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adike

Whats The Usual Profit Margin @ Hookah Lounges?

Hi,

I'm writing my final paper due tomorrow, and one of the questions is asking me to price a product. Whats the usual profit margin that hookah bars make?

If possible, could you also write how its calculated? I've been trying to figure it out, but I don't know the tax. (what could it possibly be in MA?) I calculated that the raw materials (tobacco, coal) should not exceed $1.50 per bowl, and a regular hookah price around Boston is $25.

Thanks much

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You gotta describe what your looking for more like do you want after a couple of months or your first day opening? Because the first month you got all the hookahs you pay for then in the future it will just be the cost of supplies and rent and ect. Describe more into what your looking for and maybe we can help you.

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Standard retail markup is somewhere in the 40 to 50 percent range. Something that is easier with retail, compared to a hookah lounge, is expenses. For retail your biggest expense is the actual product you sell- so it is easier to calculate a markup. With something like a hookah lounge your biggest expenses are probably going to be the things you don't actually consume- rent, utilities, hookahs, etc (not to imply they are necessarily the largest numerical expense each day/week/month/year).

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I think a bowl of shisha cost is like $1.00

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Thanks,

my question is about the hookah tobacco itself.

Say, a bowl of tobacco plus charcoal costs $1.00
If I charge $20 for a hookah served, the mark-up is $19, right? What would the profit margin be then? I'm not getting it, lol... am I marking it up 1900% then?

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[quote name='adike' date='16 December 2009 - 12:36 AM' timestamp='1260948992' post='439542']
Thanks,

my question is about the hookah tobacco itself.

Say, a bowl of tobacco plus charcoal costs $1.00
If I charge $20 for a hookah served, the mark-up is $19, right? What would the profit margin be then? I'm not getting it, lol... am I marking it up 1900% then?
[/quote]

you're neglecting overhead.

the profit margin is only determined after you've taken out your overhead costs (cost of running a business)

say your
rent+utilities-$1500
your cost of tobacco+coals+hookah maintenance--$700 lets say this covers roughly 300 bowls? making it roughly $2.30 a bowl
insurance-$1000
employees(4x$7.50 per hour)30 bucks per hour x 15 hours a week-$450

if you sell your hookahs at 20 bucks for the first and like 10 every bowl after and you're selling all 300 bowls with no waste(obviously perfect world scenario)
and roughly a 1/4th of them are at the full 20 and the other are at 10
that makes

where b=number of bowls 300b/4= 75b so 75bx$20=1500+(225bx$10)=$3750-$3650=$100/300=.33c so .33 cents per bowl.
now as the math dictates you're making roughly 100 bucks per month...nobody in their right mind would EVER run a business that only makes them 100 bucks a month BUT
this is for educational purposes so it'll do and this isnt counting in cost and income of other services as beer, concessions, sale of hookahs and tobacco, sale of other smoking utensils and memorabilia. so ultimatly you're income is entirely dictated by your overhead, the more you spend the more you can potentially make but probably wont. Edited by fezmeister

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They get their 250g tubs for 9 dollars, give or take a buck.

They charge anywhere from 10-15 PER bowl that they serve.

Each bowl takes up no more than 20-25g of tobacco [Egyptian bowls are top choice at bars].

Do the math!

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sales - variable costs = contribution margin
contribution margin - fixed costs = operating income

(contribution margin per unit x output(Q)) - fixed costs = 0 <-break-even sales volume (solve for Q)

plug the numbers in yourself. this is perhaps the simplest system

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Step 1: open hookah bar
Step 2: ???????
Step 3: Profit!

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Remember that you are going to depreciate you fixed assests and equipment, ie. your hookahs, rather than expensing them in the beginning. You will probably be able to take a section 179 expense for them for tax purposes, or if you decided against the section 179 deduction, you could probably take the additional first year depreciation if the assets were bought between Dec. 31, 2007 and Jan. 1, 2009 and they were brand new at acquisition, but for operational purposes, you gotta depreciate them, then you gotta decide whether you need to use straight line or MARCS/DDB.

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[quote name='ilikemyusername' date='16 December 2009 - 06:57 PM' timestamp='1261015069' post='439723']
nil
[/quote]

Probably the best answer here. There's very little, if any, profit until the first year or two.

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[quote name='delSol_si' date='16 December 2009 - 05:57 PM' timestamp='1261007876' post='439702']
Remember that you are going to depreciate you fixed assests and equipment, ie. your hookahs, rather than expensing them in the beginning. You will probably be able to take a section 179 expense for them for tax purposes, or if you decided against the section 179 deduction, you could probably take the additional first year depreciation if the assets were bought between Dec. 31, 2007 and Jan. 1, 2009 and they were brand new at acquisition, but for operational purposes, you gotta depreciate them, then you gotta decide whether you need to use straight line or MARCS/DDB.
[/quote]

then you fake a sale of your stock of hookahs at the end of their useful life and report a "gain on sale" to boost your net income in the year and "reacquire" the exact same inventory and depreciate them again to evade taxes!

Too much too soon Del. Right on with the genuine advice but I'm not sure if this is within his league.

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