Pricing Alcoholic Beverages in Your Bar or Restaurant

Pricing Alcoholic Beverages in Your Bar or Restaurant

Overflowing pitchers of beer under the tapWhen pricing drinks in your bar or restaurant, aim for gaining the most profit without sacrificing value for the customer. Consider all the factors when pricing your drinks, including your ingredients, your cost, and any entertainment you offer.

In this article
  • How beverage cost influences drink pricing
  • Why observing the competition can be one of your best moves
  • Promotions and how they can help you

Know Your Alcohol Cost

When all is said and done, it is important that your products garner a profit for your business. That means no matter how much you pay for the alcohol, you need to price your drinks in such a way as to accommodate for ingredients, preparation and overhead—how much value you get from your restaurant's atmosphere. The most important thing to consider is your beverage cost—how much you are paying for your beer, wine and liquor. Experts suggest an ideal beverage cost of 20 to 30 percent of the sale price. For instance, the price you pay per drink could be only 20 percent of the price you charge your customers for that drink.

Example:
20% is your ideal alcohol cost percentage.

 $0.95 is the cost of the drink to you.

 Since $0.95 represents 20%, or 1/5, of your drink price, multiply your drink cost by 5.

 $0.95 x 5 = $4.75

 $4.75 is your estimated drink price.

This is simply a guideline, and will be elaborated later in this article. However, when you know how much you are paying for your inventory, you can price your drinks accordingly to ensure you are making enough income to pay for your lease, labor, equipment and other parts of the business, while still making a profit.

Analyze the Competition

No matter what type of bar you open, you will have some sort of competition. If you open a bar in a restaurant, you will probably be faced with even greater competition, since customers will be evaluating both your food and beverages and comparing them to other bars as well as other restaurants. The most important thing to do is to get a feel for what other local establishments charge for drinks. If you can determine a price range in your area, then you will know the minimum and the maximum that you can reasonably charge for beverages.

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.

Higher prices, if not a clue to higher beverage costs, are usually adjusting for entertainment, ambiance, service quality or a prime location. If your establishment is more casual, then a lower price may be more appropriate. If customers are used to low prices at their neighborhood bars, and your neighborhood bar charges more, even just a dollar more, people will notice. It all depends on what your customers expect, and what they are willing to pay. However, standardization is key when it comes to making drinks. If all your bartenders make a long island iced tea a different way, there is no way to accurately track your ingredients and your prices may not account for any changes in preparation. Standardization also helps customers know what to expect from drinks at your bar.

Increase Bar Profits

Price by Ingredient

Some bars figure their prices based on the cost of the individual ingredients. For instance, a martini may be priced based on the cost of the vodka, the cost of the vermouth and the cost of each olive or lemon peel. However, the bar must make a profit, which requires a markup from the base cost of all items added together. A markup is a factor by which you need to multiply the cost to bring the drink to a profitable price.

Example:
Your bar serves a certain type of vodka. Determine how much each shot of vodka costs by figuring how much you paid for a bottle, then dividing by how many shots you can get from that bottle.

             A bottle of vodka costs $20.00.

             Bottle is 750 mL, which is 25.4 fluid ounces.

             If you are pouring a one-ounce shot, you will get about 25 shots per bottle.

             $20.00 ÷ 25 shots = $0.80 per shot.

It is important to know the size of yourshots so that you can accurately estimate the cost per drink. Be aware that not all bars pour shots in one-ounce portions.

After determining the price of the shot, you can estimate the price of the other ingredients in a drink. Many bartenders just add on a few cents to account for soda, garnishes, straws and cocktail napkins, but others get very detailed to get an exact price per item.

Example:
Let’s say you add $0.15 cents to take care of the extra ingredients and supplies.

 $0.80 + $0.15 = $0.95.

 This makes a total of $0.95 per drink.

Experts suggest running a beverage cost of about 20 to 30 percent. This means that a drink costs the owner somewhere around 25 percent of the selling price. Although this is just a guideline, it often works to set base prices. So, the markup for your drinks should be about 4 or 5 times the cost.

Example:
To get a selling price for your vodka drink, multiply that 20 percent beverage cost by a markup factor of 5.

$0.95 is the cost of one vodka drink.

$0.95 x 5 = $4.75, the estimated selling price of the drink.

This selling price of $4.75 takes into account all the ingredients of a typical vodka drink at your bar. Since the cost to you is $0.95, and the selling price is $4.75, this gives you about a 20 percent beverage cost, which is fairly low. The lower the cost to you, the more profit you are making for your business.

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.

Profit on High Cost Beverage Items
Note that not all profitable drinks have a low beverage cost. Restaurants and bars often sell wine by the bottle at a 30 or 40 percent beverage cost, meaning they pay 30 or 40 percent of what they charge their guests. Although this seems high, products with a high cost to the restaurant can often be sold at a higher cost to the guest, so the restaurant still makes a decent profit, relatively speaking.

Raise drink prices.

Some operations will incorporate the cost of their entertainment into the prices of the drinks. For instance, on nights when a bar offers live jazz, their drinks might go up in price to compensate. 

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

Many bars offer specials for their customers, often in the form of a 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 in customers 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.

Example:
During a 4 hour period, your bar typically sells 100 cocktails at $4.00 a piece.

Thus, you anticipate selling $400 worth of those cocktails.

Happy hour pricing during another day of the week lists these same cocktails as $2.00 a piece. Because of the promotion, 300 people come through the door and buy one.

This brings in sales of $600.

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 will make even more profit when you sell a lot of that drink. This is a common tactic to make the most money on promotional drinks. >>Happy Hour Marketing Tips

Pricing your beverage items is an essential aspect of any bar owner’s or manager’s duties. Pricing depends on the amount you pay for your inventory, the target market you hope to attract and 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.