How to Price Drinks for your Bar (Average Alcohol Prices)
Choosing the right prices for your bar drinks is incredibly important since the price of your drinks will have a significant impact on customer orders and your profit margins.
Of course, figuring out how to price your drinks can be tricky. Bar owners need not only to factor in the costs of each drink but must also consider the demographics of target customers.
Luckily, we are here to help! In this article, we will go in-depth on how to calculate the cost of drinks, and we will also give you all the information you need about the industry standard costs of each drink.
After finishing this article, you should feel confident that you have the information you need to figure out how to price the drinks at your bar with the result that your customers are happy and your bar revenue increases.
Establishing Drink Costs
With so many different types of alcoholic beverages served in bars and the different quality of each ingredient or product, it can feel very overwhelming when it comes to figuring out how to price your drinks.
Luckily, there is a mathematical formula that you can apply to all of your drinks that will, at the very least, give you a general idea of what you should charge for each drink.
How to Calculate Liquor Drink Costs?
In this section, we will go over the mathematical calculations that you will want to do to determine how to price your drinks. Do not worry, this can seem somewhat technical, but we have presented it in a way that should be easily accessible and comprehensible.
1. Calculate the Liquor Cost
The amount of liquor each drink recipe specifies is usually counted in ounces, so the first step is to find out how much your liquor costs per ounce. This can be done with the formula below:
Bottle Price / Ounces in Bottle = Liquor Cost per Ounce
So, for example, let's say that you are trying to figure out what price you should set for a bottle of tequila. Let’s say that the bottle of tequila costs $20 and has 16 ounces. We would then use the formula to figure out the tequila cost per ounce:
$20 / 16 oz = $1.25
So an ounce of tequila costs 1 dollar and 25 cents.
2. Calculate the Pour Cost or Beverage Cost
You can determine the pour cost with the formula below:
Cost to Make the Drink / Price You Sell It for = Pour Cost
A common pour cost in bar establishments is 20% to 25%. This means that you are selling the drink for 20% or 25% percent more than the cost of making the drink.
Often, bars will choose different pour costs for different beverages. So, for example, a bar might set the pour cost for wine at 23%, the pour cost of a beer at 20%, and the pour cost of liquor at 15%.
Let’s continue with our example of the tequila shot. Let's say that the tequila shot is 2 oz. So the cost to make the drink would be $2.50. Then let's say that you want to sell the tequila shot for $5. Now we can use the formula to calculate the pour cost.
$2.50 / $5 = .5
So the pour cost would be 50%.
The lower the pour cost, the higher the drink sale price is compared to the liquor cost.
You can probably imagine that you might want to price your drink based on the pour cost instead of setting a price and finding out what the pour cost is. That's exactly what we will do in the next step.
Pour costs or liquor costs are based on your direct costs and gross margin, but different establishments may have significantly different indirect and/or fixed costs that aren't included in pour costs. So two bars with the same pour cost may have drastically different net profits.
But as a starting point, industry averages can help you find the right path to determine how your bar or restaurant's beverage costs compare, and where you can improve. The industry average for total beverage programs is somewhere between 18 - 24 percent.
3. Calculate the Drink Price
You can determine the price of a drink by setting what you think would be a reasonable pour cost and using a mathematical formula to figure out what the sale price would be. The formula follows below:
Liquor Cost / Pour Cost in Decimals = Drink Price
Let's continue with the shot of tequila which is 2oz with a liquor cost of $2.50. Now, let's say that you want to have a pour cost of 25%. The equation would look like this.
$2.50 / .25 = $10
So the drink cost of the 2 oz tequila shot would be $10.
4. Factor in Spirit Modifiers and Mixers
With spirits like whiskey or vodka, most drinkers will order them in cocktails or mixed drinks, such as a whiskey and coke. Or even if they drink the spirits alone, they might call for rocks or ask for a double.
All of these factors can change the servings of spirits in a drink and the pour cost for making that drink. For example, if someone orders whiskey on the rocks, you'll want to adjust your portion and pricing. Standard pour size for a rocks pour is usually an additional .5oz up from the normal volume served for a neat pour of a spirit.
So if your normal neat pour is 1.5oz., your rocks would be 2oz. Make sure to account for this with a modifier button in your point-of-sale (POS) system with an upcharge associated with it so your employees can easily calculate the accurate liquor prices.
5. Factor in the Garnish Prices
Often cocktails and mixed drinks will have garnishes. You can calculate the cost similarly to how you calculate the liquor cost and price out each individual ingredient or set a flat rate that is added to the drink price.
6. Factor in the Shrinkage Variance
Of course, you are not always able to use every last bit of your liquor or products. Sometimes they get spilled while a bartender is quickly making a drink or sometimes the ingredients go bad. So, most bars will add in an additional fee of approximately 20% to cover the cost of lost products due to expiration, damage, or loss.
7. Round the Drink Cost to the Nearest Quarter
The number you get after you complete your calculations may not be a well-rounded number. To make the menu prices more visually appealing, round to the nearest quarter to create a cleaner drink menu. Even if you make a little less per drink, a good-looking menu will certainly make up for it.
8. Evaluate and Adjust According to Relevant Factors
Once you finish your calculations and come up with a final drink cost, you will then have a general idea of how you should price your drink. But this does not mean that you should stick to the number you get from the calculations.
It is just a reference point that you can keep in mind when taking into account your customer base demographics, the competition you have in the area, the salary you pay your bartenders, your business rent, your bar aesthetic and brand image, and of course, the consumer trends for bar patrons.
How to Price Wine?
Pricing wine has more variation than many other types of alcohol. This is because there are a number of factors to consider, such as the age of the wine, the region of the wine, which wine regions were said to have a particularly tasty harvest, the status of different wine brands, the atmosphere and status of the establishment the wine is being served in, and so forth.
Nevertheless, there are some average price standards for wine in the bar industry that can help you get your bearings. Most wine drinkers have had the experience of seeing a wine they're familiar with in a restaurant menu that costs $45 on the menu but retails for $15 in the local wine shop.
Industry standards for wine bottle markups are generally said to be around 2.5x to 3x the wholesale price a restaurant purchases the wine for.
Premium vs. Economy Wines
A premium wine, one that is more expensive, will probably have a smaller markup than a more affordable wine. This is because profits increase with the price even at lower margins.
You don't want to price out your guests from premium wines, so having a graduated pricing structure is a good strategy. You can make a tier system for a general idea of the markups you would make for different types of wine:
$0 - $20 = 3.5x Markup
$21-$40 = 3x Markup
$41-$80 = 2.5x Markup
$81 - $150 = 2x Markup
$151+ = 1.5x Markup
This is just an example, but these markups are found more common than not in most bars.
How to Price Beer?
Beer is the most popular adult beverage in the U.S., so it is important to get the pricing right.Beer is typically cheaper than both liquor and wine, but that does not mean that you cannot make a considerable profit from beer sales.
The profit margins are particularly high for draft beers, and a careful pricing strategy for draft, bottle, and canned beers can yield significant revenue. Moreover, beer is the perfect complement to great tasting bar food.
Pricing Draft Beer
Draft beer has more overhead costs than bottled beer, from equipment and maintenance to spillage and spoilage, it requires more upkeep which means it costs more.
Nitrogen and CO2 also need to be purchased on a regular basis to keep your beer fresh, so adding in an overhead charge-per-glass will allow you to leverage the higher profit margins by adjusting prices.
You might think you need some big confusing formula to figure out the percentage costs for draft beer, but turns out all you need is a couple numbers and it's fairly easy.
First, determine how many beers are in each keg by dividing the number of ounces in the keg by serving size. The typical keg size is 15.5 gallons or 1,984 ounces, and the typical serving size is 14.5 oz of liquid which will yield about 136 beers (1,984 ÷ 14.5).
Next, we'll take the cost of the keg and divide by your desired pour cost to get the retail price of the keg.
Lastly, we'll take the retail price for the keg and divide by the number of beers the keg holds to get the cost per pint.
Pricing Bottled or Canned Beer
The nice thing about bottles, or canned beer, is that it's easy to price. You can find your margins easily, and every bottle is the same.
Bottled and canned beer do have a number of advantages over draft beer. One of the primary advantages that bottled or canned beer has on draft beer is there is less spillage or waste.
Draft beer pours can be tricky, with too much head coming out of the tap, an over pour that a careless bartender spills out into the drain before serving, or the last bits of a keg that don't ever make it to a glass. There also isn't the hassle and cost of cleaning and maintaining draft lines.
Moreover, pricing for bottled and canned beer is quite simple. You should be able to make approximately a 70% to 80% profit margin on canned and bottled beer.
In other words, determine how much each bottle costs by dividing the cost of a box of canned or bottled beer by the amount of bottles or cans in the box. Then, multiply that number (the cost of one bottle or can) by the markup percentage (i.e. if a bottle costs $1 and you want to markup by 70%, then multiply 1 by 1.70). You may then want to add an overcharge fee of, say 50 cents, and there is the price for a bottle of beer.
However, it is important to keep in mind that beer lists tend to be more generic (even with all of the local and craft beer on the market), so you will want to stay competitively priced with your local competition.
By stopping into other bars and checking out their prices, you can find a good indication of what your customer base expects to pay.
Simple and Important
As we have shown, coming up with a good pricing strategy or plan seems quite complex at first, but it is ultimately quite simple. However, these calculations will only give you the industry standard, and you must keep in mind the range of other factors that go into pricing to truly get the best results.
As long as a bar manager pays attention to the competition and works to gain a clear picture of where their bar stands in the industry (their niche, their aesthetic, their brand, etc.), they should be able to come up with a great pricing strategy that your customers (and your pockets) will love!