How to Start a Nightclub

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Quick Reference

If you’re a night owl, love a good party, and are a fan of the nightclub scene, then opening a nightclub of your own might be a natural career aspiration. Starting a nightclub requires a significant upfront investment, but this business venture can be highly profitable, too. If you have a unique idea for a nightclub that could become the most popular place in town, read on to find out more about what it will take to bring your idea into reality. 

Business Overview

Nightclubs offer attendees social settings where they can enjoy food, drinks, dancing, and entertainment. Clubs often feature live entertainment by DJs and bands. Many clubs feature special guests and party hosts to help draw in attendees and create a unique experience. Clubs often adopt a certain theme that’s reflected in their decor, food, and drinks, and that contributes to the unique experience and atmosphere that they offer to patrons.

Industry Summary

According to IBIS World, the bar and nightclub industry experienced 2.4% growth from 2015 to 2020. That growth was largely driven by an increase in per capita spending on alcohol and an overall increase in customer spending. While the growth was particularly strong from 2015 through 2019, the COVID-19 pandemic had a significant impact on the industry, and in 2020, the industry’s income is predicted to decline by 9%. 

Once social distancing restrictions are lifted, IBIS World predicts that the industry’s growth will continue. Per capita disposable income and consumer spending are predicted to continue to increase, and it’s likely that we’ll see increased bar and nightclub industry revenues, as a result. 

As of 2020, there were 62,931 bars and nightclubs in operation. The industry was a $28 billion market that employed 387,386 people. 

Industry Trends

Many trends are creating some changes in how nightclubs operate. Glimpse reports that nightclubs need to respond to an increased demand for healthier drinks. This trend is largely millennial-driven, and has resulted in increased sales of low-alcoholic wines, low-calorie hard seltzer, and low-alcoholic beers. The move toward healthier drink options is also reflected in an increased demand for alcohol-free mixed drinks. In response to this demand, many alcohol-free bars have opened up. Many nightclub attendees are also requesting premium mixers that have no calories. Nightclubs can embrace this trend of lower-calorie drinks by training bartenders in these healthier drinks and offering kombucha and similar options. 

There’s also been increased interest in locally brewed beers. With the increased craft beer consumption, microbreweries have also grown. Nightclubs can utilize this demand for local beers by buying from local microbreweries and offering beers with a true local flavor.

Like most other industries, the nightclub industry has shifted to focus more on sustainability. In addition to the basic changes of using more organic ingredients and doing away with single-use plastic items, like straws, nightclubs are increasingly looking for other sustainable options. Bars can seek out vendors and equipment manufacturers who share their belief in sustainability.

Technology also plays a role in current nightclub trends. Some nightclubs and bars have begun to offer self-pour beer and alcohol vending machines. These self-serve options help to eliminate some of the wait that customers can experience when ordering from a bartender. There’s no need to get in line at the bar. The technology can be expensive to install, but it does offer benefits to high-volume establishments. 

Target Market

Nightclubs market to patrons ages 21 and over, though the specific target market will vary depending on the nightclub’s specialty. Some clubs will market to patrons who enjoy certain types of music, and some clubs will market to patrons of certain ages. The types of events, theme nights, and entertainment that a nightclub offers may also help to define its target market. By offering 18+ nights, nightclubs can expand their markets to a younger demographic, building customer loyalty and converting those patrons into higher-paying customers once they’re of drinking age. 

Skills, experience, and education useful in running a nightclub

Starting a nightclub doesn’t require a business degree, but certain skills and experiences can help the club to become a success. 

Nightclub industry experience. Previous experience working in the nightclub industry will help to prepare a club owner for the challenges and nuances of running a club. This experience can also help a club owner to build valuable connections that they can then rely on once they own their own club. 

Knowledge of alcohol and bartending. A nightclub owner should have a working knowledge of alcohol and bartending. This knowledge is important in developing the club’s menu and in being able to identify and hire talented bartenders.

Entertainment talent knowledge. A nightclub owner will need to be able to identify entertainment talents and hire and schedule acts. Previous experience doing this will be an advantage in this industry. 

Awareness of industry trends. Many trends shape the nightclub industry. A club owner who’s aware of these trends can ensure that the club evolves and stays competitive within the industry.

Customer service skills. Customer service is highly important when building a club’s reputation. A nightclub owner who has strong customer service skills and a great rapport with customers can help to develop customer loyalty. 

Management experience. Previous experience hiring, training, and managing staff is important and will leave a club owner well-prepared for these aspects of running a nightclub.  

 


Educational Resources

Amazon has several good books on starting and running a nightclub

Trendy Bar & Nightclub Business Startup: How to Start, Run and Grow a Successful Bar & Tavern Business

Starting a Nightclub Business: Complete Business Plan Template (free on Amazon Kindle)


 

Costs to Start a Nightclub

The cost to start a nightclub varies significantly depending on the club’s size, whether you’re renting or building a club, the nightclub’s location, and more. Plan to spend at least $80,000 in startup costs for a smaller establishment run out of a rented space. Building a larger club can cost $400,000 or more.

Some of the higher-priced items include:

  • Furniture
  • Decor
  • Renovation costs
  • Inventory
  • Sound system/entertainment system/lighting
  • Signage

Steps to Starting a Nightclub

 Step 1. Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2. Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from which include the sole proprietorship, partnership, corporation and LLC.  Each type of entity has its own pros and cons such as liability exposure, costs and administrative requirements. 

Related: Comparison of Business Entities

Step 3. Select your Location

Rental costs will vary depending on the nightclub’s size, location, and amenities. Rental costs for clubs in high-traffic locations will be higher, but the location can generate valuable walk-in traffic and public awareness of the business. 

Mortgage costs will also depend on the club’s location and size. Making a larger initial downpayment can help to keep monthly mortgage payments down. 

Related: Choosing a business location

Step 4. Apply for Business Licenses and Permits

A nightclub owner will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located. 

To serve alcohol, a nightclub must obtain a liquor license. Liquor license requirements and costs vary by state. According to Fundera, a liquor license can cost between $300 to $14,000, with California having the most expensive license fees.

If a nightclub serves food, it will also need to get a food service license. According to 2nd Kitchen, these licenses cost between $100 and $1,000. A club will need to adhere to county and state licensing requirements, which can vary. After applying for a license, the bar will also need to pass a health inspection. 

Some of the more common local, state, and federal registrations a nightclub will need to include a sales tax permit, Employer Identification Number, and Occupancy Permit among others. 

Related: Common business licenses, permits and registrations by state

Step 5. Find Financing 

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a nightclub is another.  In order to get a loan, the borrower(s) will need to have good credit and be able invest 15-25% of their money towards the total start-up costs. 

Related: Finding the money to start a business  

Step 6. Get your Marketing Plan in Place

Marketing is essential to building up initial excitement around the nightclub, as well as to continue to draw attendees to the club and to special events. Common marketing activities include social media marketing, online advertising, print advertising, and radio advertising. Marketing costs will vary depending on the type and volume of the activity that’s performed. 

Related: Low-cost ideas to market a new business

Step 7. Get Insurance

A nightclub needs several types of insurance for full coverage:

  • General liability insurance helps to protect the club against expenses that can occur if a customer is ever hurt while on the nightclub’s property. 
  • Commercial property insurance helps to protect the business against losses if the club and its equipment are ever damaged by an event like a fire. 
  • Workmans comp insurance helps to cover expenses like medical bills and legal fees that a club might face if an employee is ever hurt while working. 

Insurance policy cost depends on many factors, so it’s best to request quotes from multiple insurance providers to get the most accurate idea of how much to budget. When comparing the quotes, look beyond just how the premiums stack up. Instead, consider the differences between plan exclusions, coverage limitations, and deductibles, too. 

Related: Common types of insurance business may need

Step 8. Hire Employees

A nightclub will depend on multiple employees to keep it running. According to PayScale, average annual salaries for these common nightclub positions are as follows: 

  • Bar manager: $34,000
  • Bartender: $31,000
  • Club general manager: $47,000
  • Kitchen manager: $33,000
  • Marketing manager: $47,000
  • Server: $39,000
  • DJ: $24,000
  • Security manager: $33,000

Employee salaries are only part of the expenses that a nightclub will need to budget for. A club may also need to pay for workmans’ comp, unemployment insurance, paid time off, and vacation time for each employee.

In addition to these employees, most clubs will hire entertainment acts, like bands and DJs, on an independent contractor basis. According to Thumbtack, DJs can cost between $750 and $1,500 per performance. Band prices vary widely, but rates usually start at $100 to $200 per musician per hour.

Related: Hiring your first employee

How much can you potentially make owning a nightclub?

While starting a nightclub requires a significant investment, it can be a lucrative business, too. NightClubBiz reports that a 3,000-square-foot nightclub could earn between $1,500 and $10,000 per night, with the average being about $5,200 per night. Highly popular clubs in desirable locations like Las Vegas and Miami can bring in as much as $25,000 to $80,000 in a single night – but these clubs are far from average.

Club profits will depend on many factors, including the club’s size, its food and drink offerings and profit margins, and special events that it uses to encourage attendance. A creative specialty can help to make a club highly desirable and can help to fill the space each night, driving up profits in turn. 

Things to consider before starting a nightclub

When starting a nightclub, it can be tempting to invest in a large space with the idea that the club will hold more people and be more successful. This plan can backfire, though, especially since people don’t want to attend a half-empty club. Instead, keep your club size manageable and only open a club that you’re confident you can fill night and night again. 

It’s also important to get a sense of the local competition and try to do something differently. Unique food and drink will only go so far in drawing in attendees who typically go to other local clubs. Instead, think about how you can offer a truly unique experience, whether that’s by creating a unique theme or offering events that other clubs can’t compete with.

Resources:
American Nightlife Association
Professional Adult Nightclub DJ Association