Small Music Venues: Guide to Managing Bar Costs
Making a profit from a small music venue is hard. When your overheads can include staff, licensing, publicity, cleaning, repairs, rates, insurance, and more, it’s important to maximise every income stream.
While it’s not always true that venues make most of their money on drinks, the bar does provide a crucial source of revenue.
To make sure your bar stays profitable and runs efficiently, it’s important to keep a grip on your bar costs. You should also forecast your sales accurately. Read on and we’ll explain how to get started in these areas — and why they matter.
Bar costs are key to making money
If you don’t know what your bar is costing to run, it’s impossible to be sure you’re making a reasonable profit. Managing your bar costs gives you have a good understanding of what it costs you to sell each drink. It also gives you a better chance of keeping those costs low.
Know your pouring cost
When managing a bar, your pouring cost is one of the most important figures to get to grips with. This benchmark helps you monitor whether your bar is generating a consistent profit.
In simple terms, pouring cost is what you paid for an item divided by what you sell it for. You then multiply this by 100 to get a percentage figure. Here’s an example:
- Say a litre of vodka costs you $40
- You sell 40 servings (25ml each) from that bottle, at $6.50 each
- $6.50 x 40 = $260
So in this case, your pouring cost is:
40/260 x 100 = 15.38%
Pouring cost varies between beer, wine and spirits, as the mark-up on these items differs. However, an overall pouring cost of under 20% is generally considered reasonable.
An increase in pouring cost can be caused by many things. Perhaps a staff member is over-pouring, you’ve reduced the price of drinks or your supplier costs have gone up.
The key to using pouring cost is to calculate it frequently. By monitoring this figure regularly, you can identify and rectify issues faster.
Keep suppliers on their toes
When suppliers increase their prices, it affects your profit margins. So if you want to keep your bar costs under control, it’s wise to watch your suppliers.
You’re more likely to get good service and reasonable credit terms if you build relationships with regular suppliers. However, that doesn’t mean you can’t shop around.
Get quotes from alternative suppliers regularly. Even if you don’t intend to switch to a new supplier, these quotes can provide leverage to negotiating with existing suppliers and ensure you’re not paying over the odds.
Monitor stock turnover
It’s important to maintain good stock levels for your bar. This means making sure you can meet demand (so you don’t run out of beer on a busy night), while avoiding overstocking, which ties up cash and leaves you more vulnerable to theft.
Stock turnover measures how many times you get through your entire stock in a month. For instance, if you sell $5,000 of vodka a month and you have stock worth $2,500 at any given point, then you are turning over stock twice a month.
Optimum turnover levels vary depending on the products involved, but many bars aim for around 0.5x – 1.5x a month for spirits and 1x – 2x a month for draught beer.
Know what can increase your costs
It’s not just supplier price hikes that increase your costs. A variety of factors can affect how much it costs to run your bar. Keeping an eye out for the most common of these makes it easier to identify issues earlier. For instance:
- Is your bar team following standard drinks recipes? If you sell drinks that involve several ingredients, make sure staff are mixing them correctly. If a bartender is using double shots instead of single, that could double your costs.
- Are suppliers delivering what you ordered? If you’re getting regular deliveries, make sure the supplier is fulfilling orders accurately. For instance, have 700ml bottles turned up instead of the 1L size that you ordered? It’s rare for suppliers to be dishonest, but mistakes can happen.
- Could anyone be stealing? Although most bar staff are honest, there are many ways in which they could be stealing from you. If your pouring cost has suddenly jumped, don’t forget to consider whether someone is being dishonest.
- Are your wastage levels high? Perhaps you’re storing glass drinks bottles in a location where it’s easy for them to break. Or maybe you need to train staff so that they reduce the amount of beer that ends up in the drip tray when they pour a pint.
If you can identify factors that are pushing up costs then you can take steps to reduce them. And that’s a key part of keeping things under control.
Meet demand by forecasting bar sales
If managing your costs is one important aspect of running a bar successfully, forecasting your sales is another.
Sales forecasts help you anticipate and meet demand, ensuring you buy in enough drinks without tying up cash in stock that will take a while to sell. Over the longer term, forecasts help you plan ahead so that your business remains sustainable.
Creating accurate forecasts involves a good bit of educated guesswork, but you’ll get better at this balancing act the more you do it.
Always keep good records
When attempting to forecast bar sales, your past performance can be a helpful guide to what might happen in future. It’s not as simple as saying ‘we sold $3,000 of beer last week, so next week will be the same’, but previous sales figures provide a good baseline to work from.
That means it’s vital to keep records of what you sell and when. General accounting software can be good for this, or you can look into more specialised options, such as point-of-sale systems that also track and report on sales.
Do your basic calculations
You can roughly predict bar sales by performing a basic calculation. Estimate the number of people who will be attending an event by checking how many tickets have been sold and then making an allowance for walk-ins.
Then use your records, previous experience, intuition and contacts (talk to other people!) to estimate how much each person will spend at the bar, on average.
Multiply those two figures for a quick and dirty bar sales forecast:
Bar sales = (tickets sold + walk-ins) x average customer spend
The first time you do this, you might be a way off. But if you do it for every event, you’ll quickly get a feel for how your bar performs.
Evaluate the crowd and the time of the week
If you put on a variety of different acts, you might find that bar sales vary depending on the nature of each crowd. For instance, it might be that crowds with an older average age tend to drink more wine and less beer.
If possible, speak to other venues that each band has visited on tour to ask what drinks sold well. A band’s management may also be able to give you an idea of what sort of crowd to expect.
Bar sales can also vary depending on the time of the week. You can typically expect sales to be significantly higher on a Friday or Saturday night.
Consider seasonal factors
Drinks sales can be affected by seasonal factors. For instance, average customer spend may increase in the run-up to Christmas, while university holidays can also impact mid-week sales.
If you have an outside drinking space, you might also expect sales to increase during good weather.
Again, your previous sales figures will provide a strong indication as to the importance and effect of seasonal factors.
Break your forecasts down
Forecasting your bar’s performance becomes much easier when you break everything down into manageable chunks. For instance, if creating a monthly forecast, you may wish to evaluate each day separately.
For each day, you can consider what’s happening at your venue, then estimate the quantities of key products you’ll sell.
Some accounting software will help you create forecasts in this way, or you can use a simple spreadsheet. As you input individual quantities for each day, it can keep a running total for the week or month in question.
Your sales forecasts will get easier and more accurate the more you do them. Remember to spend a few minutes reviewing how each forecast compares to what actually happened (again, good accounting software can do this automatically), then use those findings to tweak your next forecast.