One of the hardest lines to toe when owning a restaurant or bar is pricing your drinks accordingly. When set too high they can drive off customers, and when drinks are priced too low, it can lead to loss of revenue. Creating a profitable and manageable drink list can be somewhat of a science, and there are many variables that go into the costs of alcohol.
An industry standard for beverage cost is typically 20-25%. That simply equates to how much each drink is costing the business. One way in which this can be controlled is through your pour size (how much liquor is included in each drink).
A typical pour size is 1-1.5 ounces of alcohol, with a liter bottle adding up to roughly 30 drinks (20 if you are serving doubles). The costs of drinks can be covered by simply adjusting your pour size, rather than raising the price for the patron or changing your inventory system.
There are a variety of ways in which an owner can price their drinks, and many factors can influence this decision. The following are some useful tips for establishing an appropriate pricing structure:
The Traditional Method
There are 5 steps to follow in the manual method for calculating fair prices:
- Start with your intended percentage of alcohol cost (typically 20-25%) and never include mixers. Some bars may have a lower percentage in high-end markets, or a higher percentage during events like Happy Hour.
- Determine the cost per ounce. This can be done by dividing the cost of the bottle with how many ounces it holds.
- Multiply this with your pour size (usually 1-1.5 ounces). This will establish your liquor cost per drink.
- Multiply your liquor cost per drink by 4 or 5 to cover all the other variables.
- Round the price to the nearest quarter.
Although this is the tried and true method of calculating drink costs, it is not an exact science—nor is it the easiest means of pricing.
4 Tier Approach
Some bar and restaurant owners choose to simplify the traditional method by creating pricing categories based on the quality of the liquor. These are usually lumped into 4 tiers, and priced accordingly:
- Well: These are the cheapest “house” liquors that are always mixed with something else. They sit in the well behind the bar (thus the name), and consist of local brands.
- Call: These are familiar liquors that patrons will “call” by name. Think “Bacardi and Coke.”
- Premium: Most bottles reflect the highest quality for a certain brand. Examples of premium liquor include: Bombay Sapphire Gin, Absolut, and Crown Royal.
- Super-Premium: These are the highest quality bottles in the house, and are usually aged and distilled with purity. Examples of super-premium brands include: Grey Goose, Johnny Walker, and single malt scotches.
The traditional method can be used to gauge pricing on a tiered structure, but the cost of the bottle is not the first thing considered when categorizing a brand.
It’s always a good idea to look at what your neighbors are doing when setting a pricing structure. Market positioning usually boils down to a “meet or beat” methodology. Some bar owners choose to meet their competition by featuring the same products and pricing them similarly.
Some operators choose to beat their competition by pricing comparable products for less, or offering higher quality products for the same price. No matter which method you choose, it is important to at least consider what the competition is doing, and how it is working for them.
It is critical that customer data is considered when pricing your menu. An affluent clientele is likely to accept higher priced drinks and visit establishments that charge above-market prices; whereas a blue-collar market may appreciate a more affordable menu with bundled items. Everything tends to balance out, however, as higher-priced establishments generate exclusivity, while lower-priced have increased customer counts.
One of the greatest head scratchers for owners is pricing their Happy Hour menu. Pricing can be a guessing game based on a variety of factors, like the time of day, the clientele, and the length of your Happy Hour. It is important to maximize profits during this period by tracking your profit margin per item and adjusting the price or item served.
If your profit margin is greater for craft beer during happy hour, you may want to run a special on cocktails—or consider serving less of them. Your stock management is usually tied to pricing. Decisions should always be based on actionable data that is tracked throughout each happy hour, and https://get.taphunter.com/products/inventory/analyzed on a monthly/quarterly basis.
Simplify Your Calculations
It’s no secret to any successful bar owner that the most efficient way to run an establishment is to integrate user-friendly platforms that automate processes. Technology is the key to working smarter over harder.
Whether you are updating your craft beer offering or changing a cocktail list, TapHunter is a simple dashboard that can run your complex calculations for you. Rather than taking 5 steps to manually compute a price (like the traditional method), the system can do it automatically. TapHunter can also give you pricing suggestions based on your markup and package costs, as well as, recommendations for pour sizes.
Fortunately, in this modern age, there’s no need to play a guessing game when it comes to pricing. Utilizing the proper platforms—while considering your competition and clientele—is a bonafide method to ensuring proper pricing and repeat customers.
Bars and Restaurants – Want to save hours daily, drive thirsty patrons through your door and create an engaging experience for your customers? Learn more about how TapHunter can help your business today!