It seems like every bar establishment, both new and old, is offering a brand-new, premium cocktail program. As more bars and restaurants expand their cocktail menus, they must all determine how to properly price their new additions.
Whether you're in the beginning stages of opening your own bar or have been in business for decades, setting the right price for your drinks can be tricky.
Although there is a simple math for pricing drinks, you'll need to make a few choices along the way because every bar and restaurant has different problems and priorities. Therefore, it is important to set guidelines to make sure that your cocktail menu brings in business and entices customers.
Follow the easy process below to get started.
How Do You Price a Cocktail Drink for Your Bar
Have you ever thought of how much it costs to make your favorite drinks?
Well, a cocktail menu require a lot of preparation made by mixing a variety of ingredients with each having its own costs to make. A cost of a cocktail doesn't only mean a single measurement, vigorous swirling, and garnishing you'd find at just about any cocktail bar.
A margarita, for example, is a simple and readily available drink that may easily cost $15 or more. Within a minute, a skilled bartender prepared the drinks using unique available ingredients. Given that there is almost any discernible effort involved, it could be tempting to think that the $15 cost of the tequila, triple sec, lime juice, and agave nectar is primarily covered by the cost of the ingredients.
So, how does bar operators set proper pricing on cocktail drinks?
In professional bars, it's a must-have discussion since businesses need to calculate costs and make a profit.
Finding the right balance is the key to pricing cocktails. You don't want people to say that your beverage menu is expensive but don't want to give your drinks away for free. Ofcourse, patrons want to get their money's worth. While ensuring to cover expenses such as rent, equipment, etc., you need to make sure to get a reasonable profit to generate money in the hospitality industry.
Let's take a closer look at some ways how restaurants and bar managers view liquor costs.
6 Steps to Price Cocktails Menu
When selecting how much to charge for drinks at your bar, you should give considerable thought to striking a balance. Below
1. Calculating Liquor Cost per Ounce
One of the important metrics to help bar managers to set cocktail prices is by keeping track of the liquor costs. Liquor cost is simply defined as the price you pay to acquire alcohol from suppliers.
To determine the overall cost per drink, you'll need to factor in each ingredients of a drink and add them up.
Liquor Cost Formula
To get the number of the liquor costs, you can use the following formula:
Bottle Price / Ounces in Bottle = Liquor Cost per Ounce
2. Calculating the Pour Cost
Because you don't always sell liquor, wine, and draft beer in their original whole containers. It is important to consider the cost per ounce of liqour you buy since this will help you accurately price your drinks so you can make the desired margins.
This number may be calculated using the following formula:
Cost to Make the Drink / Price You Sell It for = Pour Cost
What is the best target pour cost?
Although there isn't a defined industry standard pour cost, most locations would want to set the pour costs at 20% to 25%, while others will use 22% for wine, 20% for beer, and 14% for liquor.
It's worth noting that the pour cost is what you pay for it, so a higher pour cost means a greater percentage of your per-drink income goes out of your pocket.
A lower pour cost, on the other hand, implies that a smaller percentage of your per-drink revenue goes out of your pocket, allowing you to make a greater profit.
As a bar manager or owner, aim for a lower pour cost to 20% or less. But you can always adjust the percentage to what works best for your establishment.
3. Calculate the drink price
You can calculate a drink price by using the following formula:
Drink Price = Drink Liquor Cost / Pour Cost in Decimals
4. Factor in the garnish prices
Do the same way you calculate each cocktail's drink costs or set a flat rate that is added on to the cocktail menu.
5. Factor in the shrinkage variance
Most bars will charge an extra fee of about 20% to cover the cost of product that goes bad, a lost product or can't sell due to expiration.
6. Round to the nearest quarter
The result of your calculations might not be a perfectly rounded number. Round the price to the closest quarter to make the cocktail menu more accurate.
7. Evaluate and adjust
Purchasing a bar stock can fluctuate prices. Internal processes and customer demand can affect the bar program. This important factor can affect the most profitable drink.
It's possible that the prices you set are not always the most cost-effective ones for your target market. A profit and loss statement may be used to track changes and their impacts on customers to determine the most lucrative menu prices for your restaurant.
To keep your bar profitable and optimize inventory, use a pos system and inventory management software to analyze performance and data.
A breakdown of Drink Cost Computation: Gin & Tonic
We have a quick and simple bartender’s guide to cost a cocktail. Follow the easy process below to get started. We’ve used a gin & tonic as our example cocktail.
Using the inventory template of your choice, find the price of the base alcohol per bottle. In this case, let’s use a bottle of Beefeater gin at a cost of $15 per bottle.
- In addition to the pour cost for the base alcohol, add on your prices for any expensive ingredients you’ll use. For our gin and tonic, we’ll add $2 for the gin and lime.
- Next, convert the unit of measurement for the bottle, which is typically listed in liters, into the unit of your recipe, either milliliters or ounces. For our example, we’ll say our bottle of gin comes in at 1.5 liters, giving us 50.72 ounces.
- Now, divide the price per bottle by the size. That’s the unit cost. (For those following along, our unit cost is $0.30 per ounce.) Multiply the unit cost by the number of how many ounces required in your recipe. We’ll multiply by 3oz. for $0.90.
- Take the cost of the alcohol required for our cocktail and add it to the cost of the other ingredients. Our total cost of goods for this gin & tonic comes to $2.90.
- Lastly, to determine the price on your menu, multiply your total cost of goods by 5. That gives us $14.50, which is the final menu price of our example alcohol.
- Then, rinse and repeat with the rest of the cocktails on your menu.
Sound time-consuming? That’s because it is. If you’re interested in letting WISK do the hard work for you, get in touch. For more information on our beverage cost calculator, please visit https://www.wisk.ai/features/restaurant-recipe-management-cost-software.
4 Factors that Influence Liquor Prices
Psychology Pricing
The bar industry is a competitive one, and there are many other factors that influence liquor prices. Psychology plays a role in pricing, and bar managers often use pricing strategies to subconsciously influence customer behavior. For example, higher prices can convey a sense of luxury and exclusivity, while lower prices may be seen as a bargain. Customers also tend to place more value on items that are priced ending in .99, as this creates a sense of urgency and a need to act quickly.
Studies have also shown that people are more likely to order an expensive drink when they're feeling happy or confident and having a happy hour. And while most people are aware that higher-priced drinks tend to be of better quality, this isn't always the case. In fact, bartenders often use marketing techniques, such as upselling and suggestive selling, to convince customers to spend more than they intended. So next time you're out for a drink, keep in mind that the price tag isn't always reflective of the quality or quantity of liquor inside the glass.
Market Demand
In any market, the prices of goods sold are determined by the forces of supply and demand. When it comes to liquor, customers' demand plays a significant role in influencing prices. On the one hand, customers who are willing to pay a higher price for their liquor can help to drive up prices. On the other hand, customers who are looking for a bargain may be more likely to choose brands that offer lower prices. As a result, liquor companies must strike a balance between pricing their products too high or too low in order to appeal to the widest range of customers.
In general, middle-priced liquors tend to be the most popular, as they offer a good value without being too expensive. Of course, there is always a flip side to this coin: sometimes, customers are willing to pay more for a top-shelf product, regardless of cost. Ultimately, it is up to the customer to decide what they are willing to pay for their next cocktail.
Demographic
Having set prices goes further than calculations. Consider your location's demographic to set rates that customers will accept. Take into account the profession and income of people in your neighborhood.
Customers may expect higher pour cost if your bar is in a busy city with high rent. Lower pour cost will sell in a rural or college town with tight finances. You should track bar sales and adjust drink costs to see how customers react.
Market Competition
Every business must know what the competition is doing. Bar owners need to consider their competition when setting drink prices. If nearby bars are charging less for similar cocktails, they may need to lower their own prices in order to attract customers.
You'll lose business and suffer if you're priced higher than other bars. If bar drink prices are too low, it won't cover rent, electricity, labor costs and etc. Many restaurants use the "meet or beat" pricing strategy to match or beat their competition.
How to Determine the Cost of Non-Alcoholic Ingredients
Portion Control
The kitchen needs portion control. It means using the same amount of each food ingredient per dish. Think of a 6-oz. salmon portion or the hollandaise on a steak. For a complex cocktail, use an equal amount of ingredients in each.
Fresh Juices
If you're making fresh pineapple juice, you'll need to test how much juice you get from one pineapple. Fresh produce juice yields will vary, so an average is best.
Account for the value of each item or bulk produces like lemons and apples to determine juice cost.
Customer Base
Customers are an important element in the success of your bar or restaurant. Determining what your consumer base is willing to pay for a drink will help you decide the type of drinks on your menu and how much you charge customers. A pub that serves beer and shots would make fun of a $12 drink.
Pricing of Alcohol in Four Tiers
Well
Wells are the cheapest liquors. Alcohols that mix well are house liquors. Well liquors are kept in a speed rail for bartenders. When customers order a generic drink (whiskey and coke, vodka and soda, etc.), they get one of the good liquors. The pour cost for good liquors is 30%.
Call
Call liquors are known by their names. A customer orders a drink with specific alcohol is called liquor. Bar owners set a high pour cost for call liquors at 25%.
Premium
Premium liquors are displayed behind restaurant shelves. It is the liquor with high quality that the brands have to offer. It samples like Maker's Mark Bourbon or Beefeater Gin. Its pour cost set at only 20%
Super-Premium
It is the type of liquor that has the highest-quality alcohol bottles on a cocktail list. It is because of its aged alcohol content and the small batch. Primary examples are Johnny Walker, Patron, and Grey Goose. It only has a low pour value which is 15%.
Bar Liquor Markup
In most bars, the markup on liquor is between 400 and 500 percent. It is the most expensive type of alcohol, so nightclubs that have a lot of total sales of shots are the most profitable business.
Average bar prices for cocktails
The average drink prices ranges from $5 to $15.
There are a few bars that price cocktails significantly more - usually due to their location, reputation, or status. Some places like drive bar usually charge much higher on the lower end.
The most cost-effective price, according to a bar customer, is between $2 to $10. If you want to go for a great deal, consider finding a middle ground between, let's say in the $7 to $10 range, with your best cocktails ranging from around $15 or potentially even higher. This this will grant your bar the status of having some excellent reasonable price drinks.
What is the cocktail profit margin?
Your profit margin is divided by net income and by total revenue.
Net Income ÷ Revenue = Bar Profit Margin.
It represents how many cents per dollar of revenue is net income. Usually, bars aim for a profit margin of around 80% on alcohol sales, and to achieve that is to measure and control the pour cost.
Bar Drinks: Their Value
Everything within any establishments requires time, money, and effort to build it up. Employees must be compensated as well. So, try to consider looking around at your favorite bar and restaurants before you whine about the high cost of menu and bar drinks. Remember, you're paying for an excellent ambiance and outstanding service as well, and that's why, there's value in it.
Make the most of your nights out and, when you're at home, you'll know how to control your own bar expenses. See your ROI flourish as you integrate these cocktail costing practices into your operations.
Finally, our all-in-one solution helps you nail down the nitty-gritty of cocktail expenses, from the booze and mixers to the fancy garnishes and glassware. With WISK, you can confidently set prices that keep your profits in check while giving your customers that perfect "worth it" feeling. Try WISK now!
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