“Quick summary” Every bar manager or owner should monitor the expense of the alcohol they provide. The simplest definition of liquor cost is the cost of buying alcoholic beverages from wholesalers. Alcohol has a significant profit margin but a high liquor cost—also known as a pour cost or beverage cost which takes up a greater percentage of your profit.
So, in order to get the best results, you should get a solid understanding of how to calculate liquor cost and manage it effectively in your restaurant if you want to become profitable. But to manage it successfully, you must understand what it is, what it means, and how to manage it.
Once you figure out your COGS, manage it accordingly, and price your bar menu correctly, you'll have a consistently successful business with satisfied customers! So, let’s start with the basics of everything you need to know about Liquor cost, how to calculate it, and everything around it.
As a business owner, you must know about so many different things, and even if you don’t like math at school, you still need to manage it for your business. Knowing the figures of your liquor cost and other related things can make or break your business.
To liquor cost calculate, you need to use the following formula:
COGS = Opening Inventory + Purchases - Ending Stock ÷ Sales * 100
If you are still confused about applying this liquor cost formula, don't worry. Let's see the implementation of the formula in action.
The liquor cost calculation formula (as discussed above) is Opening Inventory + Purchases - Ending Inventory ÷ Sales
[OI + P - EI ÷ S * 100]. Let’s understand with real figures and get your liquor cost calculation answers.
Let’s simplify: $1000 + $600 - $300 ÷ $5000 * 100 = $1300 i.e. 26%
Knowing exactly how to calculate your liquor costs can help you protect your Inventory and ensure your restaurant is successful.
Your bar may experience problems with spills, overpours, unreported comps, unfavorable pricing on the menu, and even theft. Any of the elements above can affect your liquor pour cost numbers.
Let’s understand with a quick example:
Let's assume that the cost of making one cocktail, including labor, is $3. You're selling less of your product if your bartenders are overpouring drinks or giving them away for free. But you continue to pay your vendors the same sum for it.
It decreases the price of your liquor and reduces your earnings. For this reason, you must understand menu pricing and how to account for shrinkage.
However, knowing the exact costs of alcohol helps you identify inefficiencies and find solutions to eradicate those efficiencies.
There are so many things and steps you should keep in mind to manage liquor in your restaurant properly. It is a kind of responsibility that you need to handle effectively, which ensures your establishment runs without many hassles.
To properly manage liquor in the restaurant, you need to follow the three important steps such as end-to-end inventory tracking, prepping the right strategies for storing, and leveraging best practices for managing liquor business operations.
Checking your inventory is essential to managing the liquor in your restaurant business because it has a significant impact on your costs and profits.
Tracking liquor inventory regularly with a dependable POS system is the preferable technique here because even minor errors can adversely affect your earnings and expenses. Therefore, regularly tracking this inventory is necessary to calculate liquor costs to the precise dollar amount, which is what every business aims for!
Storing your liquor in the right place is very important to preserve its quality.
Here are some standard guidelines you should follow for storing liquor:
Having clear policies and procedures for handling liquor is important for ensuring that all staff members are on the same page and that liquor is handled responsibly and can act quickly and efficiently in any situation that may arise.
You need to effectively handle cash and credit card transactions, including policies on handling cash and credit card transactions, procedures for verifying IDs, handling tips, and processing refunds.
By establishing clear policies and procedures for handling liquor, you can ensure that all staff members are aware of the proper protocols for handling liquor. It can help to prevent accidents, minimize waste, and ensure that customers are served safely and responsibly.
Understanding the liquor cost is another crucial consideration to keep in mind to ensure the nitty gritty of liquor cost and how you can utilize it effectively to decide the right pricing strategy for your drinks at the establishment.
Understanding liquor cost includes considering different factors such as the definition of liquor cost, the importance of calculating liquor cost, and some of the factors affecting liquor cost.
To make it easier for you, we have also included an example; keep reading to know more in detail.
Every bar management should keep track of the expense of liquor. Simply put, liquor cost is the price you pay to buy alcohol from wholesalers. On the internet, you'll hear people discuss the pour cost percentage. You'll also hear about the cost of beverages. They have the same meaning.
It is essential to run a bar, restaurant, or other institution serving alcoholic beverages. The price of liquor varies according to the kind of alcohol, brand, and location.
Liquor cost is a proportion that contrasts the cost of alcohol sales to total alcohol sales over a specific period. It shows you what proportion of your selling price you use to manufacture a drink.
Let’s understand with an example:
If you utilized 25 cents of alcohol and sold it for $1, your beverage cost would be 20%. It is often referred to as beverage cost % or liquor pour cost calculator. The median pour cost for most bars and restaurants ranges between 18 and 24%.
After determining the what, determining the why is also important for your liquor business. As a restaurant or bar owner, you must realize the necessity of keeping your liquor prices under control. The average restaurant spends 18%-24% of its budget on liquor. That's a substantial portion! Understanding liquor expenses is so critical for keeping your business viable.
Not only calculation but the correct calculation of your liquor cost is critical to maximizing profits and staying in business.
Here’s how calculating liquor costs is beneficial for your business:
On the other hand, if your liquor costs are too low, you may be selling your beverages at a reduced price, thus losing money. With accurate costing in hand, you can determine the right price for your products.
The cost of alcoholic beverages is influenced by factors such as Consistency & Product variety.
Calculating liquor cost is an important task for any business that serves alcohol, as it helps determine the profitability of the business. The liquor cost is calculated by determining the total cost of liquor purchases over a specific period and then dividing that cost by the total amount of liquor used during the same period.
This calculation provides the cost per unit of alcohol, which can then be compared to the selling price to determine the profit margin. With this information, you can optimize your operations and maximize your profits.
After understanding liquor cost, and its importance, we will determine how to calculate liquor cost percentage with our step-by-step guide. We will include some of the crucial steps in the step-by-step guide, such as collecting the required data, calculating the usage, calculating COGS, and then comes the liquor cost. We have also added the example to help you understand better, keep reading to know more about it.
To get accurate details, collect, analyze, and take the necessary steps to make changes accordingly.
Here are some of the crucial data that you need to consider for better decisions:
After gathering all this data, you can know how to calculate liquor cost percentage, cost of goods sold (COGS), and liquor cost.
Note: It's important to track this data to ensure accuracy and make informed decisions about pricing and inventory management.
To determine the liquor cost, you need to calculate liquor usage effectively to get accurate results.
The amount of liquor used in preparing a drink is multiplied by the cost of the liquor per unit to get the cost of the drink. You may calculate the cost of each drink and your total liquor cost by estimating your liquor consumption.
Here’s the detailed guide to calculating liquor usage:
Here’s an example:
To make one drink, suppose you need 2 oz of vodka and 4 oz of orange juice. Assuming vodka costs $0.50 ÷ oz and orange juice costs $0.10÷oz, the liquor cost of each drink is $1.20.
Determining your COGS is another important concept to learn when evaluating your liquor cost. Simply checking your Cost of Goods Sold, or COGS, for a specific financial period will give you a good idea of your costs.
The direct expenses for all things relevant to what it takes to sell drinks are defined as the Cost of Goods Sold (COGS) for liquor costs.
Accounting-wise, the direct costs include not just the liquor but also mixing devices and items, consumables (straws, glasses, etc...), and anything else directly required to manufacture and sell the cocktail. You determine it by taking your initial Inventory, deducting your final Inventory, and including any purchases you made during the period in between.
Starting Inventory + Purchases - Ending Inventory = COGS
Each drink requires a different calculation, as it varies based on their pricing. So, do it accordingly.
Let's say a bar starts the month of May with an inventory of $2,000 worth of liquor. During May, they purchase $4,000 worth of liquor, and at the end of May, their Inventory is worth $3,000.
To calculate the COGS for May using the formula, we can plug in the numbers:
Therefore, the COGS for the bar during the month of May was $3,000.
After determining the liquor usage and COGS, you need to calculate the liquor cost or, say, the pour cost of your restaurant or bar. Profit margin is an important phase in restaurants and bars, and one of the greatest elements influencing profit margins is liquor cost. If you're considering opening a liquor store, it's important to understand the potential profit margin you will earn.
This can be determined by calculating the difference between the cost of the liquor and the price at which you sell it. By managing your liquor cost-effectively, you can increase your profit margin and ensure the success of your liquor store.
Here’s the formula for liquor cost calculation:
Liquor cost = (Beginning Inventory + Purchases - Ending Inventory) ÷ Total sales * 100
The average liquor pours cost percentage is considered to be between 18% to 20%. If your liquor cost percentage is higher or lower than this, you should take considerable actions to manage things accordingly.
To determine the cost of beverages sold, you must know the total amount of liquor purchased as well as the inventory value at the start and end of the period. The gross profit margin is the difference between sales revenue and the cost of products sold plus the cost of alcohol. The pour cost percentage is the proportion of the cost of alcohol sold to the income generated.
Now that you know everything about the definition and importance of calculating liquor cost, let’s make it easy by taking an example.
Beginning inventory = $2,000
Purchases = $4,000
Ending inventory = $3,000
(Considering the figures from the above example)
To calculate liquor cost for the bar during the month of May, we can use the formula:
Liquor cost = (Beginning inventory + Purchases - Ending inventory) ÷ Total sales * 100
The COGS for May is $3000, and suppose the total sales in the month of May is $15000. So, let’s put the figures into action and find out how to calculate the liquor cost percentage.
Liquor cost percentage = (COGS ÷ Total sales) * 100Liquor cost percentage = ($3,000 ÷ $15,000) * 100
Liquor cost percentage = 20%
Conjuring this above example, the liquor cost percentage for the bar in May is 20%, which falls within the average pour cost percentage range of 18% to 24%. It suggests that the bar is managing its liquor inventory efficiently, as they are spending an appropriate amount on liquor relative to its sales.
If your number doesn’t fit into this bracelet, then you need to take proactive actions to manage it.
After calculating, we have come to the analyzing part. We will be conjuring end-to-end analysis for the liquor cost, which includes factors affecting the liquor cost, some of the standard guidelines you should follow while deciding the pricing, and the most important part - how to use this analysis for making business decisions. Keep reading to know more about this.
There are so many factors that affect the liquor cost, and you should consider the price correctly.
Check out the following factors:
The industry norms and benchmarks for assessing liquor costs can vary based on the kind of facility, location, and client base.
And, if you are unaware of the same - check out the following general principles:
Here's the bonus tip:
Make sure to regularly assess the cost of alcohol and make adjustments to prices and Inventory as necessary to maintain profitability.
With the end-to-end liquor cost assessment, you can make well-informed company choices that can assist in boosting your company's efficiency and profitability.
Here are some instances of how you can utilize liquor cost estimation to make better business decisions:
It can assist you in making better-informed judgments regarding which types of alcohol to keep in stock and how much of each to order, resulting in reduced waste, fewer stockouts, and improved cash flow.
We have determined the liquor cost, but it is important to adopt the best ways to manage it and reduce it (whichever way we can). To reduce it, we will add some of the best practices, such as controlling pour sizes and minimizing wastage.
Then comes the tips to maximize profitability by optimizing the menu and pricing.
At last, coping with technology to simplify your business operations and streamline everything on the go. To know more about how you can do it, keep reading.
Pouring can soon mount up and cost you hundreds of dollars in lost income. To avoid this loss, you must train your bartenders so that they comprehend and stick to your establishment's proper pouring standards.
Instruct your bartenders to utilize the best bar tools, such as jiggers and ball pourers, to avoid over-pouring. You can avoid over-pouring and ensure your drinks' consistent quality and taste by utilizing the right instruments.
Overpouring isn't the only thing that raises your beverage expenditures; spilled beverages, unused Inventory, and complimentary drinks to regular customers all add up. As a result, you must check all of these items on a regular basis to ensure less waste and better results.
With proper processes in place, whether for over-pouring, limiting waste, or providing free drinks to loyal customers, you can expect significant savings and an increase in income.
Creating a recipe pricing card for each of your bar drinks (and any food you sell) is one of the tactics for boosting profitability and management. These cards would feature every detail about each liquor, right down to the single garnish pieces.
Making these cards and teaching your employees how to utilize them reduces waste and over-pouring. It also serves as an excellent training tool for new bartenders and other personnel that lack expertise.
Aside from maintaining the cards, ensure that you manage your menu based on the data analytics and information gathered. You must concentrate on two categories of items. One that your customers adore and another with a bigger profit margin.
Aside from managing recipes and menus, you have to handle your pricing strategy. Increasing liquor prices abruptly and disproportionately will have an adverse effect on the standing of your bar, which will help you obtain poor ratings, which will be terrible for your bar's reputation. Make moderate, incremental pricing increases instead to have a long-term positive impact on your restaurant business.
In this tech-driven environment, technology plays a crucial role in the better management of almost every business. The ideal technology not only makes your business management efficient but also lowers your expenses and wastage while maximizing revenues and profits.
There are so many software and tools you can use for a variety of activities such as mixing drinks correctly, managing accounts, staff management, your bar or restaurant's day-to-day operations, Inventory, and other things around.
A point-of-sale system (POS) is the most popular technology used in pubs and restaurants. Your liquor store POS system can be used for sales tracking, inventory management, real-time notifications, end-to-end data analytics, managing staff members, etc.
Go ahead a step further and install a POS system for your restaurant operations and integrate it with other useful tools in your space. To know more about it, you can reach out to OVVI, and our experts will guide you.
Another approach to employing smart technology is to install security cameras. Video surveillance not only protects your customers and employees, but it also reduces employee theft. When your employees are aware that they are being observed, they are less inclined to steal.
We sincerely hope that this information has been helpful in setting your liquor price. The important thing to remember is how much you paid for the liquor and how much you are receiving in return.
One of the most common reasons for the failure of the liquor business is the inability to manage expenditures. When they can't keep their drink and food prices under control, they wind up losing a lot of money. Keeping track of your expenses and income is essential for developing the optimal pricing strategy that will lead to your company's success.
Not only should you examine hard numbers when pricing your liquor, but you should also consider the intangibles.
The intangibles of your liquor businesses include the location, competition, customer demographics, customer experience, and other things around to prepare a successful pricing strategy.
To manage your expenses, Inventory, customer data, and other details in one place and make the pricing strategy accordingly, opt for the best-in-class POS system at your liquor business and leverage its benefits.
To know more about the benefits of our POS system for your liquor business and to book a demo, reach out to our experts at OVVI now!
There are numerous factors to consider when pricing drinks, but there is an easy way to set a price baseline that will allow you to meet your goal margins.
Let's use vodka as an example. A 500ml bottle of vodka costs $15, with a cost per ounce of 0.93 cents. If we want to make a profit of 80% on every vodka sold, we may use the cost per ounce to figure out the price we should ask.
To calculate the price of your drink, you need to divide the cost per ounce by the desired pour cost and then multiply it by 100.
Drink Price = Cost Per Ounce ÷ Desired Pour Cost * 100
So, the cost per ounce is 0.93 cents, and desired pour cost is 20, yielding 80% percent of Gross Profit.
So, as per the numbers, your price per drink should be $4.65.
Liquor pricing can be difficult. If your liquor costs are too high, fewer people will purchase alcoholic beverages from your store, and if your prices are too low, you will lose money on the table.
When pricing liquor, keep the following three factors in mind:
The liquor cost formula is a simple computation that takes into account the cost of the alcohol sold as well as the sales income. Here's how to figure out how much liquor you'll need:
Liquor Cost = (Alcohol Sold Cost ÷ Sales Revenue) x 100
To determine the cost of beverages sold, you must know the total amount of liquor purchased as well as the inventory value at the start and end of the period. The difference between sales revenue and cost of goods sold, plus the cost of alcohol, is the gross profit margin. The liquor pour cost calculated is the proportion of the cost of alcohol sold to the income generated.
The markup on liquor is the distinction between the cost of the liquor and the selling price. The selling price is determined by the amount included in the price of the liquor. The markup is a vital aspect of the pricing approach that contributes to assessing a company's profitability.
To calculate the markup on liquor, you need to know the cost of the liquor and the desired gross profit margin. Here is the formula to calculate markup on liquor:
The markup on liquor = (Selling price - Cost of liquor) ÷ cost of liquor * 100
For example, let's say you purchased a bottle of vodka for $20, and you want to apply a markup of 50% to determine the selling price.
To calculate the selling price, you would use the following formula:
Using the selling price and the cost of liquor, you can calculate the markup on liquor as follows:
So in this example, the markup on the bottle of vodka is 50%. The more significant the markup, the bigger the profit margin. However, balancing the markup with customer demand and competition is critical to guarantee reasonable and stable pricing.
Another crucial aspect of prices is determining the cost per ounce for the liquor you purchase, as this will be required for pricing.
Because you don't always offer liquor and wine and serve beer in their original containers, understanding your cost per ounce will help you value your drinks appropriately so that you can make the appropriate profits.
Here’s the formula for calculating the price per ounce:
Cost Per Bottle÷Ounces per Container = Cost per Ounce
Let's use Vodka as an example. If your bar sells vodka in 500ml bottles for $15 per bottle, and you can offer 16 ounces from one bottle, then the cost per ounce is as follows:
So one ounce of vodka will cost you around 0.93 cents. And, if you give a 2-ounce pour for a shot, a shot of a specific vodka will cost you roughly $1.86.