The profit margin on alcohol is huge. Every profitable beverage program takes advantage of that.
But it’s easier said than done.
Enter liquor cost. Also known as liquor pour cost or beverage cost.
Lowering it is one of the most effective ways to increase bar profits.
And accurate liquor cost numbers reveal potential inefficiencies like over-pouring, spillage, undocumented comps, suboptimal menu pricing, and even theft.
What Is Liquor Cost?
Liquor cost is the percentage of a drink’s selling price that it costs to make the drink.
It’s expressed as a percentage. You’ll hear “pour cost percentage” thrown around out there on the internet. It means the same thing.
Liquor cost answers this question:
“How much of this drink’s retail price did I spend to make it?”
Answering that allows bar managers to tweak their wholesale purchases, recipes, and pricing strategies for maximum profit.
How Do Bars and Restaurants Approach Liquor Costs?
Most bars and restaurants think of pour cost percentage at a drink level and at a bar-wide level.
Here’s an example:
If a drink has a liquor cost of 10%, that means 10% of its retail price went into acquiring the ingredients, making, and selling it. That’s a 90% profit. In other words, for every $1 of this drink you sell, your bar makes $0.90.
If your entire bar has a liquor cost of 15%, that means the cumulative liquor cost for every drink averages to 15%. It also means your business makes 85% in gross profit. In other words, for every $1 of liquor that you sell, your bar makes $0.85.
Food and Beverage Directors Expect a Pour Cost of ...
Most food and beverage directors expect an average pour cost of, max, 20%. Though the actual number will depend greatly on each bar’s pricing and what drinks are popular.
But a lot of bar managers strive to have their pour cost at around 15%. But a lot of that depends on sales mix—the percentage of total restaurant sales that come from liquor, beer, or wine. And what brands, bottle sizes, and wholesale pricing a bar gets.
Food managers will also have to work on reigning in their food cost.
Average Restaurant Liquor Cost
Average pour cost in the hospitality industry in the U.S. is between 18% and 24%.
But spirits, wine, and beer all tend to have different pour costs.
Some things to note about average restaurant liquor cost:
- Liquor cost is a percentage of margin, not a representation of absolute profit amount. Sure, beer cost percentage is lower than wine. But some wines sell for hundreds of dollars a bottle. There can be more gross profit selling expensive items at higher pour costs than cheaper items at lower ones.
- A Hendricks gin-based cocktail with 8 other ingredients will have a different pour cost than pouring Hendricks neat. Keep in mind this variability as you read about and calculate your pour cost percentage.
- The only substantial difference when calculating pour cost for draft beer is dealing with beer keg weight. Being able to accurately weigh kegs and deduce how much is left in them is helpful when sorting out pour cost for draft beer. And setting beer prices. But, other than that, you can follow the pour cost formula below.
How to Calculate Liquor Cost
Here we’ll lay out the pour cost percentage formula, then go through a three-step example of how to calculate pour cost.
Liquor Cost Formula
The liquor cost formula is:
Liquor Cost = (Inventory Usage ÷ Total Sales) x 100
How to Calculate Liquor Cost: An Example
Let’s say your bar used $15,000 worth of inventory in a quarter. In that same quarter, your bar’s total alcohol sales were $40,000.
$15,000 (Inventory Usage in $) ÷ $40,000 (Cost of Product Sold) x 100 = 37.5% (Pour Cost Percentage)
Liquor cost is 37.5%. That means it costs the business, on average, 37.5% of a drink’s sale price to make it. The average pour cost that most bar operators strive for is generally between 18% and 24%. Having a liquor cost at 37.5% is significantly high.
Someone isn't hitting their standard wine pours.
How to calculate liquor pour cost, versus bar-wide pour cost, follows the same steps. Instead of determining inventory usage and total sales for the entire bar, just calculate it for a specific drink.
Pour Cost Spreadsheet
Another easy way to calculate pour cost is using this free downloadable pour cost spreadsheet.
Once you download it, you can edit the cells and it'll do the calculations for you. Just input volume in milliliters, the price paid for the bottle, and how many ounces are used.
You’ll see an example of a costed-out boulevardier cocktail in it for reference’s sake.
Once you look at that and understand what’s going on, delete it and start costing your own drinks.
Pour Cost Calculator App
The pour cost formula is the same regardless of the type of beverage. That means a good pour cost calculator app can be your everything. Your beer pour cost calculator, your liquor pour cost calculator, and your wine pour cost calculator.
BinWise Pro does exactly that:
Another benefit of automating pour cost calculations in a pour cost calculator app is that it’s easier. Sorting out all these numbers and calculations manually is prohibitively time-consuming and error prone.
Benefits of Tracking Liquor Pour Cost
A full picture of your liquor costs helps maximize your profit margin. You’ll know which drinks are most profitable. Then you can market them aggressively. You can also use them as a blueprint to decrease the pour costs of not-so-profitable drinks.
If your pour costs are high, you may not be getting the best prices from your vendors. Your staff may be contributing to a lot of shrinkage or variance. Your alcohol pricing strategy may be off. But drinks with low pour costs don’t have these problems. So find them and learn from them.
4 Tips to Lower Your Pour Cost Percentage
You know what pour cost is and you know how to calculate it. But what happens if you’re not pleased with the number on the other side? Here are 4 tips to lower pour cost percentage.
Price Drinks Strategically
One of the easiest ways to reduce pour cost is by pricing drinks strategically. Set a target pour cost first, then set your alcohol pricing and beer pricing accordingly to achieve it. Here’s a handy formula to help:
Drink Price in $ = Ingredient Cost in $ ÷ Target Pour Cost in %
For example, let’s say you want to start serving BinWise Signature Wine as a new item on the menu. The average pour cost for wine is between 30% and 40%. Wine profitability sounds like a lot, but it’s built in to wine bottle pricing. So set your target pour cost for this menu item at 30%. Now let’s assume that you bought the BinWise Signature Wine for $5 per bottle from your favorite distributor. You’ll have the following:
$5 per bottle (Ingredient Cost) ÷ 0.30 (Target Pour Cost) = $16 per bottle (Drink Price)
This means that the ideal price for your BinWise Signature Wine should be $16 or higher. Wine by the glass pricing can be similarly tweaked according to target pour cost.
Manage Variance Effectively
Product variance, or “shrinkage,” is the difference between the amount of product sold and the amount of product used within a given time period. Unless your bartenders know how to free pour perfectly, your variance likely has room to improve. To calculate variance or shrinkage, use a variance formula:
Monetary Value Variance = Cost of Product Sold in $ – Usage in $
Percentage Value Variance = (Variance in $ ÷ Usage in $) x 100
For example, let’s say you want to determine the variance of BinWise Signature Gin in April. Your records indicate that your bar’s usage was $12,000 but the total cost of product sold was only $8,000. Using the formula, you will have:
$8,000 - $12,000 = $4,000
($4,000 ÷ $12,000) x 100 = 33.3%
This simple calculation shows that you lost 33% of the BinWise Signature Gin you bought. Made no money on it. Stuff like this drastically brings down your business’s profitability. Knowing the variance helps you identify potential inefficiencies happening at your bar, from inventory miscounting, over-pouring, and even theft.
These are the same issues that cause too high or low a liquor pour cost, so by minimizing your variance, you're helping greatly.
To get the most accurate calculations, consider drilling home standard liquor pours and a standard 5-ounce wine pours to your staff.
Order Products in Bulk
Ideally, bar operators take their inventory weekly or bi-weekly. This keeps everything trued up and management aware of which products are moving out the door more quickly than others. That, in turn, allows them to make strategic wholesale purchasing decisions.
Most distributors prefer to sell more without breaking up cases, so they offer buy-in-bulk deals and specials (also called “volume discounts”). By knowing your usage and ordering smartly, you can easily lower your pour cost by lowering ingredient cost and gives you the opportunity to upsell the products you do have will increase profits.
Ensure Accurate Pour Costs Every Time
There are a lot of reasons for high pour cost. Over-pouring, frequent spillage, unrecorded comps, and even theft play a role. At the same time, suspiciously low pour costs can also be symptomatic of a larger problem.
Mistakes in the bar inventory process, having inaccurate sales figures, or miscalculating pars and variance can all contribute to that. And screwy pour cost numbers means your purchasing, menu engineering, pricing, and restaurant marketing strategies are screwy, too.
Automating it all with BinWise Pro is a great solution. Let us personally walk you through why. You won’t regret it.