Learning how to price alcoholic beverages in your bar or restaurant involves finding a calculated balance between profit and customer satisfaction. On one hand, you want to gain the most profit for your business, but on the other, you need to retain value for the customer’s dollar. This balance includes many factors including beverage cost and overhead. Let’s dive in and get down to the nuts and bolts of how to find the best beverage cost for your business.
Know Your Alcohol Cost
When all is said and done, it’s important that your products make a profit for your business. The first – and most important thing – is to consider your total beverage cost. By definition, the beverage cost equals how much you are paying for your beer, wine and liquor/cocktail recipe.
Experts suggest an ideal beverage cost of 20 to 30 percent of the sale price. Meaning, the price you pay per drink should be 20 – 30 percent of the price you charge your customers. If you know the cost of your drink’s recipe, then you’ll be ahead of the curve for this equation.
For bottles or pints of beer, you’ll need to know how many pints are in each keg or how many bottles are in each case. For wine, you’ll need to have a good handle on how many x-ounce size glasses are poured per bottle. As for cocktails, you’ll need to price out each measured ingredient, and then add them together to come to a total cost per drink.
Pricing Example for a Cosmopolitan Recipe:
- The Amount Paid for the Ingredients per Recipe:
- 1.5 oz Vodka = $1.20
- .5 oz Cointreau = $0.70
- 1.5 oz Cranberry Juice = $0.12
- Squeeze of Lime = $0.05
- Lime zest, garnish = $0.05
- Recipe Total: $2.12
- With this information, you can figure out the best menu price for a reasonable profit.
- Since $2.12 represents 20%, or 1/5, of your drink price, multiply your drink cost by 5 to reach your final menu price.
- The Ideal Beverage Cost is: 20%
- The Math: $2.12 x 5 = $10.60
- The Menu Price: $10.60
In order to make a profit, you need to know how much you are paying for your inventory. Once you’ve priced out the cost per recipe, you can mark up your drinks accordingly to ensure that enough money is collected to cover business expenses (rent/mortgage, labor, equipment, etc.) while still making a profit.
Analyze the Competition
Unless you’re opening up a bar in an incredibly remote area, chances are you’ll have some competition to work with. Even greater are the chances that customers will be comparing your menu to the competition. Because this is the likely case, you’ll need to get a feel for what the competition is offering and charging. From there, you can determine a price range in your area with an acceptable maximum that customers will pay for beverages.
Competitive Analysis Example:
If the four-star restaurant downtown charges $12 for a cocktail, but the neighborhood bar on the corner charges $4 for a cocktail, then you know you are probably safe to price your cocktails somewhere between $4 and $12, depending on the quality of ingredients and level of service you offer.
Establish Standard Recipes for Each Drink
Standardization is key when it comes to making drinks. For example, if all of your bartenders make long island iced teas differently, it will be very difficult to accurately track your ingredients and cost. This can result in a loss of profit and inventory. Standardization keeps costs even and builds a set of quality expectations for your customers.
Charge for Entertainment
Bars or restaurants that offer entertainment have a few options when it comes to pricing. Usually the bar pays a band, artist or other group to entertain, so subsequently the establishment needs to come up with the money to pay for it.
Introduce a cover charge. Often, managers or owners will introduce a cover charge on the nights when they provide entertainment. Guests pay $10 to get in, and this helps cover the charge for the band.
Charge for masterful preparation.
Some drinks can be priced higher because they require more skill to make. Additionally, flair bartending can be considered a form of entertainment and skill even though it takes place behind the bar. Since this kind of bartending adds an element of perceived difficulty and performance, the bar manager can charge more for drinks.
Price for Promotions
Who doesn’t love a good happy hour? Happy hours vary across the board, from once a week to three times a day in some bars. Specials like this are designed to draw customers into your bar at off-peak times with lower prices than usual. Although bars may be making less profit per drink by offering lower prices, they hope to make up for it in volume. Bring in a lot of people during your specials, and your sales volume may just bring in more profit for you in the long run.
Pricing Example by Volume:
- During a 4-hour period, your bar typically sells 100 cocktails at $4.00 each.
- You lower the price to $2.00 per drink for the same 4-hour period and your bar attracts 300 people.
- $4/drink x 100 = $400.00
- $2/drink x 300 = $600.00
- By lowering prices for a limited time, you could potentially make an extra $200.00 in sales.
If you make that cocktail with a slightly different kind of liquor for your promotion period, something that perhaps you can get a volume discount on, then you can increase your sales by more. This is a common tactic to make the most money on promotional drinks.
In the end, pricing depends on the following:
- The amount you pay for your inventory
- The target market you hope to attract
- The resulting profit you want to achieve.
Of course, you need to charge more than you paid for your beer, wine and liquor, but charging outrageous prices will leave you high and dry without any paying customers. Price your beverages accordingly to keep your bar in business and keep your customers coming back for more.
Illustrations by the talented Roman Martinez for FSW