The Economics of Owning a Bar

The bar, tavern and nightclub industry in the United States has steadily grown since 2013 with total revenues of U.S.$28 billion for 2018, according to IbisWorld.

Beer and ale represent 42% of the sales; distilled spirits represent another 31%; and wine brings in another 10%. The average revenue per employee for a bar establishment is roughly $75, according to Statista and data for 2017, making it an attractive business for an entrepreneur. However, there are over 65,000 bar establishments in the U.S. alone, which is a highly saturated and competitive market. 

Startup costs are the first major hurdle to bar ownership. Total startup costs for a bar that rents or leases its location are estimated to be between $110,000 and $550,000, depending on size. A bar that purchases its location and pays a mortgage has an average startup cost of between $175,000 and $850,000. Already established bars for sale, on the other hand, provide a potential owner with startup costs of as little as $25,000. These include expenses on all physical assets needed to start up a bar.

Licenses, permits and insurance are also needed. All bars must register within the state of operation, obtain permits and purchase business licenses to sell alcohol. Costs of the license vary from state to state and require different application processes. The New York State Liquor Authority, for example, issues two-year Alcohol Beverage Control licenses to bars within the state of New York, for a fee of around $4,500.

Other operating costs are needed to run and maintain a bar. First, is the product, which can run more than $5,000 for alcohol alone. When ordering alcohol inventory, it is recommended to purchase 45% beer, 40% liquor, 5% wine and 10% mixers. An average of $13,000 per month is needed for a properly staffed, average-sized bar. Rent runs an average of $6,000 per month for 700 square feet in the Lower East Side of New York, for example.

Assuming the bar is established and ready to launch, there are possibilities for excess returns. While the amount a bar can earn depends on size, location and other factors, some estimates show that an average bar makes between $25,000 and $30,000 a week. This is assuming average-priced drinks of $8, average main dishes of $13 and average appetizers of $6. It is widely accepted that bars can make between 200 to 400% on drinks served, providing attractive margins for bar owners.

From a profit and loss perspective, to run a successful small to average bars, it costs around $110,000 initially to rent and prep a place for operations. Approximately $4,500 is needed for a liquor license, and along with smaller costs for permits and insurance, it is safe to assume a total of $5,000 is needed. The amount of $6,000 is required for inventory, bringing the total cost, prior to operation, to roughly $121,000.

Once the bar is open for business, an owner must spend $13,000 on staff, $6,000 on rent and a small amount on utilities and miscellaneous monthly purchases, bringing total monthly costs to $20,000. This does not include inventory replenishment, which can be done periodically for a smaller amount than the initial $6,000.

This means an average bar has monthly revenues of $25,000, monthly costs of $20,000 and monthly profits of $5,000. With an initial investment of $121,000, a bar owner can expect to pay himself or his investors back in a little over two years. However, these numbers are all based on averages and do not take into account the sweat equity needed to start and run a successful bar.