Operating Cost Benchmarks for a Bar
Operating cost benchmarks are crucial for helping small-business bar owners improve their competitive edge. The process involves comparing qualitative industry cost data against internal operating costs. Results can then assist bar owners-- such as those operating a small neighborhood drinking establishment, a nightclub or a bar in a restaurant operation -- identify areas, systems, or processes in need of modification to better control costs.
Labor often is the biggest expense for a small-business bar owner. Labor expenses can, however, also be one of the easiest to control. Although operating cost benchmarks for labor and wages depend on the type of bar, the base for internal cost comparisons -- a percentage of total sales revenue -- are the same regardless of the type of bar. For a neighborhood bar or a nightclub, the labor operating cost benchmark ranges from 18 percent to 24 percent. For a bar inside a restaurant the operating cost benchmark is approximately 30 percent. For example, if sales forecasts are $2,000 per day, daily labor costs shouldn’t exceed between $360 to $480 for a neighborhood bar or a nightclub and $600 for a restaurant bar. Accurate sales forecasts, attention to scheduling and good human resource management are crucial for controlling costs in this area.
The most significant beverage-related cost benchmark is pouring cost, or the average cost of a drink poured from a bottle. While the benchmark for pour cost is a maximum of about 20 percent, pricing strategies and the mix of beer, liquor and wine the business offers customers can affect how a bar owner analyzes beverage costs. Calculate pour cost by dividing the number and price of drinks poured from a bottle by what the bottle cost. If a bottle cost $15 and produces 20 drinks at $3.50 per drink, the pour cost is 21 percent. Unless the business is intentionally underpricing drinks to bring customers in, a high pour cost can indicate employees are over-pouring, giving away free drinks or possibly drinking on the job or after closing time.
Many bar owners offer free snack items in addition to short-order food items such as pizza, hamburgers and appetizers. Depending on the menu and pricing strategy, the cost benchmark for food items ranges from about 29 percent to 32 percent of total food sales. Comparison shopping, portion control, reducing food waste and training employees to properly prepare food all can help keep food costs within the benchmark range. One thing to watch for is employee theft, including food placed outside the backdoor for pickup later, meals prepared without a tickets and food items taken home.
Leasing or building rental costs make up a percentage of a bar's fixed operating costs. Unlike variable costs that vary according to total sales revenues, fixed costs remain constant regardless of sales revenues. Because lease or rent payments can represent a significant expense, bar owners should take whatever steps are necessary to keep these costs within the operating cost benchmark of 3 percent to 4 percent of gross profits. Initial location comparisons, the length of a lease and negotiations regarding specific lease or rental terms are common cost-saving measures.