Actually, there are a lot of "fives" in the formula. Bars make lots more money than restaurants. Local bars with "comfort food" do better than restaurants.

Bar cost for a well-managed bar is 34-39% of sales. Rent on the low side is 5%. Miscellaneous labor is 7 1/2%. Utilities are 8%.

Business licenses are around 9%. Repair and depreciation of kitchen equipment and fixtures is in the neighborhood of 11%.
Ideally, musician/entertainment costs should be 5%, but often go higher. Food costs are in the mid-40's. Then, there are accounting/bookkeeping fees, taxes and management salaries (usually, 10-15% of volume). Most people are paying debt service and interest.

At best, that generally leaves 5% for reportable profit. What's confusing is that the net profit is figured after interest payments and salaries to owner/operators.

Run well, a $1,000,000.00 operation, with numbers that fall in the normal parameters would generate a $50,000.00 annual profit, a %50,000.00 salary for owner/manager, and $25,000.00
for entertainment.

Of course, assuming it is all bar sales, that would be over $3,200.00 a day in business. If food were factored in, the cost goes up, as does the required daily volume (it is $3,477.00 daily volume, with a 45% food cost and a 50/50 mix of food and booze sales.

Excuse the numbers, but I do audits and cost management consulting to restaurants/bars and other service businesses. That's the old "bean counter" in me.

It's rough out there, folks!


Russ

Diki, I don't know if you have ever owned and operated a retail operation, but I can assure you that the bartender's salary is the least of the expenses. I have owned and operated a retail business, a relatively large outdoor store. While the gross profit ranged from 10 to 40 percent, the net is often a tiny fraction of that. Have you ever wondered why so many restaurants and bars fail? Statistically, they have the highest business failure rate of all retail establishments. As captain Russ tried to explain, the profit margins are extremely small when you look at the entire operating cost.

When I had my store, which was in the late 70s and early 80s, just the rent for a 1,500 square-foot store in a mid-size shopping center was more than $4,000 a month, electricity raged up to $1,200 a month, salary for single, retail employee, who doubled as an outboard motor mechanic was about $1,000 a month, telephone bill including yellow pages add hit $500 a month, then there were taxes, loan payback with high interest, book-keeper, accountant, and more ancillary fees than you can imagine.

So, that $2 happy hour bottle of Coors Light may have a net profit of .05-cents, even when you sell 100 of them. Same percentage holds true for the mixed drinks.

Then, of course, as you well know, Florida's tourist trade doesn't last 365 days a year. Down here in the keys, the touristas are here from January through April, then the keys become a ghost town. But, the businesses stay open year round. Right now, there's traffic jams on U.S. Route 1 every day, people going to and coming home from Key West, Marathon, Big Pine Islamirada, etc... By the 1st of May you could almost take a nap in the middle U.S. Route 1 here and not have to worry about being run over.

Hopefully, this will clear things up a bit,

Gary

I think Diki is confusing the markup with the net profit. It's true that a drink costs about 1/5 of what they charge for it, but after you add all the operating expenses, the profit get nibbled at quite a bit. Doesn't change a thing in my mind ... entertainment is a part of the operating expenses and needs to be budgeted for. If they expect the crowds to pay for the entertainment, they need to charge at the door.

Thing is, the rent on the Tiki is the same whether you open one day a week or 7.

The point I think you are all missing is, the business is already in operation. The rent is already paid. The coolers are stocked. Only thing missing seems to be customers, and Gary is providing them.

If Gary is not sufficient to keep the place running, it should have closed LONG ago. But it hasn't. Apparently, the place stays open even when only 30 at the bar. But bring in 100 more, and they are suddenly struggling? Something is downright fishy here...

Truth is, in all probability, this is more to do with a manager and a bartender not wanting to work any harder than they currently do, not whether there is profit to be made. I'm sorry, but so often I see restaurants and bars go downhill the moment the owner hands them over to a manager. Owners run places to make a profit, no matter the effort. Managers run places to maximize their income balanced against the minimum effort. And, 9/10 times, if making a bunch more profit for the owner doesn't make THEM a bunch more money, and ups their workload, it doesn't get done.

This sounds like the manager tanking it. Trust me, I work in highly corporatized resorts. No-one is looking out for the resort. Everyone is looking out for their job... do the least work, for the most money. And the hell with the resort if that doesn't make the resort money.

Diki makes a valid point. My approach is a classic one, designed to plan your business so that expenses are generally in line with accepted, successful business plans. Fixed costs are apportioned to EVERY line item account (expense category).

But, the fact is, If you look at Gary's contribution to the bottom line as INCREMENTAL, the story is different.

If you assume that the overhead, debt service, rent, maintenance, taxes, etc. were ALREADY being absorbed, then you figure what the incremental volume was and subract only the salary and pure bar cost (cost of goods). Subtract those two figures from the additional volume and that's the incremental gross profit (before taxes).

Let's just say those 60 additional people drank $1200.00 in incremental volume. You'd subtract the liquer cost (Approx $480.00) and the entertainment cost ($150.00??), for an INCREMENTAL net of $570.00 for the night.


The difference comes in where you apportion all of the fixed costs.

I stick by my formula as a general way to apportion costs in a service operation. But, on a slow night, I'd hire a Gary or Diki, UD, Tony or Don....maybe even Russ and happily make my bank deposit the next day.

No one is wrong on this one, guys. It's a matter of semantics, accounting practices and definitions.

In reality, most bars have two cash registers, steal the amount rung op in one (just don't report it), buy replacement liqueur (that's why you see so many unmarked vans and trucks at liqueur stores on Sundays around here) so the ABC does not get suspicious at your high liqueur costs and go on from there.

I never audited a bar or restaurant operation where someone wasn't "knocking down".


It's just part of the business.

Sadly, there's some truth in the saying that the only way to make good bread is to "Steal from yourself".

Sorry for the misdirect, but this is a really interesting part of the bar/entertainment business.

KUDOS to Diki for sticking to his guns and telling the "other side" of the story.


Russ

Wow!! Some of you folks must have gone to the same college as Barbara Walters, Hugh Downs and that Stossel (Stocel or whatever his name is) fellow.

They sat there with a straight face (on "WE're in touch, so you be in touch) and told the American public that the owner of a new car dealership) after expenses made a $100 profit a car. If you believe that, you are a pathetic naive A$$hole. Ha ha!

For instance: My son sold cars at KIA. Mind you that I don't think KIA is on par with Toyota, Ford, Chevy and Honda etc., but the least he made on a car sale was around $100 and on some sales he made over $800, but Stossel said that the owner of Ford and Toyota dealerships made only $100 on each sale. Boy was he stupid, and Barbara and Hugh went right along with him. In other words the owner at KIA where my son worked, had to sell 8 cars to make the same amount of money my son made on a 1 car sales deal of $800 profit to my son.

If all what you guys are saying is true, they must be making it on prostitution and drugs. How else would they keep the doors open.

I had a friend who owned 2 clubs on Bourbon Street and one in Gretna La. For many years and he also owned a car parts store. I grew up with him. Believe me he wasn't working these businesses on the profit margins you guys are talking about. Go look at the houses that these guys and their family's are living in and the cars that they are driving.

Yes, at start up any one can go broke even with a shoe shine stand. I went broke after two years of trying to sell cars when the economy went busted. I sold 26 cars in 2 and a 1/2 years, but the least I made on a sale was 3 or 4 hundred dollars. I made up to $2000 each on a couple of the sales and all I was selling was autos from $500 up to $3600. Not $70,000 dollar pick-up trucks and SUV's. Can you imagine being in any business selling a $70,000 item and making a $100 profit? How absurd.

The places that have been restaurants and bars for years are making more profit than you guys are claiming. If they are only making what some of you are claiming, you should be ashamed of what you're taking from their families and should be playing for free. I mean some of you are doing over 300 gigs a year. You have any idea how much money that is at $100 to $200 or more a gig sometime twice a day.

Wait a minute I'm gonna call the mathematician at the local Mesa State College and see what he comes up with. Oh! he says that he won't tell because it is impossible for anyone to make that much money with an electronic keyboard playing 3 chords tunes all night. Go figure. You keyboard guys are making more money the the huge new car dealerships and the people who own 1 to 5 million dollar restaurants and bar establishments.

You guys should buy the restaurant owners who told you all of this crap, a keyboard and teach them the three chords in the key of "C" and how to use the transpose button. They will increase their profits. Ha ha.

This stuff tears me a new “A” hole every time I come across the naive folks and gullibility of the American public. I guess that why some of the folks who run the country get elected eh?

Robots believe what ever they are programmed to believe. There are a few exceptions to every rule and situation., but not clear across the board friends. This is my most humble opinion based on facts that I lived.

Don't hold back Boo. What are you trying to say?