Profitable Cocktail Pricing for Bar Owners: Master Liquor Costs & Boost Profits

It's going to be a lot of math this week , but if you really think about it , the math is one of the most important things in the business . Obviously , everything you sell across your bar is what generates your revenue , and so if you don't get your costing right , it's almost impossible to be able to charge the right amount of money in order to make money .

And the thing is that when we think about cocktail costing , we think about liquor costing in general .

Most people in the business now most people that have been in the business and this is something I definitely did earlier on you oversimplify it , and just because you have a liquor that has a specific cost on it does not mean the cocktail that you make with that liquor has the same cost on it , right ? Everything you put into a drink costs money .

So if you have had a chance to listen to the podcast episode we did months back , where we talked about what does a burger and a beer actually cost , we dived into the weeds on . What's the bun cost ? What is the pickles cost ? What is the ketchup and the mayo cost ? You need to think about your liquor and your cocktails the same way .

What is that slice of lime cost ? What is that cherry cost ? Because all those costs play into the overall cost of your cocktail and if you actually want to maintain a 20% cost percentage , you better be factoring everything that goes into that cocktail in . Now here's a good point to step back and just pause for a second and notice what I said .

I said lime , cherry , everything that goes into a cocktail . So a lot of times , that sugar , that salt for the rims of your cocktail , it's all sorts of things that a lot of times get buried in your food cost and artificially inflate your food cost .

But if you're not putting that lime in food , it's not part of your food cost , it's part of your liquor cost . And possibly the most common thing that gets missed when you're considering the cost of liquor . Well , the cost and what you charge your customers . Your price is soda .

It's the bag in a box , mixers that go into that drink , because if you have a jack and coke , you have to pay for the jack and the coke , and both of those need to be reflected in your price .

Now this is obviously a little bit different inside the United States versus outside the United States , where outside the United States you're going to see a lot more cans and bottles being used . It makes that math easier .

But you have to account for everything going in that final drink to your guest to determine the right price to charge in order to maintain your margins .

Because , as we've talked about many times , the bar business is a business of margins and unless you get the margins right , unless you have all the percentages adding up properly , there's no way to maximize your bottom line . Let's just start with something easy here . Let's talk about a $20 bottle of booze .

And when I say bottle for the purposes of this conversation we're going to assume that all bottles are one liter , because one liter bottles tend to be the standard size bottle . You see , behind a bar in the United States Now you might have $7.50 . That's going to change your math a little bit .

But all of this math right , which is just plugging different variables into the same equation , so you can modify all this to fit whatever it is you're selling . So let's say you have a $20 bottle of booze , a nicer but still well-typed bottle . That $20 bottle , it's one liter . You are going to yield approximately 22 , 1.5 ounce pours out of a liter bottle .

So we spend 20 bucks , we get 22 pours out of it . That gives us a cost of 90 cents per pour . Which means that if our goal liquor cost was 20% that is to say that our cost is 20% of what we finally sell that product for , we would charge $4.54 and you could round that down , call it $4.50 . Now the problem there is if again things get added .

So let's say it's a jack and coke . Jack's not 20 bucks , but it's a whiskey and coke and that bottle of whiskey costs 20 bucks . So your pour cost on the whiskey itself is $4.54 .

Your pour cost on the coke is 25 cents because a 5 gallon bag is going to yield approximately 30 gallons of soda and if you have a 6 ounce pour in that cocktail that comes out to a quarter . So that means you have to charge an additional dollar and a quarter to make up for the expense of the soda .

So it's not $4.54 , that is the price you should charge . Call it $4.50 , so it's $5.75 is the price you should charge for that drink . Now let's say we throw a lime on that , well , that quarter of a lime is going to cost you about or eighth of a lime . Rather , I'm sorry , that'll cost you , give or take , 5 cents . So 5 cents , 20% , 25 cents .

So now we're at a $6 drink where we started at a $4.50 drink , because we've accounted for the other things going in that glass and personally there are very few times .

Yes , you're going to sell a straight shot of something here and there , but you're almost going to sell always a cocktail or X and X , right , jack and Coke , rum and coke , something and something .

And so if you count for both some things , that $20 bottle of booze that costs you 90 cents a pour for the booze alone , you still need to charge $6 for that product because that's what is actually required to cover your real cost in the production of that drink .

And we're going to walk through four different cocktails here and kind of go over some costing and some different ways to look at them . But always keep in mind again , you have to charge for everything . And the reason why some people find it hard to make money even though their liquor is cost at 20% , even when they don't have .

That is because they're not costing down to the penny and they're not accounting for these additional costs that exist . So let's look at an old fashioned because an old fashioned , to me , is one of the best examples of here is extra money involved in the production of this drink For our old fashioned .

Let's say we're using two ounces of whiskey and we're using a $40 bottle of whiskey . That means we have a cost of about $2.42 on the whiskey portion of the drink . Now we're going to use two dashes of bitters , and two dashes of bitters is about a quarter of a teaspoon . Dash is about an eighth of a teaspoon , so there's about four cents .

We're going to make it an old school way , so we're going to use a sugar cube . A cube of sugar costs eight cents . That's something that most people would not even pay attention to , because you think how expensive is sugar cube ? Well , the sugar cube costs twice as much as the bitters you put in the drink .

Now you're going to add an orange peel , and this is where it gets interesting , because an orange peel is going to cost you . Well , an orange , rather , is going to cost you about 88 cents 90 cents . It's called 88 because I like that math because in my mind you're getting about eight orange peels for an old fashioned per an orange .

So each one of those peels that you're cutting off cost you 11 cents . Now you're not touching the meat of the orange , so maybe you can reuse that somewhere . Maybe there's somewhere else that you can recapture some of that .

But you can no longer use it as a garnish behind your bar because you've just swiped out a big chunk and you can't replace the big chunk you swiped out to make that orange peel garnish . So there's 11 cents . But where it really gets interesting is when you add the cherry .

Now , as I'm sure many of you are aware , luxardo cherries are considered the best in the world . They're phenomenal . Personally , I love Luxardo cherries . But a Luxardo cherry is going to cost you about 30 cents per cherry .

Now if you get a cheaper cherry , you know you're running the mill generic red food coloring dye , processed and sitting in corn syrup cherry that's going to cost you about 15 cents .

But what that means is that there's a 15 cent difference between the high end cherry and the low end cherry , and that 15 cents translates to about a 75 cent difference in what you need to charge for the drink . That's to account for going from a cheap cherry to a high end cherry .

So if we take all this together we're ending up with 62 cents of cost on top of the 242 that we had for a $40 bottle of whiskey . And so we're not even talking expensive whiskey here , but just kind of a run-of-the-mill good bar whiskey , to make an old-fashioned one .

Now that old-fashioned , if we just based it on the 242 that the whiskey cost us and you had a 20% cost , like we've been talking about , your math would say it's 12.10 , so you probably charge 12.25 for it . But when we include that 62 cents of the cherry , the orange , the sugar cube and the bitters , well that $12.25 now jumps to $14.75 .

In the actual math right , because it was 210 , we rounded up to 25 , it's a $2.65 difference in what we should charge to maintain a 20% cost , just based on adding in the other ingredients involved in that old-fashioned . So let's look at another example . Let's say we're making a very simple classic margarita .

So we're gonna do a 1.5 ounces of tequila , a half ounce of triple sec , one ounce of lime juice and we're gonna garnish it with a salt rim and some lime . For purposes of our math , let's say , our bottle of tequila costs $30 , so a cheaper tequila but reasonably priced tequila to make a margarita with that $30 is gonna cost us $1.36 in poor cost .

Our triple sec is gonna be about 25.7 cents . Our lime juice , if we're using a bottled lime juice , is gonna cost us about 15 cents . The salts of penny and the lime itself , the lime wedge that we're gonna put on the side , there's about another 5 cents .

So all together that gives us about a dollar eighty-four in cost , which then means that we should charge 9.15 . And one thing that I always recommend right , so we're saying mathematically we should charge 9.15 . Well , most bars are not going to charge 9.15 . They're gonna charge 9 or 9.25 . And we know there's gonna be some waste across the board .

We know there are gonna be some issues . We're not going to hit our theoretical poor cost most the time . We're not going to hit our theoretical maximal use of our garnishes most the time . So why would we go from 9.15 to 9 dollars ? That doesn't make any sense . We go from 9 dollars to 9 and a quarter .

That gives us a little 10 cent pad there to eat up a little bit of spillage and things . So overall we're talking way less expense than was involved in the old fashion and less money that we need to charge our guests for a classic margarita made with a low-end tequila versus an old-fashioned made with more of a mid-range whiskey .

But it doesn't change the fact that we still had to cost everything in there , down to the lime juice and the lime wedge . Now let's take a look at that lime juice real quick , because I said 15 cents is about what it costs for one ounce of lime juice that we're buying in a bottle , reconstituted from concentrate , blah , blah , blah .

Now what happens if we juice a lot ? So let's say now , instead of making a margarita , we're making a daiquiri and we're going to use fresh lime juice . Well , a lime costs about 38 cents , 40 cents .

So if we're going to use one lime for the juice in our daiquiri , just like we used one ounce of lime juice in our margarita , we've gone from a 15 cent cost for the reconstituted from concentrate lime juice in a bottle to 38 , 40 cents for the lime and fresh juice out of that lime .

Obviously , we're getting a much better product there , but we're also spending over twice as much on just that piece . So the lime is going to cost us 38 cents and in a traditional daiquiri , if we're going way back to how they used to make them , they didn't tend to use simple syrup . A lot of those recipes called for powdered sugar .

So in the old-fashioned we had a sugar cube . It was 8 cents , turns out . Powdered sugar and sugar cubes I costed them out just now cost about the same . So there's about another 8 cents . And then if we have a $25 bottle of light rum , so just kind of a standard blower middle-end rum , we're looking at $1.13 . Poor cost for an ounce and a half .

That is going to yield a total cost of a buck 59 . That takes us to a final price of 8.15 . And just like we did on the 9.15 , we rounded up to 9.25 . Here , on the 8.15 , we would round up to 8.25 . So let's move from tropical drinks to after-dinner drinks . And I think I was on tropical drinks just because it's freaking hot outside here .

So if it's hot where you are , hopefully you're staying cool . But let's look at an espresso martini real quick , and let's assume we're making an espresso martini with cheap or vodka . So a $20 liter of vodka you can get some decent vodkas around that price but nothing fancy . Which most vodka in a espresso , martini there's no reason to use anything that fancy .

So a $20 bottle of vodka

. We're going to use two ounces , and that's going to cost us a buck 21 . We're going to use a half ounce of Kahlua , which will cost us approximately 38 cents . We're going to use an ounce of cold brew , so when it comes to espresso martini , maybe you're using cold brew , maybe you're fresh making espresso .

Obviously that's going to change your price quite a bit depending on how you're producing it . But let's say you're using a cold brew concentrate , you know , mixing that with water , keeping that in your bar fridge to use when you make espresso martinis . We use one ounce of that . That's going to cost about 17 cents .

Now , obviously here it's going to widely vary that 17 cents based on the type of cold brew concentrate that you're using . Are you using a really high end one or a really low end one ? That will dictate that price . Now , in this case , rather than using powdered sugar or a sugar cube , we're going to throw in a half ounce of simple syrup .

Now , if you buy your simple syrup , that half ounce of simple syrup could be 15 cents , 10 cents , 17 cents it depends on the quantity you're buying and all of that . If you're making simple syrup , it's going to be a lot less than that . It all depends upon how you're preparing that simple syrup .

But for sake of argument , let's go ahead and call that about 17 cents . Then we're going to garnish that drink with three espresso beans . That's another 8 cents . So when we add this all together , we look at it with our 20% cost , we end up with a price that should be right about $10.05 .

Now I know before I said I tend to round up 10.05 , I would probably round down to 10 because it just makes more sense , right , 10.25 , that can work . But $10 . Even espresso martini after dinner sounds fantastic and still meets a good cost margin .

Now obviously you could go 12 , 13 , 14 bucks on the espresso martini , depending on the type of venue you are , and drive that cost down way below 20% to make up for some places where it's above 20% , because everything is a balancing act , not every drink where we're talking about . I'm here .

All in academic theory we're just assuming everything is 20% , but in reality your liquor cost you want to average 20% . So maybe that espresso martini I charged 12 bucks for because I know I can get a little bit more in that after dinner drink . It's seen as fancier .

I can get that extra $2 there and pad my pocket a little bit because I know on the old fashion where my math comes out to be 14 , 75 , 15 bucks for this drink . That's towards the steeper end of what my customers want . So I can bring that down to 13 bucks and these two are going to kind of balance themselves out .

That means that when you're doing your pricing , as you figure out your academic costs . But some of this comes down to as we've talked about with food in the past menu engineering , because your product mix how much you sell of each item should in theory play in a bit into your pricing .

Now , obviously , if you're just starting out , if you're just opening a bar , if you just buy a bar , you don't know what that product mix is necessarily going to look like and if you don't have that data , you can't use that to influence your pricing strategy .

But if you do have that data , you need to use it , you need to play with it , because an item that sells a lot and makes you a lot of money , great . But if you have an item that says a lot that doesn't make you that much money , you need to sell or you need to increase the price there .

If you have an item that doesn't sell much and doesn't make you much money , well , maybe you need to get rid of it . But in most cases , unlike a food menu where we're limiting the option guests have , when we think about cocktail menus , yes , we're limiting them there .

But when you think about all the cocktails in a bar one could order , it's basically without limit and because of that you'll have things in your system in order to control your costs , maintain consistency and understand your inventory .

You will have items in your POS system that don't sell very often , and that is okay because you need to make sure everything is cost properly . And let's back up here real quick while I'm thinking about it , and in both the espresso martini and in the old fashioned we didn't use an ounce and a half pour .

My standard pour , I think in the US the way to go is always an ounce and a half . Now if you look overseas , globally , there are places that have pretty much a pour is X and it's kind of mandated and standardized across the whole country . In the US obviously it's not , but I like an ounce and a half .

I think that's enough booze that people feel really good about their drink and they don't feel they're being cheated . Now that's your neighborhood barge , your pubs , your places that you're getting a lot of repeat business . Obviously , if you're a nightclub or a concert venue , maybe you're an ounce and a quarter .

You're still going to charge like it's an ounce and a half , but maybe you're only pouring an ounce and a quarter no-transcript .

But when we have a two ounce port we need to adjust for those , for that additional boosts and you need to keep in mind what that means for your costs and that's going to have an impact on how you program your POS for upcharges and how it takes care of drinks .

So in a lot of POS systems you would hit a whiskey and then you would hit a modifier that said old fashioned and in this case we know that based on our costing how we were planning to do an old fashioned it's going to cost 62 cents more than just a pour of whiskey .

So that means that we would charge $2.65 more to maintain a 20% cost over the cost of the whiskey for an old fashioned . But if you just add 265 to your old fashioned price , you're missing the fact that you're using 33% more liquor . So you need to include that in any upcharge that you may have .

If you have your POS system set up where you're hitting the type of liquor , the brand of liquor and then modifying it into a cocktail , all of these things need to be programmed in . You can't just have every old fashioned adds X amount because every old fashioned doesn't add 265 .

It adds 265 plus a half ounce of liquor , which means that every modifier for an old fashioned on every single whiskey in your system would be different . I know that's annoying , but it also is how you make sure you're getting the right cost percentages . And there are plenty of people out there that will argue and say well then , I feel shady about this .

My guest orders a makers mark old fashioned and his buddy orders a Jim B Mold fashion . They're going to have different upcharges to them for the old fashioned , that's true . So try to get a POS system that just rolls that all into one price . It keeps it clean and easy and nice and guests don't say anything .

But if you don't , don't be afraid to charge what you need to charge based on what goes in the drink . There's a whole lot of fear in the bar business about inelasticity of prices and the idea that a guest won't pay a quarter more if you need a quarter more to cover your cost .

And there is some truth to that , especially neighborhood bar patrons , pub patrons , dive bar patrons when something goes up a quarter , they're going to bitch , they're going to moan , they're going to complain , they're going to tell you how expensive it is and how they're never coming back . Give them a week , they'll come back .

So it's really kind of a loose threat from them . But at the same time , you can be aware of that and you can try to stair step prices slowly . You can play around with how your POS system treats things and how they show in receipts .

But if you don't charge what you need to charge to hit the margins you need to hit , you cannot maximize the amount of money going into your pocket .

And while I am all about community and helping people and building a strong group of regulars in your bar and knowing them and playing to them and all of that , we don't own bars to make friends with people that hang out in bars . If you want to make friends with people that hang out in bars , just go hang out at a bar . You buy a bar to make money .

So while you always need to consider the impact of any price change on your guests , on what they're going to say , and you need to be prepared to combat some of the things they'll tell you when you raise prices or when you change the way you do your pricing , don't be afraid to do it , because that's how you protect yourself and your family in the long run .

So , real quick , let's step away from this conversation on cocktail costs real quick and talk about raising prices , because that's something that every bar has to do sometime on most of their drinks and it is never easy Now when it goes to raise prices . One thing I don't recommend is don't raise your prices huge

all at once . If you know that you have a beer let's say you bought a bar and the guy you bought the bar from was undercharging across the board this happened to me . I had to raise prices . What I didn't do was take a $3.50 set drink and make it a $4.50 set drink overnight . I raised it a quarter every two months for eight months .

It allowed me to stair step into it . It took away some of the sticker shock . It allowed people to understand . It gave me time to explain to my regulars why I was raising the prices on them .

So if you're in a situation where you need to raise prices a lot , because when you go and you do your costing , you go oh shit , I was only charging for this old fashioned $12 and when I do my costing , I realize I need to charge $15 . Well , don't just raise it to $15 overnight Stair . Step it . There are innovative ways to do your price changes .

They don't have the same psychological effect on your guests where they feel like they're getting screwed or like the prices went up too fast because that's not good for business . You can always price prices a little bit . You can raise them incrementally and quite quickly , raise them incrementally over a period of months .

But you can't just whammy someone with a dollar $2 change you know a 10 , 20% increase in what they're paying and expect them to be okay with that overnight . Look at ways to incrementally step into things . Now , one thing we've ignored through this whole conversation is taxes .

Because here's the thing Most bars , if I tell you that a espresso martini cost 10 bucks , that includes tax . Now , obviously , in the US we have more and more establishments not including sales tax in the final price of their drink . Part of that is our move to credit cards . I happen to be a big fan of cash .

I happen to like to encourage guests to spend cash for all sorts of reasons , not the least of which is that ensures that money stays in the local economy . But if you're charging cash , if you're basing your prices like everyone has to include sales tax and you're charging $10 for a drink , you're going to pay more than $10 . You don't get those $10 .

Sales tax the best way to think about it and this is the way VAT tax works in other countries or goods and services added taxes , all those sorts of taxes , it's not your money , it's the government's money . But the government makes you collect and hold and then give them their money and you sell something .

So if you have a drink that costs , say , $9 , and you have a 10% tax , well , if you charge $9 , because that's where the math leads you , you're really only charging $8.10 , so your 10% cost because it costs you $0.90 to make the drink or , I'm sorry , $1.80 to make the drink , and you charge $9 , well , now your 20% cost is a lot more than 20% because you

forgot to factor the tax into your costing . So all the costing we've talked about before is great to establish the base to which you add your tax to . Now , conversely , if you're not including tax in your pricing , if you're going to add sales tax on after the fact , because you do a lot of cards , you're not doing a lot of cash , all that good stuff .

This part doesn't matter . But if you are going to include tax in your prices and try to make things end on even quarters or even dollars , however you decide to do it , a drink that you see mathematically should , you should charge $9 for it . You should actually charge $10 for it because that 90 seconds tax takes us to $9.90 , call it $10 .

A drink that's $15 , right now we're adding a $1.50 , so we're at $16.50 for that drink , because the tax is always on top . And if we're going to include tax in our prices , we have to include tax in our prices , not just cost . And I see this over and over and over and over again . It's almost missed .

More than charging for the garnishes or the mixers in a drink is not charging for the tax in the drink price . So if you want a 20% cost bottom line here everything we've discussed today if you want to have a 20% liquor cost , make sure you're factoring in all your garnish , all your mixers and your tax .

If you're not charging sales tax on top of your prices , because otherwise you will not hit that magic 20% . And if you're doing 20% on your cocktails 20 to 25 , 27% on your beer , depending on if it's bottle or draft , craft or domestic , and 25% on your wine , you're doing 20 , 30% on your food , 30% labor , you get a prime cost right around 55% .

It is easy then to put 15% of your money in your pocket . But if you miss these simple things , if you miss including the garnishes and the tax and things like that in your pricing , it's very hard to put 15% in your pocket .

So you have to do the math , you have to work through the process in order to produce the right amount of money in your pocket every month , because people own businesses to make money . Yes , we want to be nice to our guests . Yes , we want to build communities .

Yes , we want to provide a place for people to come together and hang out and celebrate the key points in their life . But we do that all to make money . So you got to protect yourself first . You got to get your costing right so that you can get your prices right With that . That kind of wraps us up for the week . Check the show notes .

If you have not had a chance to grab a hardcover or a paperback or a Kindle or an audio book version of my book how to Make Top Shelf Profits in the Bar Business , there is a link below down there Check it out . It is a really good resource that covers all sorts of different things related to the bar business .

Also , if you haven't had a chance , head over to Facebook . Join our Facebook group , bar Business Nation . We have more and more people joining all the time . We're getting a lot more conversation going on in there and hope to grow that sum too . If you ever need anything , check out the website . We have contact forums . We have ways to schedule strategy sessions .

Get in touch . Let's talk and see what we can do to help you have a better establishment With that guys . I will leave you for the week . Have a great one and we will talk again later .