margins and operating margins are important restaurant benchmarks to keep in mind when focused on starting a bar. A bar’s average gross profit margin is between 70 and 80%. Compare that against nearly every other industry, and it’s enormous! The net profit margin, after you’ve accounted for the cost of goods sold (COGS), can be anywhere between 10 to 15%.
The reason for this is simple: the cost of liquor and the flexibility you have with pricing.
For instance, selling wine by the bottle at a considerable markup is common. But you need to be aware of factors such as the pour cost, which can significantly impact the profitability of each drink you sell.
Wine by the glass has a higher average pour cost than beer and liquor. This means it can result in greater levels of wastage if full bottles aren’t consumed. Consider all of this when pricing your menu to retain maximum profitability for every drink you sell.
Regarding you, the business owner, the average bar owner makes a yearly salary drawn from the bar’s net profit margin. After bar startup costs and if the bar is achieving $330,000 in annual revenue, that will equate to a yearly wage of around $40,000 per year. This is if you take all the net profit instead of investing it back into the business.
This is why bar owners typically take much lower wages for the first two or three years of operating to maximize profits and reinvest those profits into the bar itself. Then, the reward can be increased when you have a profitable bar and the business predictably grows.
The Bottom Line: Is Owning a Bar Profitable?
If you are still wondering if owning a bar is profitable, the answer is yes. But only if the business owner has a solid grasp of business structure and financial projections with a business plan. The intricacies of menu pricing, table management, and gross profit margins are only a part of a bar’s profitability.
It’s essential to remember that a bar’s net profit margin is also variable. It’ll fluctuate with trade, competitor activity, and stock cost. This is why a bar owner can never stand still or assume everything will continue to be profitable with a successful bar. You need to reinvest as much profit as possible and ensure your menu pricing moves with the times and your competition.
In order to make it in the hospitality industry, bar owners need to consider more than how much profit they will make. Bar profits won’t roll in unless your new neighborhood bar has local brand awareness. Take advantage of WiFi marketing software by providing a free guest WiFi solution with Beambox.
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