The Indian alcohol market is enormous! Restaurants serving liquor know it to be the most prosperous section of their business. And if you are in the restaurant business, you would know how profitable a bar can be. The profit margin on standard cocktails can be around 80%, which is 10-15% higher than your food items.
The high demand for liquor and its profitability makes it incredibly important to price it correctly. However, setting liquor prices can be tricky. You set the prices too high, customers go away, while you go too cheap, and the business may shut down altogether (failing to cover costs and generate profits). When a business sets its prices, many considerations go into such a decision, like rent, demographic, competition, etc.
Once you get the bar menu pricing right, you can have a consistently profitable business in your hands! And if you are wondering how to set your liquor prices, we are here to help!
Setting Liquor Prices
Methods to calculate liquor prices may vary, and it may appear overwhelming to set a standard pricing model for your bar. But don’t worry, here is a simple way to get around to it.
1. Liquor Cost
Liquor cost is the price you pay the distributor to purchase the liquor. To set the liquor prices for your bar, you need to calculate the liquor cost per ounce.
Bottle Price/Ounces in a Bottle = Liquor Cost Per Ounce
So, for instance, if you purchase a liquor bottle for ₹800 with 10 ounces in a bottle, the liquor per ounce would be ₹80 (₹800/10).
2. Pour Cost
Pour Cost is the percentage of your drink costs against your bar’s sales from the product. It measures your bar’s gross profit margin of a product. Generally, restaurants keep the pour cost around 20-25%. Some bars also set their pour cost differently for drinks like wine at 22% and beer at 20%.
Cost to Make the Drink / Price You Sell It for = Pour Cost.
Let’s use a 20% standard for our calculations.
3. Drink Cost
Drink cost determines how much the drink costs you to serve a customer. You can calculate the drink using this formula.
Liquor Cost / Pour Cost in Decimals = Drink Price
So if the Cost per ounce of liquor is ₹80 and the pour cost is fixed at 20%, then the drink cost is ₹400 (₹80/0.2).
4. Garnish Cost
Garnish Cost is the amount you give your financier to pay back the debt. You can either set a separate garnish cost for each liquor or a flat rate to add to the drink cost.
Let’s use a flat rate of ₹50 for our calculations. Then after adding the garnish cost, our drink total stands at ₹450.
5. Shrinkage Cost
Shrinkage Cost is the cost attributed to the loss of inventory due to reasons like shoplifting, spillage, administrative error, expiration, damage, etc. Some bars add this additional cost (generally at 20%) to calculate their final liquor prices.
If we take 20%(of ₹450) as shrinkage cost and add it to the earlier total, our new total drink price then comes to ₹540.
6. Round It Up
If the number you arrive at after all the calculations is not well-rounded, you can round it to the nearest whole number and make the menu cleaner and more appealing.
Since most drinks do not consist of only one type of ingredient or liquor, you can calculate the price of those ingredients the same way we calculated the liquor price above and add them all together in the end.
Other Factors Impacting Liquor Prices
1. Demographic
It is crucial to set your bar menu prices based on the area your bar is located. Different neighbourhoods will pay different prices for the same liquor. While a bar near a college will work better with a low price range, a bar near a corporate park can set higher prices.
2. Competition
Every time you start a business, you must check out your competition. If a bar down the street sells the same drinks at a significantly cheaper price, it can cost your customers. It’s good to price your drinks after examining your competition in the area.
However, your prices cannot wholly be determined by your competitors. If you are an upscale establishment with a tasteful ambience, your prices will rightfully be higher than a casual dining restaurant bar.
Finalizing your bar menu prices can be an arduous task; however, once you decide on a standard method, it can be much easier. We hope this blog helps you do that.
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