Why alcohol sales can make or break a restaurant.
The bar is where the magic happens. It’s the engine that drives your profits. Why? Because liquor sales deliver the highest margins, generating the greatest returns on your sales. How you manage your bar and track key metrics is crucial to running a successful bar or restaurant. Keeping a close eye on the cost of goods sold (COGS) and labor costs is essential to optimizing your bar’s performance.
Accurately calculating the cost of each cocktail and pricing it according to your customer base is key. It's not enough to simply estimate the cost of the liquor in each drink. You need to factor in the mixers, whether they’re bag-in-box products or freshly squeezed ingredients. For example, how many ounces of juice do you get from a fresh pineapple, and what’s the cost of that pineapple? Once you calculate the cost per ounce, don’t forget to include the labor needed to extract the juice.
As a rule of thumb, your liquor costs plus mixers should make up about 20-30% of the price of a cocktail. This leaves you with a healthy profit margin of 70-80%. In lower-cost markets, where rent and overhead expenses like labor and utilities are less, you may find yourself operating closer to the higher end of that range. In higher-cost cities, it's crucial to stay on the lower end to maintain profitability. A knowledgeable bar manager should already be equipped with these skills and can offer guidance on liquor selection, brand variety, and menu pricing.
Understanding your customer base is also vital to creating a successful beverage program. If your crowd is more into beers and shots, they’re unlikely to pay for a $12-$15 cocktail. In this case, aiming for a 20% pour cost is a good benchmark. On the other hand, a more upscale offering can support a 30% pour cost. In reality, your menu will likely have a mix of cocktails with pour costs varying between 20% and 30%, and the average will fall somewhere in between.
Complex cocktails offer a great way to invite customers to try something new and elevate your establishment’s appeal. However, the complexity of a cocktail can impact the time and skill required to make it. For instance, a bartender can pour a vodka soda in under 15 seconds, but a more intricate cocktail may take up to two minutes to prepare. Should these drinks be priced the same? Probably not. If it takes longer to prepare, you’ll need more labor to serve your customers, which should be reflected in the price.
In today’s marketplace, new technology can help bars and restaurants offer a wide range of standard and specialty cocktails while keeping pour costs in check. Automated liquor dispensing systems have made significant strides in recent years. One system to consider is the Smartender, developed by Smart Bar USA. This automated cocktail machine pours drinks with the push of a button, following your specific recipes. It eliminates over-pours and speeds up service, with most drinks prepared in under five seconds—yes, even a Long Island Iced Tea! Since the Smartender integrates with your existing POS system, every order is tracked, and no free drinks slip through the cracks. The machine can deliver both standard and craft cocktails, with or without a trained bartender, ensuring consistency and efficiency.
In business, it’s all about balancing a quality customer experience with making the numbers work. The next time you’re behind the bar, take a moment to assess if you’re calculating your costs accurately. Mastering the math is essential, and incorporating new technology can help you tighten those numbers, reduce costs, and still deliver a top-notch experience for your customers.