Gauging whether you are running a successful restaurant has a lot to do with whether or not you have money in the bank at the end of the day. And all too often you don’t!
Well..don’t worry !!! You have a secret weapon; your bar.
What do I mean? The typical restaurant probably runs about a 34 percent food cost. On top of that they will also run an overall pour cost of 25 percent. Take out the beer and wine, and you will find the pour cost for liquor alone can run in the 16 – 18 percent range. Hence your secret weapon by promoting the sale of liquor alone (mixed drinks, cocktails, shots, etc.) you can set your restaurant down the path to greater profitability almost overnight.
Know what to charge
To maximize your profit potential, you must first understand what you can charge for each drink. Pricing is a critical decision for any operator. If you charge too much to the wrong crowd, then you’ll lose guests. On the other hand, if you charge too little to the right crowd, you’re leaving money on the table.
So how do you figure out what to charge?
Your first option is to ask your liquor sales representative what other restaurants are charging for specific drinks. You will quickly get a range. Add to that range what types of places are getting top and low dollar, and you will start to see where you should be.
Because when it comes to pricing, you have three choices.
- You can undercut everyone and hope to make it on volume
- You can charge the same as everyone else (often the safest route)
- You can charge more than everyone else because your place is better than anyone else
The key is you get to choose !
Let the market survey be your crystal ball
But before you choose, consider a second option, a market survey. No restaurant exists within a vacuum and few operate without direct competition. It is essential for you to possess accurate and comprehensive information regarding your restaurant’s existing market. On a routine basis you need to conduct a market survey. You have to go out and gather data, the most obvious of which is what other restaurant and bars in your area are charging for drinks and more.
The following are examples of data you should be collecting for your market survey:
- What is your beverage operation’s target liquor, beer and wine pour cost percentages?
- What is your operation’s target food to beverage sales mix ratios?
- What services do you offer your clientele that your direct competitors do not?
- What services does your competition offer that your operation does not?
- What well liquors do your competitors pour and how much do they charge for well drinks?
- Who is your clientele? What is their estimated range in age and income?
- What affect does your location have on the demographics of your clientele?
- How do your business hours affect the demographics of your clientele?
- Who are your direct competitors?
- How does the competition’s price and products compare to yours?
- What marketing advantages do you enjoy over your competition?
- What marketing advantages do your competitors enjoy over you?
Gathering your external data for your market survey can be done several different ways:
- You can go to each restaurant to ask what things cost as you sit there as a customer.
- You can call each restaurant up and say that you’re planning on getting your office together for a happy hour there and wanted to find out what drink prices are.
- You can simply call up, identify who you are and just ask. (Beware that if you and the other restaurant trade prices and eventually both charge the same price for every drink, you could potentially find yourself in a lawsuit over price fixing and this is not a place you want to find yourself!)
However you gather it, this information will have a dramatic impact on decisions regarding pricing, selection, portion control and glassware. Knowing what your competition is doing will also affect marketing, promotions, inventory selections and the services you offer.
Making sound decisions depends entirely on having an accurate, realistic perspective of your market position. This is especially true when you’re talking about building up your bank account.
Reduce errors to increase profits
When developing the price lists for your bar, your goal is to establish a set of prices that will yield the highest potential profit margins and cause the products to sell at their optimum sales volume.
Make pricing lists user friendly to reduce employee pricing errors
Your research and hard work are negated when one of your employees fails to charge the appropriate sales price, even if the error results in a bigger sale. Your obligation is to treat your clientele equitably and safeguard your business’ reputation. This is worth more than a few extra dollars.
The following are suggestions on how to make your price lists easier to use and less prone to employee pricing errors:
Establish major price categories
Group products together based on their wholesale costs. Use a standard increment such as a quarter or 50 cents to separate the price categories. For example, the well price plus 50 cents equals the call price. Call plus 50 cents equals the premium price, etc. Commonly used price categories include well, call, premium, super premium and top shelf. Grouping similarly priced products together necessitates the staff learning fewer prices. (Please note that top shelf liquors will be priced individually because the product cost can range greatly.)
Keep drink prices based only on quarters
Prices ending in 25 cents, 50 cents or 75 cents are easier for bartenders and servers to add mentally. In addition, rounding prices up to nearest quarter make them less sensitive to wholesale cost increases.
Product prices hinged to a specific portion
List the sales prices for each product in the operation’s liquor inventory with a corresponding portion. For example, the listed sale price for an Absolut and tonic made with 1 ounce of Absolut is $4. An Absolut Martini made with 1 ounces of Absolut should be listed at $6.
Pricing doubles
A double made with twice as much product as a regularly prepared highball is extremely potent, costly and steeped in liability. It is therefore a sound business practice to charge twice the price or not to serve doubles at all.
Happy hour pricing
Restaurants that offer happy hour specials usually lower the sales price of well liquor and/or domestic draft beer. The sale prices of all other products remains unaffected.
The math behind your profits
Many of the financial relationships necessary to develop an effective pricing structure only can be derived through mathematics. Use the following formulas.
1. Cost per ounce
To determine a liter’s cost per ounce divide the bottle’s wholesale cost by 33.8 ounces. To calculate the cost per ounce for a 750mml bottle divide the bottle cost by 25.4 ounces.
Liter bottle cost = $12.55. Cost per ounce = 37 cents
750mml bottle cost = $12.55. Cost per ounce = 49 cents
2. Cost percentage
The cost percentage is a measure used to indicate the relationship between a product’s cost of sale and margin of profit. Cost percentage is derived by dividing an item’s cost (or portion cost) by its sale price.
37 cents per ounce x 1.5 ounces = 55 cents portion cost.
55 cents divided by $3.50 = 15.7 percent.
3. Beverage cost method
This is a cost method of pricing used to determine the target sale price for mixed drinks prepared with multiple ingredients. Combine the cost of the product and then divide by the desired cost percentage. (Don’t forget that this is only a guide. Your market survey will help you finalize your prices.)
A 75 cent beverage cost divided by the desired cost percentage, 20 = the target sales price $3.75.
What you put in the glass determines your bottom line
Deciding what drink recipes to pour at your bar involves more factors than just cost. A recipe’s taste, portioning, appearance and relative alcoholic potency are all significant determining factors. However, adjusting these various factors will invariably impact cost.
Providing bartenders with complete information regarding drinks is fundamentally important. Recipes must contain a detailed list of ingredients, measurements, method of preparation and glassware options. Problems may arise when a recipe is not prepared in the prescribed manner. The resulting drink may taste weak and cause the bartender to add alcohol to bring about the proper taste. The same may occur if the drink is not served in the proper glass.
Once the house drink recipes have been formatted the bartenders need access to those recipes. Recipes are frequently put into card files or on a Rolodex. It is important that the recipes be accessible in a viable format and continually updated.
And don’t forget you must train and test your bar staff to make sure the right recipes, portions, glassware, etc. are being used at all times.
Use your secret weapon to gain profits. Emphasize liquor sales and put the right systems in place.
Nationally acclaimed restaurant coach David Scott Peters unique SMART Systems approach to boosting profits has earned him the title of, The man who can walk into any restaurant in America and find $10,000 in undiscovered cash before he hits the back door Guaranteed! Learn more tips, tricks and secrets in his free five-part e-course, How to Explode Your Restaurant Profits NOW! Simply go to
