bar vs restaurant profit margin

Legally, the real difference between a restaurant and a bar is about a license. However, Before getting into the industry, you must have a clear knowledge about the difference between profit margins. So, luckily founder activity decided to do research on the profits of bar and restaurant, and which one you should start as your new business?

When considering the bar and nightclub industry, it has grown by 1.4% in 2019. In fact, the average gross profit margin for a bar is between 70% and 80%. It means the difference between total restaurant sales and the cost of goods sold. The average net profit margin for a bar is between 10%- 15%. It is the profit that is the left of the gross profit margin after all operating expenses have taken care of it. This can be varied according to the type of bar you hope to run.

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide
Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide gross profit vs net profit formulas

When it comes to the restaurant profit margin, it is very law. Profit varies by restaurant, but the average restaurant makes 2%-6% more than it spends. It means the average restaurant profit margin is 2%-6%.

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide

From these two which one you want to operate. In order to support your career, there is a comprehensive explanation for both bar and the restaurant. First, move to the bar business.

Financial Things to Consider When Opening a Bar

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide Financial Things to Consider When Opening a Bar

The bar industry is an industry which has a market size of $27.1 billion. Opening a bar can look attractive. But, before getting into this industry, it is better to figure out the cost for opening and running a bar, and how much a bar owner make a year, and the pros and cons of opening a bar.

How much money is needed to open a bar ?

In order to calculate the cost of opening a bar, we have to consider both renting and buying costs. With accounting for all of the costs, the average cost of opening a bar is $420,000. For the first year, the cost of opening and running a bar is about $710,400.

How much Cost for running a bar ?

To account for the cost of running or operating a bar, we need to include the alcohol costs, staff wages, licensing fees, mortgage payments, or rent. After calculating all, the average costs are around $24,200 per month. It will vary with the type of restaurant that you operate.

How much a bar owner can make?

The amount of money a bar owner can make depends on the bar’s net profit margin. The average bar revenue per month is $27500. The same, average annual revenue is $333000. The average monthly bar expenses are about $24200. When considering all of them, they leave about $900 of net profit annually. If the bar owner takes the ll the profit, the average bar owner makes $40000 annually.

Pros and Cons of Owning a Bar

Pros:

  • You can be your own boss
  • You can help your neighborhood, your town, and your local population.
  • Profit will grow day by day
  • You can ear doing what you feel fun
  • High-profit margin

Cons:

  • Needs high effort for marketing
  • You have to work evenings, weekends, and holidays
  • Require a large upfront investment
  • It is a job, not a passive investment

How to make more profit from a bar?

There is no doubt that competition in the hospitality industry is fierce. In order to be a successful bar owner, you need to variate while implementing best practices. The followings are some tips, that you can follow to increase the profit of the bar.

01. Creating mocktails:

Crafting delicious and specialty mocktails using fresh, local, and unique ingredients is one f the biggest trends today. By creating a separate mocktail menu, you can stand out from your competitors. Not only that, with the help of that you will appeal to a new customer segment that is growing quickly.

02. Offer free tasting:

This is a good promotion and marketing method. In order to bump up your drink sales, offer your customers a free tasting. In fact, when you give a sample, people are more inclined o reciprocate your generosity.

03. Update your menu:

Trends in foods and drinks are always changing. So, it is better to know what people want. Updating and renewing your menu at least once a month, will push you out from the competition.

04. Upselling:

This is one of the best strategies to increase your sales and profit. Normally, customers who come to your bar, order at least one drink. You and our employees need to be skilled at recommending these higher-priced items and get customers interested in trying something new. Giving suggestions, upsell top-shelf liquor, encourage customers to try something new, recommend pairing drink selections with food items, and focus on signature drinks and food items that are more profitable, are some ways to upsell and see higher bar tabs.

05. Promoting your bar in social media:

Almost all the people are using social media nowadays. So, it is a good way to promote and increase sales to your bar. You can use Instagram, Facebook, You tube and much more social media platforms to bring more customers to your bar and keep them engaged.

06. Boost premium liquor sales:

When pouring for your customers, you and your bartenders can recommend premium brands.

07. Introduce bar games

Bar games can keep your customer’s stay longer time in your bar and you can engage your customers through them. Themed nights are also a good thing to keep your bar in customers’ minds. They will put your themed night on the calendar. So, introducing bar games and themed nights is a great way to boost your sales.

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide Introduce bar games

08. Updating the kitchen and bar with new equipment:

When everything becomes new, it is better to update your bar and kitchen equipment. It ensures that you are your bar and kitchen staff the tools they need to produce exceptional drinks and food. When updating the kitchen and bar with new tools, will help you to save costs, better efficiency and it will give an elevated customer experience.

By implementing the strategies mentioned here, you will be able to increase your bar sales by encouraging your customers and drawing new customers.

So, is opening a bar a good decision?

Absolutely yes! Opening a bar can be a good investment. When it comes to average net profit, it is higher than the average annual return from the stock market.

Over the last century, the stock market has returned an average of 10% on investments. In fact, you can expect an effective return of 7.55 annually from the stock market. You may lose about 2.5% of your purchasing power.

However, there are pros and cons to opening a bar as we consider above. The net profit margin is variable. If you open a bar, the best chance of increasing the bar profit margins is getting a hold of liquor control. That is why a successful bar owner runs a serious business, uses liquor inventory software. You can make your decision more profitable by opening a bar.

So, let’s consider about opening a restaurant.

Financial Things to Consider When Opening a Restaurant

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide Financial Things to Consider When Opening a Restaurant

Most likely, A restaurant without a good profit margin will fail. Simply, you can’t run a restaurant without a healthy profit margin. So, before opening a restaurant it is better to have knowledge about the cost of opening the restaurant, how to increase the profit, and how much a restaurant owner can make.

Cost for opening a restaurant

Startup costs will differ depending on whether you decide to rent or own your retail space, which equipment you need, renovation costs, and more. The average restaurant start-up cost is $275,00 or $3046 per seat for a leased building.

Are restaurants profitable?

Absolutely, yes! Restaurants are profitable. But, when comparing restaurants with bars, restaurants have low-profit margins than bars. Profitability depends on the size, type, and economic ones of the restaurant. Most probably, it takes an average of two years for a new restaurant to turn a profit. But, unluckily 90% of restaurants fail within their first five years. The main reason for this is the lack of funding or planning within the first few years.

So, as a person who is looking to get into this industry, you must have a better understanding of the profit of the industry. How do you increase the profit, and what are the profitable restaurants.

Most profitable restaurants

So, before you get into the industry you must have knowledge of profitable restaurants. Some restaurants are more profitable than others.

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide Most profitable restaurants

Bars:
There is no business with higher margins than bars, in the restaurant industry. The reason is, the markup on alcoholic beverages is much higher than on food.

Food trucks:
Food trucks have low startup costs and low maintenance costs. Because they don’t pay rent they always keep food costs low.

Delivery only:
These restaurants keep overhead very low. They have no takeout options, no dine.

Pizzerias:
The demand for pizza is always high. As well as the ingredients for pizza are fairly simple and low cost.

How to increase the profit of a restaurant?

In order to run a successful restaurant, your profit should grow day by day. Without risking losing your customers, you must have to follow some strategies to increase the profit of your business.

Bar vs Restaurant Profit Margin | Which one Should Start? Comparison Guide How to increase the profit of a restaurant?

01. Optimize menu pricing

This is a simple way to increase the profit in your restaurant. At first, you need to know each of your dishes cost per serving ad food cost percentage. Probably, the average restaurant needs to keep food cost a percentage between 28%-35% to run a financially healthy restaurant. If you are worrying to increase the prices, you can alternatively decrease the food costs. But, remember you should increase your prices fairly.

02. Upselling

Upselling is the best way to increase your profits. So, make sure to train your employee’s upselling techniques. This just requires a minimal effort on your staff’s part, but it can bring high profits. Train this and raise your profit without increasing your labor costs.

03. Offer daily specials

Offering special dishes is a good way to attract new customers as well as keep your present customers tied. If you and your employees make something creatively using up any excess product you have you can offer them to your customers as a special. Don’t afraid to try something new, it will become hit with the time.

04. Treat the customers well

As a business that depends on customers, the customer is the king. So, treating your customers well is a great way to attract them. According to the researches, satisfied customers are more willing to pay higher prices than customers who are not satisfied with the services. If you put your customers first, you will see a great return.

Accordingly, you can follow these strategies and improve the sales of your restaurant.

If you are a person who is looking to choose one of the business among bars and restaurants, now you may have an idea of them. Both are profitable and both have related pros and cons. But when considering Bar vs Restaurant profit margin, the profit margin in the bar is higher than the restaurant. If you follow the correct strategies and work effectively for your success, both businesses will lead you towards success.

financial things to consider when opening a bar
financial things to consider when opening a restaurant
Uditha Sanjaya
Uditha Sanjaya is a Tech communicator, video creator, and entrepreneur, having founded Fuozo Solutions, Hackinglk, FounderActivity.com, and DEVOLUXE.com.. He’s a host of FounderActivity Podcast and Hackinglk. you can find him on YouTube, Twitter, and, if you really want to, Facebook.

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