Alcoholic beverages are a big draw for customers when they visit bars or restaurants. And with the average restaurant earning 60% to 70% profit on their beverage cost, you start to see just how profitable serving drinks are–provided they’re priced right.
To charge the right drink price, use this guide. We’ll show you how to calculate drink prices, how to account for liquor quality and its effects on liquor pricing, as well as ways to lower the pour costs and maximize profits.
What Is Liquor Cost?
Liquor costs are the cost of the alcohol you serve at your restaurant, usually per fluid ounce. It’s part of the COGS (Cost Of Goods Sold) metrics. The liquor cost metric will help you establish good drink prices, ones that keep your business competitive but profitable.
How to Calculate Liquor Cost and Drink Pricing
Using the liquor cost formula and average pour cost as a guide, we’ll price drinks and determine the target cost for your bar or restaurant drinks.
Determine the Liquor Cost
First, you’ll need to determine the liquor cost for every ounce in a bottle of liquor, usually in spirits like whisky, vodka, etc. You can use the same formula for bottled alcohol, like a crate of bottled beer.
To determine liquor cost, use the following formula:
Bottle price or crate price ÷ ounces in the bottle/number of units in the crate = Liqiour cost per ounce or unit.
Here’s an example to make it a bit more clear.
You bought a bottle of whisky for $30 and it contains 25 fluid ounces.
$30 ÷ 25 ounces = $1.2 per ounce
Determine the Pour Cost Percentage/Beverage Cost
The pour cost percentage is your markup on the beverage. The percentage differs across the board, but most bars and restaurants charge between 18% and 25% as their pour cost average.
Your target pour cost will differ from other places, depending on the liquor you serve, the type of establishment you have, and what your target demographic is. You can also start with a lower pour cost and grow it along with your business.
Generally, spirits have a lower pour cost percentage than bottled items like beer and wine. Liquor averages at around 15%, beer in the lower 20s, and wine in the higher 20s.
Add Pour Cost and Liquor Cost For the Drink Price
Next, we’ll establish the base drink price. This is the bulk of your drink charge. The rest of the charges after this are add-ons.
Here’s how to establish your initial drink price.
Liquor cost ÷ pour cost percentage = drink price.
Let’s carry on with the above example, with a pour cost percentage of 15% for the whisky.
1.2 ounces ÷ 0.15 = $8
Your base drink price for the whisky will be $8.
Add Liquor Waste and Shrinkage Fees
Liqiour waste and shrinkage fees are presented as a percentage. It’s added to drink prices to cover the cost of damaged and expired goods, as well as the general waste that comes with drink sales. It’s an essential part of pricing liquor. Without it, you could chip away at your bar or restaurant profits.
On average, restaurants add a 15% to 20% waste and shrinkage charge. We’ll add 15% to this example.
First, we need to determine the waste charge in dollars. To do that, multiply the drink total from Step 3 by the percentage in decimals.
$8 × 0.15 = $1.2 waste and shrinkage charge.
Then we add the charge to the drink price.
$8 + $1.2 = $9.2
Charge For Garnish
Garnish is mostly used for pricing cocktails, so you don’t need to add the garnish charge to all drinks. But, for the sake of the example, let’s say you are adding garnish to a whisky cocktail.
You can add the garnish price either as a flat rate or as a percentage.
For percentage, substitute the waste and shrinkage charge in Step 4 with the garnish percentage charge you want to add to the cocktail menu. Follow the steps and plug in the new numbers.
Adding a flat garnish price tends to be easier. For this example, let’s say the garnish charge is 40 cents.
The sum will go as follows: $9.2 + $0.40 = $9.60
Round Up The Final Amount
Now that you know what to charge to cover your liquor costs, round up the final amount. You can round it up to the nearest quarter or full dollar. We’d also suggest familiarising yourself with pricing psychology like charm pricing to maximize your pricing strategy.
To finish up our above example, let’s round up to the nearest dollar. The above whisky drink will be sold at $10 a pop.
You can use the same formulas to determine unit prices for beer and wine. Also, consider how you’ll charge for double shots of liquor. A good marketing tactic is charging a little less for the second tot of liquor, to encourage bigger spending.
Compare With Competitor Analysis
Drink prices fluctuate from region to region, and it’s important to check local competitor prices to ensure you’re on the right track.
So, do some local research. Compare your prices with the bars and restaurants in your area that serve the same type of clientele you do. If you’re trying to be an upscale place, it wouldn’t make sense to compare it to the local mom-and-pop diner, would it?
Once you have your competitor's prices in hand, you can see if you are charging at the same margin. If you are charging too much, lower your costs to a little below similar establishments to stay competitive.
If you are undercharging, you can either maintain your price to draw in customers or make it higher (but still lower than your competitors) to establish your space in the local market and increase profits.
Liquor Quality and Its Effect on Liquor Pricing
Your pricing strategy needs to include variables for the highest quality bottles in your bar or restaurant. Higher quality spirits will need to have a lower pour cost to avoid massive drink charges that surpass average premium drink prices.
There are four tiers of liquor quality:
- Well: This is the lowest-quality liquor. Well drinks are usually mixed with other liquors and mixes, which requires higher pour costs. Traditionally, pour costs for these drinks will be in the 30% to 35% range.
- Call: These are the drink brands people know by name and look for behind the bar. They are usually only mixed with soda, water, or lemonade. The pour cost for these will be between 25% and 28%.
- Premium: These are the premium versions of popular brands. The pour cost of these averages is 20%.
- Super Premium/Top Shelf: These are the most expensive items in your bar or restaurant, and are usually not kept on display. Super premium liquors are also usually aged and distilled. For them, you can charge a 15% pour cost percentage.
Tips To Lower Bar or Restaurant Liquor Costs
Whether you want to lower drink prices or maximize your profits, these tips will help you do so.
Reduce Waste
Because you are paying per ounce, every spill or overpour counts. Without proper management, it can make a huge dent in your profits.
To reduce waste, use effective inventory management to keep track of spills and overpours and use bar tools to measure exact amounts. You can also offer incentives for staff who produce the least amount of waste.
Create Set Drink Recipes
Creating set drink recipes is another way to overpour and establish consistent drink prices. So, create drink recipes with exact measurements and train new employees to follow the recipes to a T. You can also use restaurant employee training software to simplify the process and keep results consistent.
Negotiate Wholesale Prices
To lower bar and liquor costs, start saving from the get-go. When purchasing wholesale, there is always some room for negotiation–especially if you are going to buy bulk consistently.
Negotiate for lower prices in exchange for long-term contracts where you only purchase from one wholesaler. But before you do this, make sure the quality they offer is good and compare their quotes with those of other wholesalers.
Implement Theft Prevention Strategies
Liquor theft can quickly chew into your profits, which is why theft prevention strategies are a must for any bar or restaurant.
To prevent theft, install security cameras in your establishment, especially behind the bar and where inventory is held. Also, do frequent inventory checks. This will ensure you catch discrepancies early on, and act as a deterrent for any wannabee thieves.
Lastly, ensure employees understand how serious theft is and that you will take decisive action against anyone who steals from your business.
Conclusion
Drinks are high-profit margin items, provided you price them right. With the above guide, you can establish your liquor cost, pour cost percentage, and garnish and waste charge, to create the ideal drink prices.
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