Calculate pub profitability before you sign

Last updated: 24 April 2026

Most pub licensing agreements sound profitable on paper until you actually run the numbers yourself. The pubco’s financial projections assume perfect conditions, consistent footfall, and zero waste — none of which exist in real pubs. When I took on Teal Farm Pub three years ago on a Marston’s CRP agreement, I inherited projections that bore no resemblance to reality, and I’ve watched other landlords sign leases on the basis of optimistic forecasts they never questioned. The difference between a pub that survives and one that fails often comes down to whether the operator understood actual profitability before signing the tenancy agreement. This guide walks you through the exact process I use to evaluate whether a pub can genuinely make money — the questions to ask, the numbers to demand, and the benchmarks that matter. You’ll learn how to stress-test a pub’s finances and spot the red flags that pubcos hope you’ll miss.

Understand the Pub’s Historical Trading Performance

Your first step is to demand three years of verified P&L statements from the pubco or current operator. Not projections, not estimates — actual, audited trading accounts. Most prospective licensees never ask for this, and it’s the single biggest mistake I see. The pubco will volunteer a sales figure and tell you what you can earn, but those numbers rarely account for the seasonality, local competition, or management inefficiency that defined the previous operator’s tenure.

When evaluating historical performance, look for consistency. If a pub’s turnover has declined year-on-year, ask why. Is it due to local economic change, lack of local footfall, or poor management of the previous licensee? These are very different problems. A decline caused by management failure is recoverable; a decline caused by demographic shift in the catchment area is not. Pay particular attention to whether the pub’s trading pattern aligns with local events, seasons, and competition. A waterside pub near a holiday destination will have very different trading patterns than a suburban community local.

Request a breakdown of sales by category: wet sales (beer, wine, spirits), dry sales (soft drinks, mixers), food, and gaming/machines if applicable. This tells you whether the pub’s income is diversified or entirely dependent on one revenue stream. A pub that derives 85% of its turnover from wet sales is far riskier than one with balanced revenue across food, drinks, and gaming. You’ll also use this breakdown later when calculating your own labour and cost requirements.

Calculate Your Actual Cost of Goods Sold

Your cost of goods sold (COGS) is the amount you spend on stock — everything that physically leaves the pub as a sale. For a wet-led pub, this includes cask ales, keg beers, wines, spirits, soft drinks, and mixers. For a food pub, it includes every ingredient. This is not the same as the pubco’s “cost price” discount, which only tells you what you pay for stock; COGS tells you what percentage of your revenue you actually spend on goods.

Most UK pubs operate with a COGS of 28–32% of net sales. This means if you generate £100 in revenue, you spend £28–32 on the stock that created that revenue. If a pub’s COGS is running at 35% or above, you’re either buying inefficiently, experiencing significant wastage and spillage, or being overcharged by your supplier. I currently run Teal Farm Pub with labour costs averaging 15% against the UK benchmark of 25–30%, but my COGS sits at a healthy 30%, which allows me to maintain margin while investing in quality stock and staff training.

To calculate COGS accurately, you need to know:

• Opening stock value (what you start with on day one)
• Stock purchases during the period
• Closing stock value (what remains unsold)
• Wastage, spillage, and theft — your “shrinkage”

The formula is: Opening Stock + Purchases − Closing Stock = COGS. Ask the pubco or previous operator what their typical shrinkage rate is. Anything above 3% is concerning; above 5% suggests either theft, poor stock control, or excessive wastage. When you use a best pub EPOS systems guide, you gain real-time visibility into your COGS and shrinkage, which is why modern operators can hit lower labour costs — the data helps you operate more efficiently from day one.

Work Out Your Real Wage Costs Against Benchmarks

Labour is typically your second-largest cost after COGS, and it’s where most prospective licensees get blindsided. When I evaluated staffing requirements for Teal Farm Pub, I didn’t start with “how many staff do I need?” — I started with “what can I afford to spend on wages given my expected turnover?” and worked backward.

The UK pub industry benchmark for labour costs is 25–30% of turnover. This means if you’re generating £5,000 per week in sales, you should budget £1,250–1,500 for wages. But this benchmark masks significant variation. A high-turnover wet-led pub in a city centre might hit 22%, while a quiet village pub with complex food operations might run at 32%. The question is: what’s realistic for this specific pub?

Start by identifying your minimum staffing requirement. How many people do you need behind the bar during peak service? How many in the kitchen if you serve food? How many hours does cleaning, stock rotation, and admin require? Build a realistic rota before you commit. Then calculate the payroll cost: hours × hourly rate (including employer’s NI at 15%, pension contributions, and training costs). Compare this to the expected turnover of the pub.

Here’s an operator insight most guides won’t tell you: your wage cost is determined more by your business model than your generosity. If you decide to open 5pm–11pm seven days a week, your labour cost will be lower per pound of sales than if you open 11am–11pm. If you employ skilled bartenders, your labour cost rises, but your speed and customer satisfaction improve. The pubco won’t guide you toward efficiency; they benefit from you running the pub however you want as long as you pay the rent.

Account for All Fixed Costs and Hidden Expenses

This is where most pub business plans fail. The pubco’s projections typically show turnover, subtract COGS and labour, and declare the remainder as profit. They omit or minimise the costs that actually erode your margin. When I took the financial reality of Teal Farm Pub seriously, I uncovered nearly £800 per month in costs that weren’t on the initial brief.

Your fixed costs include:

• Rent and business rates — Non-negotiable. Know these exactly.
• Utilities — Gas, electricity, water. Request 12 months of invoices from the current operator and budget for inflation. Energy costs in pubs are not linear; they spike in winter and around major sports events when you run heated outdoor spaces.
• Insurance — Public liability, employers’ liability, stock insurance. Budget £150–250 per month depending on your size and layout.
• POS system and payment processing — This varies wildly. A basic till might cost nothing; a modern EPOS system typically costs £40–80 per month plus 1.2–1.5% of card transactions. If you’re processing £20,000 per week in card payments, that’s £240–300 monthly in processing fees alone.
• Compliance and audits — Health and safety audits, fire safety checks, cooling equipment maintenance, drain cleaning. Budget £100–200 monthly.
• Stock control and wastage — Beyond your standard COGS, you’ll incur breakages, promotional stock, staff training samples. This typically adds 1–2% to your cost base.
• Marketing and local promotion — If you want to attract customers, budget at least £100–200 monthly for quiz night prizes, local advertising, or event promotion.
• Professional fees — Accountancy, tax compliance. Budget £150–300 quarterly.

When totalled, these “hidden” costs often add 8–12% to your operating expenses. If the pubco’s projection doesn’t explicitly list these, the forecast is not credible. Use a pub profit margin calculator to model these costs alongside your expected turnover, and stress-test the result against a 10% reduction in sales — that’s your downside scenario.

Build a Realistic Cash Flow Forecast

Profitability on paper is not the same as profitability in your bank account. A pub can be profitable monthly but run out of cash if you don’t manage timing correctly. You might have excellent net profit but negative cash flow because you’re paying suppliers on credit terms while customers pay immediately (or vice versa).

Build a 12-month cash flow forecast that includes:

• Opening cash position (your initial investment and working capital)
• Weekly or monthly projected sales by category
• COGS and labour costs aligned to sales
• Fixed costs paid monthly
• VAT liability (you’ll typically owe 20% of net sales to HMRC every quarter, paid from your cash)
• Seasonal variation (pubs typically underperform January–March and August, overperform December, Easter, and May bank holidays)
• One-off costs (new equipment, deep cleaning, emergency repairs)

This forecast is your financial reality check. If it shows you’ll run out of cash in month 4, you need either more opening capital, higher turnover assumptions, or lower cost assumptions. Don’t proceed without a credible 12-month cash position. Before you sign anything, knowing your numbers from day one is not optional — it’s survival. Pub Command Centre gives you real-time financial visibility of labour %, VAT liability, and cash position from day one. At £97 once, it’s the cheapest insurance you can buy against financial blindness.

Know What Questions to Ask Your Pubco

When you sit down with the pubco’s Business Development Manager, go with a prepared list. Don’t accept vague answers or “industry standard” claims. Here are the questions that matter:

• “Can you provide 36 months of verified trading accounts for this property?” If they can’t, walk away. A reputable pubco keeps this data.
• “What is the current tenant paying for rent, and is there a planned increase?” Many pubco lease agreements include annual uplift clauses. Understand the full rent trajectory.
• “What payment processing fees will I pay, and to whom?” Some pubcos tie you into their own payment processor at inflated rates. Understand the total cost of card acceptance.
• “If turnover falls below X, can I exit the lease early?” Most tenancy agreements don’t allow this, which is why you need to be conservative in your projections.
• “What support and training does the pubco provide in the first year?” This varies hugely. Some pubcos actively help new licensees; others expect you to figure it out alone.
• “Are there any tied products, and what discount do I get on cost price?” Understanding your actual supplier cost is critical to calculating COGS accurately.
• “What happens if I want to leave the lease early?” Understand your exit costs and notice periods.

The pubco will push hard to close the deal on their timeline, not yours. Don’t let that pressure override your due diligence. I’ve seen operators sign leases based on handshake projections and find within six months that the pub cannot support their lifestyle costs. By then, they’re locked in.

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