Bar owners enjoying a healthy profit margin may not pay close enough attention to pricing liquor. For this reason, they may not price drinks using the correct calculations of actual pour costs based on liquor pricing. The good news is there are strategies and formulas that help a bar owner calculate the correct drink cost.
Different types of bars will have different prices, but there are specific strategies that can ensure you set fair yet profitable prices for your entire cocktail menu. We’re going to spell out those strategies and formulas in simple terms. A correct liquor pricing strategy will improve profit margins. Here’s a guide on how to price liquor.
Understanding the Basics: Pour Cost and Liquor Cost
Creating a pricing strategy is an important part of learning how to open a bar. To understand how to price liquor, you need to put real numbers on your liquor cost and pour cost.
- Liquor Cost: This is the wholesale cost the bar owner pays for each liquor bottle. It’s the starting point for determining the profitability of your liquor sales. The liquor cost excludes additional costs such as taxes, shipping, or labor for stocking.
- Pour Cost: This is the cost of serving a shot or a drink. Typically, a “pour” or a “shot” ranges from 1 1/2 to 2 ounces, with 2 ounces being the most common. To determine the basic pour cost, you’ll need to know the cost of the bottle and how many pours it contains.
For example, consider a bottle of liquor that costs the bar owner $10.
- If each pour is 2 ounces, the bottle would contain 25 pours (since a standard bottle of liquor is usually around 50 ounces). This makes the cost per pour 40 cents ($10 / 25 pours).
- Alternatively, you could calculate the cost per ounce. With 50 ounces in the bottle, the cost per ounce would be 20 cents ($10 / 50 ounces).
- Additional Factors: The liquor cost and the pour cost are just the start. There are many other costs associated with serving a drink that needs to be taken into account:
- Mixers include items like soda, tonic water, or juice mixed with liquor to create cocktails.
- Garnishes: Think of the olives in your martini, the cherries in your Manhattan, or the lime wedge on your rum and coke. These little additions can add up.
- Ice: Ice is often overlooked, but there is a cost associated with producing, storing, and serving it.
- Rim Salts/Sugars: For cocktails like margaritas or sidecars, you might need to rim the glass with salt or sugar.
- Drink Accessories: This category includes everything from cocktail napkins to those adorable little umbrellas. They may seem like small expenses, but over time, they can have a significant impact on your overall cost.
These additional factors all contribute to what is known as the “total beverage cost.” In addition to the cost of the liquor itself, these costs must be factored into the price of each drink to ensure profitability. Therefore, it’s crucial to keep track of all these costs and consider them when setting your drink prices.
Calculating Pour Cost: A Step-by-Step Guide
| Step | Description | |
|---|---|---|
| 1 | Determine the Cost of Your Liquor | Determine the actual cost of your liquor by taking into account not only the base price of the bottle, but also any delivery costs, taxes, and labor costs related to stocking the liquor. For example, a $10 bottle of liquor might actually cost around $15 once all these additional costs are accounted for. |
| 2 | Measure the Amount of Liquor Sold | Keep accurate inventory, possibly on a daily or weekly basis depending on your volume of sales. The inventory will tell you how much liquor you've sold based on the remaining ounces in each bottle. Make sure your bartenders are using measuring tools like jiggers or pour spouts to ensure accuracy in their pours. |
| 3 | Calculate the Cost of Liquor Sold | Using the true cost of the liquor from Step 1 and the measurements from Step 2, calculate the cost of the liquor you've sold. For instance, if a $15 bottle of whiskey contains 50 ounces, that's a cost of 30 cents per ounce. If you sold 30 ounces, the cost of the liquor sold is $9.00. |
| 4 | Calculate Total Sales of the Liquor | Use a point of sale (POS) system specifically designed for bars or restaurants, like Lavu, Rexku, or Toast, to calculate the total sales from the liquor. This software can differentiate between types of liquor sold and tally up bar tabs automatically, saving you a lot of time and effort. You can then use your inventory to check the calculations and ensure the numbers match. |
| 5 | Calculate the Pour Cost Percentage | Pour cost percentages provide a measure of efficiency and profitability. A well-run bar usually has a pour cost ranging from 18% to 24% for average liquor, with higher-quality or premium brands having higher pour costs. Pour cost is calculated by dividing the cost of liquor sold by the total sales of liquor. It's important to review these percentages regularly to identify any potential areas for improvement. |
When a bar owner is pricing liquor, the cost per pour is a good starting point.
This is possibly the most important point to remember. You MUST maintain an accurate inventory. If you have staff members who are giving away drinks or overfilling shots, your calculations won’t be accurate.
Step 1: Determine the Cost of Your Liquor
Let’s stick with the example using the $10 bottle. Let’s say it was part of a delivery of 20 bottles, and the delivery cost for all was $60. Right, add a $3 cost to each bottle.
Don’t forget to add taxes and, if applicable, the wages for an employee who accepted the delivery and unloaded the bottles, placing them in the proper locations.
For accurate liquor pricing, the cost of that $10 bottle is closer to $15, delivered and stocked.
Step 2: Measure the Amount of Liquor Sold
An accurate inventory is the starting point. Depending on volume, some bar owners may have inventory taken daily, and some weekly.
The inventory will give you the actual numbers of the amount of liquor sold based on the remaining ounces in a bottle.
Bartenders should be using measuring tools such as jiggers or pour spouts. Jiggers are two-ended measuring tools, where one end can measure 1 1/2 to 2 ounces, and the other end measure smaller amounts. Pour spots fit atop liquor bottles, replacing their caps, and providing volume control/the size of the pour.
Step 3: Calculate the Cost of Liquor Sold
Let’s go back to that original $10 bottle, which we now know actually costs the bar owner $15. The bottle contains 50 ounces when full. The cost per ounce is 30 cents.
There are 20 ounces remaining in the bottle, which means that 30 ounces were sold. The cost of liquor sold is $9.00
Step 4: Calculate Total Sales of the Liquor
Liquor Point of Sales software can greatly simplify these calculations.
For example, let’s say that the $15 bottle we’ve been discussing is whiskey. Customers may have enjoyed Manhattans, Old Fashioneds, Irish Coffees, and shots.
It would be painstaking to tally up bar tabs and differentiate between types of liquor sold.
There are POS systems specifically for restaurants and bars such as Lavu, Rexku, Toast and more. The price range per month ranges from $60 to $165.
The POS systems will calculate the total sales by type of liquor (whiskey, gin, vodka, etc.). You would inventory to check the calculations and make sure the numbers match.
Step 5: Calculate the Pour Cost Percentage
Pour costs are given as percentages. A well-run bar should have an optimum pour cost that ranges from 18 to 24% for average liquor costs.
The pour cost percentage is different for liquor of higher quality. Top-shelf brands may have a pour cost somewhere in the mid to high 20s. Premium brands may have to pour costs in the 30s.
The numbers are different for draft beer and canned or bottled beer. Draft beer should have a pour cost in the 20s. Bottled or canned beer should have a pour cost ranging from 20 to 30%.
How is the pour cost percentage calculated? Here’s the formula:
The cost of liquor sold is divided by the total sales of liquor. As a bar owner, you can do this calculation based on total sales or make separate calculations based on the type and quality of liquor (with good software).
It’s important to note that a bar owner enjoying a comfortable profit margin may not realize that the bar’s pour cost percentage is too high. If adjustments are made, the bar profit margin could be even higher.
Setting Your Drink Price: Factors to Consider
When you know your prices per ounce, there are other factors that help you determine how to set prices for drinks.
Considering Overhead Costs
Overhead costs can include taxes, employee wages, and delivery fees. For example, if you’re learning how to start a mobile bar business, you’ll likely have fewer expenses than a full-service bar in a trendy downtown storefront.
Costs of Mixers and Additional Ingredients
In the example of whiskey drinks we mentioned earlier, the drinks would need mixers such as sweet vermouth, bitters, sugar, coffee and orange slices. The drink price should include the costs of those items. Some establishments even include bar snacks at each table, so factor those costs in when pricing drinks.
Evaluating Market and Competition
Your competition may be offering specials and happy hours, and the majority of bars do the same. You can make a note of what competitors are doing, and you may opt to run your own specials on different days.
Understanding Your Customer Base
Are you serving the shot and a beer crowd, or folks that savor the best-sipping whiskey? Or a little of both?
By keeping tabs on inventory, you’ll soon learn which types of liquor are your best sellers.
Consider a Target Pour Cost
For maximum profitability, your target pour cost should range from 18to 24%.
How to Price a Shot of Liquor
A shot is a stand-alone, with no mixers.
Choosing the Right Size for Your Shot
The standard shot size ranges from 1 1/2 to 2 ounces. The smaller size is usually for the liquor with higher alcohol content.
Calculating the Direct Cost of a Shot
Calculate the per-ounce cost of the liquor using the cost of the bottle.
Adding in Overhead and Determining Profit Margin
Add the cost of delivery, taxes and employee wages to the cost of the shot.
Strategies to Optimize Your Drink Prices
Here are additional ways to increase profitability:
Implementing a Tiered Pricing Strategy
Not all liquors or beers are created equal. With a tiered pricing strategy, you can price by the quality of the liquor and offer premium selections to customers who are willing to pay for it.
Utilizing Happy Hour and Special Promotions
What is a happy hour? Special promotions and Happy Hours are standard offerings at bars. You may be able to engage liquor and bar suppliers to assist you with special promotions.
Balancing Premium and Standard Offerings
Know your customer base. If there’s “a little dust on the bottle,” that’s tying up your cash flow.
FAQs: How to Price Liquor
What is the Average Pour Cost for a Bar?
The average pour cost ranges from 18 to 24%.
How Can I Lower My Pour Costs?
Keep accurate inventory. Use POS software specific to bar management. Educate employees on the importance of accurate liquor measuring.
How Do I Calculate a Drink Price Based on Liquor Cost?
Start with the cost per ounce (including overhead) and add extras such as mixers and fruit/olives.
How to Adjust a Drink Price According to Market Changes?
If your prices for liquor, mixers or extras increase, you should adjust your drink price accordingly.
What are Common Mistakes to Avoid When Pricing Beer?
Typically a bar owner will use a standard mark up price for bottled or canned beer, usually 3 times the bar’s cost. But this may not match the actual cost of the pour, which should range from 20 to 30%.
What Liquor Pricing Strategy Should a Bar Use When Pricing Cocktails?
Start with the per ounce cost of the liquor. Add in the cost of any extra ingredients, such as mixers or additions (fruit, olives, salt).
This article, "How to Price Liquor: A Complete Guide for Bar Owners" was first published on Small Business Trends