Making a profit from a small music venue isn’t a simple equation. With overheads that include booking fees, licensing, staff, and more, you need to maximize every source of income to stay in the black.
After all, the average fan spends $34 on tickets for a night out—and nearly as much ($26) on drinks. The trick is knowing how to balance your spending with theirs.
Artist upfronts and operating expenses can be unpredictable, but your bar costs shouldn’t be. To make sure you’re managing your bar efficiently and profitably, it’s important to understand how much you’re spending—and how to predict what you’ll bring in.
The key to effective bar management is forecasting your costs and sales. Here’s how:
Know your pouring cost to optimize your prices
When managing a bar, your pouring cost is one of the most important numbers to know. By using your pouring cost as a benchmark, you can monitor whether or not your bar is generating a consistent profit.
Put most simply, pouring cost is what you paid for an item divided by what you sell it for. Multiply that number by 100 to turn it into a percentage. Here’s an example:
- A handle of vodka costs you $20
- You sell 40 servings from that bottle, at $3.50 each
- That’s means you bring in $140 total ($3.50 x 40)
In this case, your pouring cost is 20 (the cost of the bottle) / 140 (your profit) x 100, or 14.3%.
Pouring cost will vary depending on your mark-ups on beer, wine, and liquor. In general, a pouring cost under 20% is considered reasonable.
Use simple strategies to reduce bar costs
Is your pouring cost above this benchmark? Anything from too many happy hour specials to a bartender who’s over-pouring could be to blame. Or maybe it’s just time to bump up your price per serving a bit. By staying on top of your pouring costs, you can flag issues faster and take action before you go in the red.
Here are a couple of questions to ask when determining the cause of high bar costs:
- Is your supplier overcharging you? When suppliers increase their prices, it affects your profit margins. You’re more likely to get good service and better deals if you build relationships with regular suppliers—but don’t let yourself be taken advantage of.
Get quotes from other suppliers regularly to keep your finger on the pulse of the market. Even if you don’t intend to switch, these quotes can help you negotiate with your current supplier.
- Is your bar team following standard drink recipes? Make sure all bartenders are following standard recipes for drinks. If a bartender uses double shots instead of single, that doubles your costs. You should also train staff to keep waste to a minimum, with tricks like how to minimize the amount of draft beer that ends up in the drip tray.
Monitor stock turnover to simplify bar management
Keeping your bar well-stocked is a must. You never want to run out of beer on a busy night. But if you overstock, your cash is tied up and you’re more vulnerable to theft.
To simplify stocking, calculate how many times you go through your entire bar stock in a month. For instance, if you sell $5,000 of beer a month, and have stock worth $2,500 at any given point, then you’re turning over stock 2x a month.
Your turnover time may vary, but most bars aim for around 0.5-1.5x a month for spirits, and 1-2x a month for draught beer.
Take the guesswork out of forecasting bar sales
Knowing your busiest nights is vital to stocking accurately, and staffing the bar properly. In the long run, getting good at forecasting can relieve some of the anxiety from your business.
New to forecasting? Here are a couple of simple steps to calculate a forecast:
- Reference your records. Past performance is your best guide to knowing what might happen in the future. Of course, selling $3,000 of beer last week doesn’t mean you’ll sell the same amount this week, but it can provide useful baselines for what you sell and when. Some point-of-sale systems can help automate this tracking.
- Use ticket sales to build estimates. By understanding how many tickets have been sold for a night, and your average number of walk-ins, you can estimate how crowded you’ll be that night.
Knowing that the average fan spends $26 a night on drinks — and how nightlife spending varies by audience breakdown and genre — you can do a quick and dirty bar forecast: Bar sales = (tickets sold + # of walk-ins) x average customer spend.
This number may not be perfect, but by repeating the exercise several nights in a row, you can start to get a feel for how you can tweak the calculation to most accurately reflect your sales.
It’s also natural that this number changes based on the crowd, day of the week, and the season. An older crowd may drink more wine than beer, weekend drinkers may be a bit rowdier than weekday drinkers, and good weather may increase spend if you have an outdoor patio.
Use a bar inventory spreadsheet to save time
To forecast faster and more effectively, it’s worth developing a system and forecasting an entire week or month at a time. Many accounting systems are built for this purpose, but automated spreadsheets can work surprisingly well.
Ready to take your bar management to the next level? Download our free weekly bar inventory spreadsheet to calculate bar costs and forecast sales — without the mental math.