As a bar manager, you will need to make sure that you understand the costs and profits of even the smallest aspect of your bar. Usually, the smallest profit and cost margin you will need to worry about is each drink. How much you spend and make on each drink will help determine how much your bar profits each month and year. For this reason, you will want to consider how much each drink costs well before you ever open your bar. Before you open, you will have to know what type of profit is to be made on each drink and how you should price each item of the bar. In order to do this, consider the following tips:
Calculate the Cost per Ounce. There are 33.8 ounces in a liter and 25.35 ounces in a standard 750-mL bottle. Each time you look at a bottle, you need to divide the price by the number of ounces to get a sense of the typical price that a serving will cost you.
Calculate the Total Beverage Cost. For each drink that your bar offers, make sure that you understand how much the drink costs in total to make. Add up how much each ounce of liquor in the drink costs, and add up garnish costs, serving costs, and glass costs (costs of possible breakage and cleaning costs add up to a fraction of a cent per drink but must be considered), as well as the costs of any additional materials such as juices or sodas that are added. The total will be your beverage cost for that drink. Your price needs to be higher to make a per-drink profit. However, if price is too high above the beverage cost, customers will generally feel they are getting a poor value and may head to a competitor for better prices.
Calculate the cost percentage for each drink you sell. To do this, for each drink you will need to divide the ounce cost by the sale price you’ve established for the drink. Then multiply the number you get by
100. The final number is the percentage of the final drink price that you are spending in order to buy the contents of the drink. A lower number means that you are making a larger profit. You can play around with this formula in order to find the drink price that will net you the largest profits. To compute what must be charged for each drink, simply plug different prices into the formula listed below until you reach the desired liquor cost-of-sales percentage:
Total Drink Cost ÷ Price = 18%–25% Liquor Cost of Sales
Calculate the Gross Profit Margin. Subtract the cost price from the sale price of each drink to get each drink’s gross profit. Divide the resulting number by the sales price and multiply it by 100 to calculate the gross profit margin. In most bars, drinks will vary widely in terms of gross profit margin. The savvy bar manager will do what he or she can to encourage sales of the higher-profit margin drinks in order to ensure a larger overall profit. If you know what your highest-profit drinks are before you open, you can advertise these drinks as a specialty.
Develop a Price List
You need to know how much each of your drinks will cost. However, while understanding how much each drink is costing you is a good place to start pricing, it is not enough. There are several other factors you need to consider when making up your price list:
Market research. If you have done your homework, your market research will help guide your pricing. Compare your prices to the competition. Do you need to offer lower prices to lure customers away from the competition or can you charge more and still make a profit?
Who are you trying to sell to and how much is your potential customer base willing to spend per drink? Pricing too low can be as much of a problem as pricing too high, so price carefully.
Don’t make your pricing list too complicated. Similar prices help ensure that bar staff can quote the right price to a customer. Three-tier pricing for well items, middle shelf, and top-shelf items keeps things simple; for example, well items might cost $4, middle shelf $4.50, top shelf $5.00. Also, be sure to keep all prices of all items clearly listed on menus or on price lists at each table so that patrons know how much each drink costs.
Include tax in your prices. This allows customers to know exactly how much they are going to be paying for a drink and also allows you to round off prices to make cash handling less complicated. For example, if a drink’s taxes push the drink up to $3.95, you can charge
$4.00 and make life much easier for your staff and your patrons. Just make sure that you are tabulating taxes correctly. Sales tax, and especially the taxes on liquor, can be very complicated. It varies widely from state to state and tends to change every so often. This means that before you establish drink prices, talk to your accountant and state
Department of Revenue to make sure that you correctly charge taxes.
Tweak your prices before you open. Once you are open, you will occasionally need to change your prices, as operating costs change or as profits differ from projections. However, it is best to do your research thoroughly so that you will not need to change prices too often or too quickly. Frequent price changes make things harder on your staff, who have to memorize the new prices. Frequent price changes are unappealing to customers, who like to know what to expect from a bar’s price list.