Calculating income from bar operations for a startup: question in the Group Startups

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Permalink Reply by Jeffrey J Kingman on February 11, 2010 at 4:03pm

Robert,

Projections are fairly subjective. Quite a while ago, a mentor stated to me: make your sales projectiong, cut it in half, and cut it in half again. Then, double the expenses for that area. Can you still make a go of it? Anyway...

How many seats in the bar area? Are you expecting one turn per night or more? How much in sales per person are you expecting from the bar patrons?

Permalink Reply by Barry K. Shuster on February 16, 2010 at 3:29pm

Hi Robert:

This is Barry Shuster, founding editor of Restaurant Startup & Growth (www.RestaurantOwner.com). Our magazine ran an article "Rules of Thumb" to help startup operators address these kinds of issues.

According to industry statistics compiled by Jim Laube, one of our key contributors, president of RestaurantOwner.com and well-regarded restaurant accountant and consultant, the following are industry average ratios expressed as percentage of the cost of sales of various bar items. Please note, all percentages are the ratio of each item's cost divided by its sales, not total sales or total beverage sales. For example, liquor cost percentages are based on liquor costs divided by liquor sales.

• Liquor - 18 percent to 20 percent.

• Bar consumables - 4 percent to 5 percent as a percent of liquor sales (includes mixes, olives, cherries and other food products that are used exclusively at the bar).

• Bottled beer - 24 percent to 28 percent (assumes mainstream domestic beer, cost percent of specialty and imported bottled beer will generally be higher).

• Draft beer - 15 percent to 18 percent (assumes mainstream domestic beer, cost percent of specialty and imported draft beer will generally be higher).

• Wine - 35 percent to 45 percent (the cost percentages of wine can vary dramatically from restaurant to restaurant depending primarily on the type of wines served. Generally, the higher the price per bottle, the higher the cost percentage).

Of course, there are other issues related to bar profitability, such as theft, bar menu sales, sales mix, allocation of square footage, labor, etc. That said, I hope this provides some useful insight in helping you arrive at realistic projections.