In a bar or restaurant, nothing matters more than the bottom line. Generating more gross revenue is every restaurateurs’ main focus, but controlling costs is what keeps the doors open.
Think of your total budget as a pie that adds up to 100%. All costs need to be squeezed into that pie. The remainder is net revenue: money in your pocket, money to expand, to remodel, to pay back your investors, etc.
The beauty of running a bar is that the cost of labor is lower than a restaurant, and margins on libations are much higher than food. Creating a consistent bottom line comes down to simple math.
Focus on What You Can Control
There are expenses like rent, utilities, workers’ compensation and other insurances that cannot be controlled. So focus on the ones you can control. These include labor costs, food costs, operating expenses, and repair and maintenance costs, just to name a few. These expenses require your daily focus and energy.
You want your liquor cost to be about 20%. This means if you sell a drink for $10, it should only cost $2 to make. This is a process called “costing your menu.” As you put together menu items, calculate the cost of the ingredients in each drink.
Let’s say a drink costs you $1.50 to make; you can’t sell it for less than $7.50. When bar owners account for waste and complementary items, it’s common to add an extra 10% to the price. Do this for every drink on your menu—from cocktails to soft drinks—and you won’t have to deal with any surprises at the end of the month. Your costs will be consistent no matter what your revenue looks like.
Controlling costs gives you time to grow your business without the stress of constantly losing money.
Analyze the Numbers
For labor costs, do a “payroll vs. revenue” daily analysis. It’s a simple exercise that shows you how many labor dollars you spent the day before and compares that number against your revenue. If labor projections exceed your calculations, adjustments can be made on a daily basis. Waiting until the end of the month to calculate labor costs is a surefire way to get into financial trouble.
A point-of-sale system like QuickBooks Point of Sale can track employee work hours, which can be used to calculate your labor costs. Compare your daily labor costs to daily revenue numbers and projections. High-end establishments aim for labor costs between 25% and 28%, before benefits and taxes. If your labor costs are higher, look at ways to cut staff or reorganize operations.
It’s all a numbers game. Time spent analyzing those numbers is the best tool for success in the hospitality business. Once costs are addressed and controlled, businesses can mature naturally through hard work and creativity. For more tips on managing your bar’s finances, see our financial checklist for restaurants and bars.