The bar and nightclub industry grew 1.4% in 2019. That’s pretty big for an industry with a market size of $27.1 billion. It’s a huge, growing market and opening a bar can look attractive. But how profitable are individual bars? And does that profitability trickle down into bar manager salary and how much bar owners make?
Let’s figure it out. First, we’ll look at the costs of opening and operating a bar, then at the average profit margin for a bar (the most important restaurant KPI). Finally, we’ll cover how much bar owners make a year and whether or not opening a bar is a good investment.
How Much Does Opening a Bar Cost?
The average cost of opening a bar is $420,000. 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 labor cost. 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.
How Much Does Operating a Bar Cost?
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. It's important to learn how to manage cost for restaurant business to succeed.
What’s the Average Profit Margin for a Bar?
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 cost. A beverage program with 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%. The gross profit margin is the difference between total restaurant sales revenue and cost of goods sold (COGS). The net profit margin is what’s 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. 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. Gross profit margin on a wine shop will be smaller than a wine bar. But net profit margin will be a little higher. That's because you’ll likely be selling more wine bottles retail than you’ll be serving at the bar.
Wine itself has a higher average pour cost than beer and liquor pour cost. 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. There’s no expensive draft beer system to maintain—and no having to calculate how many beers 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 is substantial. Using LTO (see LTO meaning) bar promotions like happy hour can increase this margin.
Subtracting the average restaurant net profit margin from a bar’s average net profit margin, the average net profit margin for a bar and grill is about 7–10%.
Pub Profit Margins
The profit margins on a pub stick pretty close to industry averages for bars, which is between 10 to 15% net profit margin. Beer pricing and alcohol pricing are the source of most pub profits. This is assuming your pub doesn’t serve food. If your pub serves food, that 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 types of menu and limiting food cost.
So how much can a bar owner expect to take home?
How Much Does a Bar Owner Make?
A bar owner 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. 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. If revenue is higher, you can approximate the salary using these numbers.
Is Opening a Bar a Good Investment?
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 take into account the large upfront costs opening a bar requires, though. This only takes into account annual profits once a bar is up and running.
Pros and Cons of Owning a Bar
Reasons to Open Your Own Bar
- Successful bars have a higher average annual return than the stock market.
- You’ll be providing enjoyment and creating a safe neighborhood space where people can relax. That’s a net positive for humanity.
- Your bar will be an employer. You’ll be helping your neighborhood, your town, and your local population develop.
- The upside is very high. If your bar is popular, your net profit margin ceiling is higher than an average mutual fund.
- If you and your staff know how to upsell, profits can skyrocket.
- You’ll be earning a living doing what you like in a fun environment.
- It’s the opposite of a desk job. From designing the bar’s layout to its theme and specials, no day will be the same.
- You need to know how to manage a restaurant balance sheet.
Problems with Owning a Bar
- It’s a job, not a passive investment. At least in the early stages. You’ll have to dedicate time to make your bar a success. And that means a whole lot of bar and restaurant cleaning and bar inventory work.
- It requires a large up-front investment, which can be a formidable barrier to entry.
- Operational costs are high. You gotta spend money to make money!
- A restaurant marketing plan—including restaurant SEO—takes consistent effort
- You have to work evenings, weekends, and holidays. At least initially.
- There is a high restaurant failure rate, so you need to stay on top of things to make it
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.
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. That’s why any bar manager or owner who wants to run a serious business should use liquor inventory software like BinWise Pro.
It saves bars literal days taking inventory. And it provides bars with inventory metrics like pour cost and par levels and tools like a variance calculator. All to help bars make the most profitable decisions possible.
If you use inventory management like BinWise, opening a bar will be a great investment. Book a demo!