Table of Contents
How to Price Beer, Wine and Spirits for Profitability
How to Find Your Markup Percentage, Find Your Margins and Set Your Price
How to Calculate Pour Costs
Pricing Wine for Profitability
Pricing Beer for Profitability
Pricing Spirits for Profitability
How to Price Beer, Wine and Spirits for Profitability
There’s undoubtedly a fine art to pricing beer, wine and spirits. It’s not an easy task in the slightest, and it’s also the key ‘make or break’ point for the long-term success of a business. Pricing is undoubtedly a skilled balancing act: if your products are priced too high, no one is going to bite, but if the price is too low, your margins won’t allow for the success of your operation. This guide will equip you with all the tips and best practices for pricing your beer, wine and spirits for profitability this year.
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Pricing All Starts with Your Brand
To properly determine your ideal prices, the first step is developing a big-picture strategy. This overall strategy is going to be determined by a varied and vast amount of factors. Most primarily, though: brand, reputation and image. Herein lies the benefits of building a strong brand.
For example: if you run a fast-casual spot, it’s going to be very difficult to command premium prices for beer, wine, or spirits. On the other end of the spectrum, if you want to offer high-quality wines or spirits at premium prices, you’re going to lose some flexibility. Specifically, by charging that higher price, you’re going to give up a significant piece of your potential clientele base.
Your Business Type Determines Your Profits
Many factors can influence the profit margins of a bar versus a liquor store. For one thing, bars typically have higher overhead costs, including rent, utilities, and labor expenses. Additionally, bars may need to carry a wider variety of products than a liquor store, which can increase their inventory costs.
Another key factor is the markup on products. Bars typically charge a much higher markup on drinks than liquor stores do on bottles of alcohol. This is because bars make their money by providing a service (i.e. serving drinks), whereas liquor stores simply sell products. As a result, bars need to charge enough to cover their costs and generate a profit.
However, there are some ways that bars can try to increase their profit margins. For example, they may focus on selling higher-end drinks and cocktails, which can command a higher price point. They may also try to negotiate better deals with suppliers to lower their costs.
On the other hand, liquor stores have lower overhead costs and can typically operate with a smaller staff. They also have more control over their inventory, as they are not as reliant on customer demand for specific products. As a result, liquor stores can typically afford to charge lower markups and still generate a profit.
What is the Gross Profit Margin for Bars
There is a range of 75-85% gross profit margin for on-premise sales in bars. In general, more expensive drinks generally have lower margins. Profit margins in bars will also vary based on product type:
What is the markup for off-premise alcohol sales?
ABC or State-Run Stores: Some states control the beverage retail industry, and the state government or the ABC (Alcoholic Beverage Commission) set prices. This practice leads to universal prices throughout the state. Generally, the markup is between 25-45%.
Privately Owned Liquor Stores: In states that have liquor stores that set their prices, average markup prices of liquor range from 25-50%. However, factors like local retail conditions, competition and in-store promotions influence these markup prices.
How to Find Your Markup Percentage, Find Your Margins and Set Your Price
To find your margins on beer, wine and spirits, you must first determine the markup percentage for each. If you own a wine bar and you aim to have a gross profit margin of 60% per bottle of wine, you will need to mark up each bottle by 150% or 1.5.
So, say your cost for a bottle of wine is $10 and the sell price is $25. Your profit would equal $15 on that sale. Find your profit margin by dividing your profits ($15) by the final sale price ($25) = .6 or 60% profit margin (multiplied by 100).
Your markup works much in the same way. To find your markup percentage, subtract the sale price ($25) from your cost ($10) and divide that number ($15) by the cost ($10). Your markup is 1.5 or 150% when multiplied by 100.
Last, to find out how much to set the price of your bottle of wine, add your cost with the result of your cost multiplied by the markup. For example, $10 your cost plus $15 ($10 x 1.5) = $25.
The table below shows the markup to margin percentage. Use it to help in your calculations.
How to Calculate Pour Cost
The absolute best way to increase your bar’s profit margin is to decrease pour costs. Keeping pour costs as low as possible is the difference between a profitable bar and a failing one. The industry standard is between 18-20% which contributes to a gross profit margin of 75-80%. And knowing the average amount of bar sales helps put it all into context. The average bar nets around $27,500 in monthly sales. With this in mind, we can begin to calculate the average pour cost.
To calculate your pour cost, use the following metrics:
Divide your total inventory usage — or cost of goods sold (COGS) — by your total sales:
(Inventory Usage ÷ Sales) x 100 = Pour Costs
Say your bar used $15,000 worth of inventory in a quarter. In that same quarter, your bar’s total alcohol sales were $82,500 (average monthly sales x 3 months).
$15,000 (Inventory Usage) ÷ $82,500 (Sales) x 100 = 18% Pour Cost
Pricing Wine for Profitability
By the Glass or By the Bottle? Always Opt for Both.
First, you need to consider your split between bottle and by-the-glass options. In general, wines that are available by the glass should be top sellers. You should select by-the-glass wines as varieties you are confident about selling. For example, Cabernet Sauvignon and Chardonnay are both very friendly towards by-the-glass options, given how popular they are.
This generally is an acceptable and profitable strategy for neighborhood and fast-casual restaurants. But, if you’re operating in a high-end environment, there is likely a strong focus on food and wine pairings. You can’t simply offer a Chardonnay as your by-the-glass wine. Customers will expect a variety of white wines, in the interest of finding a match for their cuisine. Keep this in mind when determining how to construct and strategize your wine menu — each establishment is going to require something different.
The Dollars and Cents of Pricing Wine
Starting with 200-300% over retail is a generally accepted markup standard for wine in restaurants. If a wine retails for $20, you should look to price it somewhere in the $60-$80 neighborhood. For rare, vintage, or otherwise specialty wine options, markups can be significantly higher (into the 400-500% range). This baseline approach to pricing wine is a universally profitable model for most establishments.
When talking by the glass, there are similar industry-accepted standards for pricing strategy. The most basic strategy is to simply price the glass of wine according to the wholesale cost of the bottle. If you paid $15 for a bottle of wine, you should be pricing that wine by the glass at that same $15. This is a handy, simple way to ensure profits in your per-glass wine pricing.
Another useful pricing strategy is to use a per-pour rate. For a standard 750 ml bottle of wine, most restaurants will pour 4-6 glasses. Simply divide the entire bottle price by the number of glasses for a reasonable per-glass price. It requires a little calculation but can be useful, especially when dealing with specialty and vintage wines.
Generally speaking, these two methods will arrive at the same price for a glass of wine. The problem arises, though, when you don’t sell an entire bottle of wine by the glass. Wine doesn’t have the greatest shelf life after being opened. It may be drinkable, sure, but certainly not worth serving in a restaurant setting. The result of opening and not finishing wine bottles is going to be… you guessed it, waste.
Given this, the second method of pricing has its advantages. If you’re only getting three or four pours from a bottle instead of the full six, you can easily use that pricing system to adjust your by-the-glass price. This point brings us to the next piece of pricing a wine menu.
How to Adjust Your Wine List Pricing
A wine list is a dynamic, living thing that needs to respond to the needs of its customers. If a bottle is not selling at its anticipated rate, it should be removed at the earliest convenience. Unfortunately, wine lists can’t generally be changed each day, week or even month. Many establishments put as long as six months in between rotations.
To solve this issue, don’t hesitate to change the price or offer specials on any given wine. While you may miss out on some profit margins, selling some wine is better than letting it sit unopened. Of course, lower prices are going to seem very enticing to customers — it just may convince them to order a wine in which they otherwise had no interest.
In addition to lowering the price of a wine, raising the price can have a beneficial effect as well. According to one survey, restaurant wine drinkers preferred higher-priced red wines. When given a list of wines between $8 and $15, drinkers strongly preferred those wines in the $11 to $15 range. This is likely because diners are looking to splurge and enjoy themselves when they go out. They aren’t interested in the same wines which they’d buy at home.
Trends Change and So Do Prices!
Wine pricing isn’t a set-in-stone sort of thing. The prices of a given wine should be changing based on the needs and wants of the world around it. There’s a wealth of resources available from which to source data, and we strongly recommend doing just that when pricing wine. Wine can be one of the most profitable items on your menu after all.
Pricing Beer for Profitability
Running a successful bar or restaurant requires a thorough understanding of the pricing strategies that can help you turn a profit. One of the biggest challenges that bar owners face is determining how to price beer in a way that is both attractive to customers and profitable for the business.
To price beer effectively, you need to consider a few key factors. First, you need to think about the cost of the beer itself. This includes the price you pay to purchase the beer from your supplier, as well as any additional costs associated with storing and serving the beer. You should also factor in the cost of any equipment you need to serve the beer, such as taps, refrigeration units and kegs.
The Ins and Outs of Pricing Beer
Once you have a good understanding of your costs, you can start to think about how to price your beer in a way that is attractive to customers. One strategy is to offer a range of beers at different price points. This allows you to cater to different segments of the market, from budget-conscious customers to those who are willing to pay a premium for a high-quality craft beer. Another option is to offer discounts on certain beers at certain times. For example, you could offer a happy hour special on select beers to encourage customers to visit your establishment during slower periods. This can help increase foot traffic and boost sales.
When setting your beer prices, it's important to keep in mind the competition. Take a look at what other bars and restaurants in your area are charging for similar beers, and make sure your prices are competitive. However, it's also important to remember that pricing too low can hurt your profitability in the long run, as you may not be able to cover your costs. Ultimately, the key to pricing beer for profitability is finding the right balance between cost and demand. By understanding your costs and the preferences of your customers, you can create a pricing strategy that works for your business.
How and When To Adjust Beer Prices
One final tip: don't forget to regularly review your prices to ensure that they are still competitive and profitable. As the cost of beer fluctuates and customer preferences change, you may need to adjust your prices to stay ahead of the curve. Pricing beer for profitability requires careful consideration of a variety of factors, including cost, demand, and competition. By taking the time to develop a sound pricing strategy, you can attract customers and boost your profits, while also ensuring that your business remains sustainable over the long term.
Pricing Spirits for Profitability
Pricing spirits at your bar for profitability can be a tricky task, but it is essential to ensure that you are not only covering your costs but also making a profit. The key to pricing spirits correctly is to strike a balance between offering competitive prices and maintaining a healthy profit margin. This involves adding a certain percentage to the cost of the liquor to arrive at the final price. However, it's important to ensure that this markup is high enough to cover all of the associated costs while still allowing for a profit. Generally, a markup of 20-25% is recommended.
Here are some tips on how to price spirits at your bar for profitability:
- Determine your costs: The first step in pricing spirits is to determine your costs. This includes not only the cost of the bottles but also any taxes or fees that need to be paid to obtain the necessary licenses and permits. Additionally, consider the types of liquor to buy. Do you plan to buy it in bulk or is it a special top-shelf bottle? Understanding your inventory amount will help you determine your final costs. It's also important to consider the cost of labor when pricing liquor. Bartenders and servers need to be paid, and this cost should be factored into the overall pricing strategy.
- Calculate your profit margin: Once you have determined your costs, you can calculate your profit margin. The profit margin is the percentage of the sales price that is profit. For example, if a bottle of vodka costs you $10 and you sell it for $15, your profit margin is 33%. This varies based on whether you’re operating a bar or a retail store, so be sure to know the profit margins needed to be profitable.
- Another strategy is to use a tiered pricing system. This involves dividing the liquor into different categories based on quality and price. For example, a well liquor may be priced lower than a premium liquor. This allows customers to choose the level of quality they want while still allowing the bar to make a profit.
- Consider your competition: It's important to consider your competition when pricing spirits. You don't want to price your spirits too high and drive customers away, but you also don't want to price them too low and not make a profit. Research what other bars in your area are charging for the same spirits and adjust your prices accordingly.
- Consider the target demographic of the bar. If it's a more upscale establishment, higher prices may be more appropriate, while a more casual bar may require lower prices.
- Offer specials and work with distributors: Offering specials can be a great way to boost sales and attract customers. You can offer discounts on certain spirits or create special cocktails using the spirits you want to promote. Just make sure that your specials are still profitable. The same goes for retail establishments. Work with your distributors to get deals on specific products and market them accordingly. The lower your cost, the higher your profit margins.
- Monitor your sales: It's important to monitor your sales regularly to ensure that your pricing strategy is working. If you notice that certain spirits are not selling as well as others, you may need to adjust your prices or promotions or consider focusing on spirits that you know move well.
- Don't forget about overhead costs: When pricing spirits, it's easy to forget about overhead costs such as rent, utilities, and staff wages. Make sure to factor these costs into your pricing strategy to ensure that you are covering all of your expenses.
Ultimately, pricing liquor for a bar requires a careful balance between costs, competition, and customer preferences. By taking the time to carefully consider these factors, it's possible to arrive at a pricing strategy that is both profitable and appealing to customers.
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