Liquor costs can make or break your beverage program.
The profit margin on alcohol is huge, but a high liquor cost (also called pour cost or beverage cost) eats away at it.
Lowering liquor cost, then, is one of the most effective ways to increase bar profits.
But to lower it, you gotta know what it is, what it means, and how to find it.
What Is Liquor Cost? A Definition.
The definition of liquor cost is the percentage of a drink’s selling price that it costs to make the drink.
You’ll hear pour cost percentage thrown around out there on the internet. You’ll also hear beverage cost. They mean 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 (including psychological pricing) for maximum profit. It'sa. vtial part of restaurant accounting and can have a major impact on your bottom line.
How Liquor Cost Impacts Profit
Accurate liquor cost numbers reveal inefficiencies. Your bar may have issues with over-pouring, spillage, undocumented comps, suboptimal menu pricing, and even theft (there are actually many ways employees steal).
Each of those above factors can impact your liquor pour cost numbers.
Think about it:
Let’s say you spend $3 on materials and labor to make a single cocktail. If you’ve got bartenders giving drinks away for free or overpouring, you’re selling less of your inventory. But you’re still paying the same amount for it from your vendors. That lowers your liquor cost and dents your profit. That's why you need to know how to price a menu and factor in any shrinkage.
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 Beverage Cost Percentage
Average restaurant liquor cost in the hospitality industry in the U.S. is between 18% and 24%.
But spirits, wine, and beer all tend to have different beverage cost percentages:
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 liquor 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.
Liquor Cost: Bar-Wide vs. Single Drink
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 (like club soda), 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.
What Affects Liquor Costs?
There are three factors that impact liquor costs the most.
- Ingredient cost (including the alcohol itself)
- Number of drinks sold
- Drink prices
Of course, there are numerous other secondary factors. If your overhead expenses are high, you’ll probably price drinks higher to compensate. If your labor costs are low, you may be understaffed and sell fewer drinks.
All of the operating costs of a hospitality business ripple throughout current liquor costs. But the levers you can pull to lower liquor costs are the three primary factors listed above.
You can either get better deals from vendors, sell more drinks, or price them differently.
How to Calculate Beverage Cost In Restaurant
Here we’ll lay out the pour cost percentage formula, then go through a three-step example of how to calculate pour cost.
How to Calculate Liquor Cost with Liquor Cost Formula
The liquor cost formula is:
Liquor Cost = (Inventory Usage ÷ Total Sales) x 100
Let’s look at an example that puts it all in motion.
How to Calculate Pour Cost: An Example
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.
Liquor Cost Calculator
You can calculate liquor cost in two ways. The old-fashioned way with a pour cost spreadsheet, or the new-fangled way with a pour cost calculator app.
Liquor Cost Spreadsheet Excel
Here’s our 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.
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.
Pour Cost Calculator App
A pour cost calculator app helps turn your sales and usage numbers into a reliable beverage cost percentage.
BinWise Pro is industry-leading bar inventory software system that helps bars and restaurants across the country do just that. It even helps lower overhead expenses by cutting your inventory hours up to 85%.
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. You'll never need to ask how many ounces in a pint again.
Benefits of Automatically Tracking Liquor Pour Cost
A full picture of your liquor costs helps maximize your profit margin. By automating it, you’ll have reliable and accurate numbers always.
You’ll always know which drinks are, as currently constructed and priced, losing propositions. You can adjust their pricing or ingredients.
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. It will also make maintaining your restaurant balance sheet much easier.
Automate Inventory with BinWise Pro
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 a bar inventory app like BinWise Pro is a great solution. Let us personally walk you through why. You won’t regret it.
It’s a big part of the bar inventory magic behind running a profitable bar. Here’s what you need to know about it. Remember, it's important to learn how to manage cost for restaurant business to succeed. Otherwise you'll end up a statistic in the high restaurant failure rate.