When it comes to pricing a cocktail menu, balance is key. You don’t want to hear customers constantly complaining that your drinks are too pricey, but you also don’t want to practically give your drinks away for free either. Your customers want value for their dollar, but your establishment also has to cover business expenses such as rent, equipment, and labor while still making a profit.
To achieve a balance, you should take careful consideration when deciding how to price cocktails for your bar. Here’s how to price a cocktail menu in five steps.
1. Determine how much each drink costs to make
The first and most important step is figuring out exactly how much each drink costs you to produce. This means you need to price out a drink’s individual ingredients and add them together to find out the total cost per drink. Here’re a cocktail recipe pricing example from a popular Boston bar:
1.75 oz Old Overholt Rye = $0.78
0.5 oz Nux Alpina Walnut Liqueur = $0.89
0.75 oz Meletti Amaro = $0.42
1 dash Angostura Bitters = $0.02
1 dash Regan’s Orange Bitters = $0.02
Total drink cost= $2.12
Now that you know how much this drink costs to make, you can determine what menu price will bring you a reasonable profit.
2. Use industry standard (or lower) pour cost percentage
Pour costs, also known as a bar’s “percentages,” represent the cost of the product used as compared to the cost of the product sold. To calculate pour cost, take your total inventory usage (or cost of goods sold) and divide it by your total sales:
Pour Cost = Inventory Usage/Sales
Pour costs are a crucial gauge for bar profitability. As you know, running a bar can be costly. Keeping your pour costs as low as possible could make the difference between failing and succeeding.
The industry standard pour cost is 20%, or ⅕ of your drink price. As a bar manager or owner, your goal is to bring your pour cost down to 20% or below.
For a 20% pour cost on The Walnut→ $2.12 x 5 = $10.60
If you want a better idea of how important your pour cost is, think about it this way. Imagine your bar and the bar next door sell about $1M each year, but your bar runs a 30% pour cost and the bar next door runs a 20% pour cost. Your bar with the exact same sales and the same client base, will make $100,000 less in profit each year.
3. Factor in variance
A 20% pour cost is a great goal to aim for, however it doesn’t factor in variance (lost product or shrinkage). Although lost product doesn’t directly affect sales, it factors into usage and therefore, pour cost. Because industry shrinkage is around 20%, you’ll want to factor that anticipated shrinkage into your pricing in order to have a cushion. This means you should really aim to price your cocktails at an average pour cost of 16.67%.
With this in mind, you should ideally price The Walnut at $12.72. You can round this number down to $12.50 or up to $13.00 to make your pricing more straightforward.
4. Consider location, client base, and client preference
If your bar is located in a low-income or rural area, you probably shouldn’t price your drinks at $14. However, if you’re located on the main strip of major city, you’re likely paying a higher rent and your establishment is probably surrounded by other pricey establishments, so a more lofty pricing scale might be acceptable.
You also have to factor in your client base. If you’re located downtown, but you’re close to a college campus, you’ll likely have to adjust your prices to match with the strapped-for-money, college crowd. Similarly, if you’re located next to corporate finance buildings, you might be able to bump up your drink price by a dollar or two.
Lastly, your clients’ preferences should be taken into consideration. If you look at your customers and sales history and discover that 50% of your sales are in spirits and your beer program is the least profitable, you can probably achieve a lower pour cost in your spirit program compared to your beer and wine program. To get an average pour cost of 16.67%, you can test out a 10% pour cost on spirits, a 20% pour cost on wine, and a 27% pour cost on beer.
It’s important to be aware of these three factors, but if you can’t initially nail down the correct pricing, don’t stress. Sometimes it takes some trial and error to get it right. Just make sure you’re tracking your bar’s sales data, so you can easily see what pricing is working and what isn’t.
5. Evaluate the competition
When you price your drinks, consider other bars in your area. Customers will most likely compare your pricing to other bars in proximity. If Iguana Mike’s across the street has decent $8.00 margaritas, there’s a good chance your similar $13.00 marg isn’t going to be a best seller. A $5.00 difference might even be an extreme example, customers will likely notice even a $1.00 difference.
To properly price your cocktail list, you need to understand what your competition is offering and charging. Look around you. If the place across the street has a similar ambiance, quality of ingredients and service, drink presentation, and entertainment, your drinks should be priced more closely to theirs.
However, if your establishment is of noticeably higher quality, higher drink prices may work well. It’s all about what customers are willing to pay. In the above example, Iguana Mike’s has a similar margarita that costs $5 less than yours. Because you’re offering the same product for $5 extra dollars, customers will likely head across the street. However, if your bar has a classier ambiance, and your margarita is masterfully crafted with fresh high quality ingredients and expertly prepared with a black salt rim and a pineapple slice, it might be worth the $5 extra dollars.
As you can see, there are a lot of factors to consider when pricing your cocktail menu. To determine the right balance, you need to carefully consider each element and do the math!
We know, remembering all those conversions can be a hassle. To make it easier, we created a Drink Price Calculator to take care of all the math for you so you can accurately price drinks faster! To make it even easier, the BevSpot software has a built in ‘Price & Costing Tool’ that speaks with your POS system to give you valuable insights about the data behind your bar.