The Economics of Owning a Bar

If you love the nightlife and the boogie but still can't figure out the best way to earn a living, why not consider opening up your own bar? Businesses in this industry, which include bars, pubs, taverns, and nightclubs, make their money by selling alcohol and providing people with entertainment.

While there can be plenty of glitz, glamor, and excitement, opening one of these establishments often requires a sizable initial investment. And don't forget the ongoing costs and risks, such as the COVID-19 pandemic, which shuttered many of these businesses either temporarily or permanently.

But if you play your cards right, you can set yourself up for a really rewarding and fulfilling future. In this article, we go through some of the major startup costs and ongoing expenses, not to mention other considerations that you'll need to know before you open up a bar or other related business.

Key Takeaways

  • The bar and tavern industry has grown steadily in the United States, creating a good opportunity for people who want to own their own businesses.
  • There are a number of factors to consider when you're starting out, including getting your business plan, determining your location, registration, getting permits and licenses, and marketing.
  • Startup costs are high, and often include location, permitting, inventory, wages, and insurance.
  • Alcohol and food have some of the highest markups and help rake in high gross profit margins.
  • Consider some of the risks associated with the industry, including property damage, liability, theft, and data breaches.

Getting Started

The U.S. bar and nightclub industry is among the largest in the accommodations and food service sector, ranking ninth overall. Worth roughly $28.6 billion in 2022, it grew 0.9% every year between 2017 and 2022. That's quite a feat when you consider it was affected by the COVID-19 pandemic. Many business owners temporarily ceased operations or shut down completely. Those lucky enough to remain open had to shift the way they do business. But with regulations becoming more relaxed, it may be a good time to start thinking about following your dream of being a bar owner.

One of the main things you'll have to consider is the type of business. Are you going to open a bar, tavern, pub, or nightclub? They may all seem the same—and they all serve alcohol—but there are some subtle differences. Bars typically only sell drinks, while taverns and pubs also offer food. Nightclubs sell alcohol, music, and entertainment. They are generally open at night.

Another consideration is the location. You'll notice that a lot of the establishments are in established neighborhoods. Pubs and taverns that offer food are usually in places that have a community, neighbor-y feel—think Cheers. Bars, or those that generally only offer drinks, and nightclubs tend to be in very hip and happening areas. Avoid areas that are hard to access. and make sure you have ample parking for your customers.

Now that you've got the two main basics down, here are a few other considerations:

  • Develop a business plan
  • Come up with a name
  • Register your business
  • Get the necessary permits and licenses
  • Figure out how you'll market your business and drum up business 

Costs

Startup costs are the first major hurdle to bar ownership. These expenses range from real estate and documentation to additional costs, such as supplies, wages, and insurance. Costs can range anywhere between $100,000 and $850,000, including startup costs. But you can start this kind of business for much less. Still interested? We've highlighted some of the key facts about these costs below.

Location

One of the first costs to consider is how much you'll pay for the space. That figure varies, based on a number of factors, including where you plan to do business, the size of the location, and the type of establishment you're going to establish. Once you have that nailed down, you should decide if you want to rent or own.

Renting may be the easiest way to live out your dream as a bar or nightclub owner. You may be able to negotiate many of your building costs into your rent, so this may be the most economical. But keep in mind that you'll have to answer to your landlord.

If you want to avoid that hassle, buying may be the better option for you. This is often more costly and complicated because you have to qualify for and make a monthly mortgage payment. But it does give you more flexibility and freedom, especially if you want to make changes to your establishment.

If all else fails, consider taking over a location that's already established. The current owner can give you a good idea of the costs and expenses they've had to pay and you'll already have an established customer base and business plan in place. That is, of course, if you don't decide to do a complete overhaul.

Documents

Once you have the location, you'll also need to secure the proper documents and insurance coverage. After all, every bar must register within its state, obtain the necessary permits, and purchase business licenses to sell alcohol. Licensing costs vary from state to state and require different application processes. For example:

  • The New York State Liquor Authority issues licenses to bars within Manhattan, Bronx, Brooklyn, and Queens for about $4,400.
  • Bars in Arizona, on the other hand, must pay $1,650.00 to get a full-year liquor license. Counties and municipalities in the state, though, may charge bar owners additional fees.

Additional Costs

  • Alcohol and food: This should be a no-brainer—clearly, you'll be selling alcohol when you open a bar. And you may want to include some type of food option, even if it's just snacks (chips, popcorn, and pretzels) at the bar. This can run you upwards of $10,000. Smaller businesses may spend more. And if you're a large nightclub, expect this cost to go higher.
  • Insurance: As a bar owner, you put yourself at risk of being sued for injuries and damages resulting from an accident involving someone you served. Liquor liability suits can cost millions of dollars. Fortunately, there are insurance plans that can help offset this risk. Liquor liability insurance pays any fees and judgments arising from liquor liability claims.
  • Wages: You can't be there all the time to oversee your business, This means you're going to have to pay others to help drive you to success. You'll need to have adequate staff, which depends on the size of your bar. Bartenders, waitstaff, and managers are just a few of the positions you'll need to fill. If you offer food, you'll also need cooks and servers.

$12.00 per hour

The average salary for a bartender as of 2020.

Earnings

Assuming the bar is established and ready to launch, there are possibilities for excess returns. A study by NYU's Stern School of Business shows that businesses operating in the alcoholic beverage space earn a gross profit margin of about 48% while industry experts estimate the average gross profit margins for bars can be as high as 80%.

Your returns obviously depend on what you offer, where you operate, and your clientele. Pricing can be difficult. After all, who's going to want to spend $10 on a drink when the bar down the street sells the same beverage for $8? Check out your competition and price your fare accordingly. Drinks cost an average of $5 to $15, depending on the type. Beer tends to cost less while high-end liquor comes with a huge markup. Just to note, the markup standard is 400% to 500%.

Economic Risks and Rewards

Owning and operating a bar can be very rewarding. Not only will you be able to provide your clients with a place to get together and enjoy their time, but you also have the potential for big profits. Liquor has a big markup in the industry. And if you offer food on the menu, you'll find that your bottom line will increase.

While the rewards may be great, there are also some inherent risks involved with running this type of business. These include:

  • Fire, property damage, and vandalism
  • Personal injuries (to employees and clients)
  • Liquor liability
  • Food contamination and spoilage
  • Theft
  • Data breaches

A lot of these issues can be taken care of by getting the proper insurance coverage, But when they arise, they can still hinder the way your business operates and can certainly interrupt your incoming cash flow.

And then there are some of the unforeseen circumstances. For instance, the COVID-19 pandemic really hurt the industry, especially considering the social distancing protocols that were put into place. As many as 110,000 food and drink establishments shut down in 2020 because of the pandemic. Sales dropped that year by $240 billion. While you may not be able to predict situations like this, you should be willing to consider that things like this will happen and drastically affect your bottom line.

How Much Does It Cost to Open a Bar?

The cost of opening a bar depends on several factors, including the type of business (bar, pub, tavern, or nightclub) and location. You'll have to consider rent or mortgage payments, permits, licensing, inventory, salaries, insurance, and inventory. Costs can range between $100,000 and $850,000 but you may be able to start your bar or nightclub with much less.

How Much Money Do Bars Make?

Bars can make a lot of money. That's because they can mark up the cost of alcohol by as much as 500%. Gross profit margins at bars can be as high as 80%. The average bar owner earns $27,500 per month in revenue, which equals about $330,000. Once you take out expenses, which average about $24,200 per month, you end up with roughly $39,600 in net profit per year.

How Much Do Juice Bars Make?

Juice bars make and sell fruit and vegetable juices on the premises. They tend to appeal to health-conscious people and are increasing in popularity. Because they don't require traditional kitchen equipment or even a seating area, they are often fairly profitable. The average startup costs run between $25,000 and $400,000. Annual revenues can be anywhere between $100,000 to $600,000. Once you factor in expenses, which tend to be pretty low, you end up with a sizeable profit.

The Bottom Line

Running a bar or nightclub can be a very rewarding experience. Opening and establishing a business like this isn't easy, though, and it can be fairly costly. You have to consider where you'll open up, what kind of establishment you'll run, not to mention the costs, including wages, insurance, and supplies. But if you play your cards right, you may make a decent profit at the end of every month.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. IBIS World. "Bars & Nightclubs in the US - Market Size 2002–2027."

  2. Sage. "How much does it cost to open a bar?"

  3. New York State Liquor Authority. "Schedule of Retail License Fees."

  4. Department of Liquor Arizona. "LICENSE FEES."

  5. U.S. Bureau of Labor Statistics. "Bartenders: Summary."

  6. NYU Stern. "Margins by Sector (US)."

  7. Binwise. "Are Bars Profitable? Average Bar Profit Margins."

  8. Binwise. "Alcohol Pricing: How to Price Liquor for Your Bar."

  9. Fortune. "More than 110,000 eating and drinking establishments closed in 2020."

  10. WebstaurantStore. "How to Start a Juice and Smoothie Bar."

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