How Does a Bar Set Their Drink Prices?

How Does a Bar Set Their Drink Prices?

Setting the price of drinks in a bar can be a challenge for bar owners. If you don’t get it right, it can cost you a pretty penny in sales and gross profit. There is a very simple way to do this, and I’ll show you how.

Bar Owners have to find that happy medium: Maintaining a healthy profit – yet offering drinks at a reasonable price. Sometimes it’s hard finding that perfect balance.

So, How Does a Bar Set Their Drink Prices?

To achieve an 80% gross profit, bar owners will add up the cost of the ingredients for each individual drink and multiply by 5. A pretty simple process; however, much of the pricing has to do with what the local competition is doing.

Careful here. Many Bar Owners have different variations of drink pricing methods. Some don’t include the price of garnishes. Some do. The important thing here is to remain consistent.

Bar Pricing Structure

Most bars have four different prices, or categories, for their liquors and mixed drinks. Remember that some liquors cost more than others – same with beer and wine.

Well (house liquor), call, premium, and super-premium are, generally speaking, the four tiers of drink pricing. And, they may have another pricing category for “House Specialties.”

  • Well or “House” Liquor: The cheapest liquor in the house, and always used when your customer does not designate a specific brand of liquor. The bottles are usually out of the customers’ sight and in the “well” for easy access. Vodka Tonic, Bourbon Rocks, Screwdriver.
  • Call: Popular types of liquor. Tanqueray, Jack Daniels, and Cuervo Gold are just a few examples. The customer is “calling out” his desired brand. Usually priced a dollar or two, or more, above well drinks, and placed at eye level on the back bar behind the bartender. Bombay and Tonic, Cuervo Gold Shooter, J & B and Soda.
  • Premium: Priced higher than call drinks, and usually lined up on shelves directly behind the bartender – probably a little higher than the call liquors, but every bar is different. Grey Goose, Johnnie Walker Red.
  • Top Shelf or Super Premium: Usually the highest priced liquor in the house. Crown Royal, Glenlivet Scotch, Johnny Walker Black. Usually consumed on the rocks, neat, or with water or soda.

House Specialty drinks could be more, but they usually fit into one of the categories above. Bars will also add more to the cost of the drink if it is on the rocks (more liquor), if two premium liquors are used (1800 Tequila and Cointreau), and many other variations. We’ll just stick to the basics here. Let’s find out what bar pouring cost is first.

What is Liquor Pour Cost?

First, we need to understand pour cost – and how it has everything to do with bar profitability. Many bar owners and managers get this wrong as they fail to understand that different types of alcohol, as well as beer and wine, have their own unique pour cost and acceptable gross profit.

And, many bartenders fail to understand that liquor pouring costs are always on an effective Bar Manager’s mind. In fact, when hiring bartenders, Bar Managers are looking for certain skills and qualities. Bar’s are in the business of making money – and bartenders better understand this.

Pour cost has a simple formula: total up how much inventory you used during the month and divide that into sales. Unfortunately, many bar owners fail to take an accurate inventory every month and “guesstimate” how much inventory they have used. Simply totaling up the month’s bar purchases and dividing into sales just doesn’t cut it.

The exact formula is here:

Opening Inventory + Purchases – Closing Inventory = Inventory Use

Inventory Use ÷ Sales = Liquor Cost (Or Pour)

How Does a Bar Set Their Drink Prices?

An overall 20% pour cost is the industry standard. 16 – 25% is normal as it all depends on how much the owners wish to make on their drink sales. This would include all liquor, beer, and wine. Let’s not worry about beer and wine here, and stick with strictly liquor costs.

Finding your pouring cost is a great way to help figure out the OVERALL profitability of the bar, but you can fine-tune your pouring costs even further by costing out each type of alcohol or cocktail, and any additional ingredients, in order to find out how much each individual drink is costing you.

Pricing Individual Drinks

Generally speaking, you could price every single drink based on the cost of ingredients and then adjust the price so that everything has the same pour cost.

For this example, a bottle of house vodka wholesales at $5.00 per bottle. A bottle of Absolut vodka wholesales at $15.00 per bottle. Prices vary according to region and taxes, of course, so I’m just using rounded numbers here.

Let’s say we’re making vodka martini’s, and the house pours two ounces of vodka per drink. With martini’s, you have the cost of the vodka, dry vermouth, and one or two olives. Yes, I know most people these days don’t even know that vermouth is part of a martini, but we’re going to assume that it is and add the additional cost. Let’s price our Dry Vermouth at $10.00 per bottle.

For simplicity’s sake, let’s assume that the bottles of vodka and vermouth are one quart each – 32 ounces. Ideally, you would be able to get 16 martinis out of each bottle. In the old days, bartenders made martini’s with a 3:1 ratio liquor to vermouth. Not so these days, so we’re going to assume that you use a 4:1 ratio. 2 ounces vodka and 1/2 ounce vermouth.

So here’s the breakdown of the actual cost of a martini using the house vodka vs. the Absolut vodka:

House Vodka

Vodka: 32 oz ÷ 2 oz per drink = 16 drinks per bottle

$5.00 per bottle ÷ 16 drinks = .3125 cents per drink Wholesale Cost

Vermouth: 32 oz ÷ 1/2 oz per drink = 64 drinks per bottle

$10.00 per bottle ÷ 64 drinks = .1563 cents per drink Wholesale Cost

One Olive: Let’s figure 2 cents

Total Cost: .3125 + .1563 + .02 = .4888 cents per drink Wholesale Cost

.4888 cents per drink x 5 = $2.444 per drink

Absolut Vodka

Vodka: 32 oz ÷ 2 oz per drink = 16 drinks per bottle

$15.00 per bottle ÷ 16 drinks = .9375 per drink Wholesale Cost

Vermouth: 32 oz ÷ 1/2 oz per drink = 64 drinks per bottle

$10.00 per bottle ÷ 64 drinks = .1563 cents per drink Wholesale Cost

One Olive: .02 cents

Total Cost: .9375 + .1563 + .02 = $1.1138 per drink Wholesale Cost

$1.1138 x 5 = $5.569 per drink

So, you can now see what the difference is in costing out the price of drinks. Keep in mind that multiple liquor drinks can add even more to the price. And Blended drinks. And flavored drinks.

It all depends on the bar owner – how much profit he wishes to make per drink, what his local competition is charging, and how much volume the bar is actually doing.

In the above example, we’re going to round up the drink price a quarter or so, and add an additional 20% to the cost of the drink, which is pretty standard in the industry – mostly because bar owners know that there will be some waste, theft, and over-pouring.

For the well vodka martini, we add .31 cents to the price to bring it to $2.75. We then add 20% additional cost (.55 cents) to bring it to $3.25 per drink. Rounded off, of course. For the Absolute martini, we add .31 cents to the price to bring it to $6.00. We add the additional 20% ($1.20) to bring it to $7.25 per drink. Rounded off.

How Does a Bar Set Their Drink Prices?

There you have it – a general way of costing out the price of drinks and cocktails in a bar. Easy, but a bit of a hassle.

But there’s more. We have to remember that drink pricing is totally subjective on behalf of the bar owner. Basically, he can charge whatever he wishes. And then there’s gross profit to consider.

Taking the above example, if a bottle of well vodka costs $5.00, and you were to get 16 martini’s out of the bottle, priced at $3.25 per drink, your gross profit off that bottle would be: 16 x $3.25 = $52.00. $52.00 – the $5.00 cost of the bottle = $47.00 gross profit per bottle. Using the same formula, the Absolute martini’s would make you $101.00 gross profit per bottle.

As you can see from the above example, it’s not all about pouring cost. If a bar owner can sell a lot more call and premium liquors – he will make more in gross profit.

Yes, the pouring cost may be more, but those costs are factored in. This why bartenders (and food servers) will “suggestive sell.” As long as your pouring costs are in line, gross profit rules.

And then there’s variance cost. This is something every bar owner should be aware of, and is a huge factor in getting a handle on pouring costs. Basically, variance cost is tracking each bottle of liquor through inventory and the POS system. As long as the bar conducts a consistent inventory, spot checks bartenders, and prevents theft – he’ll do just fine.

Stolichnaya-vodka

The above scenario is just one thing to consider when pricing drinks. Looking at the figures above, a bar owner may decide to either raise the price of a well drink – or lower the price of the call drink.

In this case, he will probably do both, as customers will balk at paying $4.00 more for a call drink than a well drink. Again, these prices can be totally subjective depending on what the owner wishes to do.

Determining the cost of each and every drink in the bar is nice – and something every bar should do; however, it’s not a means to the end. It can become quite complicated, but once you have established the cost structure it’s easy to make adjustments.

Related Bartending Questions

What is variance cost? Variance cost is utilizing a very good POS system along with accurate inventory methods in order to track each individual bottle of liquor. It will detect theft and over-pouring, and is a great tool to use in monitoring your bartenders.

Do Bartenders need to know how to price a drink? Not really, but understanding that all products, not just liquor, costs money. They also better understand the ramifications of over-pouring and theft.

How do you cost out beer? Finding your beer cost is pretty much the same as calculating your liquor cost. The toughest part is measuring partial kegs and allowing for foam and poor CO2 systems.

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