How to Figure Out Your Beverage Cost - dummies

How to Figure Out Your Beverage Cost

By Ray Foley, Heather Dismore

Part of Running a Bar For Dummies Cheat Sheet

Even though it seems like a place to relax and have fun, a bar is a business. And just like any other business, it ultimately must be profitable to stay open. In order to be profitable, you, the bar owner, need to know how much the drinks you serve cost you to make. The following steps explain how you do it.

Say you want to figure out how much a premium margarita costs:

  1. Divide the cost of the bottle of premium tequila ($38) by the bottle size (750 mL) to determine the cost per milliliter.

    38 ÷ 750 = 0.0507 cents per milliliter

    Because the United States refuses to embrace the metric system, you need to do more math. Bars in the U.S. pour liquor by the ounce, darn it. Each fluid ounce is made up of about 30 milliliters.

  2. Multiply your cost per milliliter (0.0507) by 30 to find out how much the liquor costs you per ounce.

    0.0507 × 30 = $1.52 per ounce

  3. Repeat Steps 1 and 2 until you’ve accounted for all your ingredients. Then add up the cost of all the ingredients.

    For example:

    Premium tequila (1 ounce) $1.52
    Grand Marnier (0.5 ounce) 0.54
    Lime juice (2 ounces) 0.18
    Agave nectar (1 ounce) 0.17
    Lime wedge 0.04
    Total Cost $2.45
  4. When you know what the drink costs you, set its menu price.

    Do the math, and then round up to the next dollar or half dollar. For this drink, here are a few pricing options.

    To Get a Beverage Cost of (x)% Multiply the Cost by Estimated Menu Price Final Menu Price
    15% 6.67 16.34 16.49
    20% 5 12.25 12.49
    25% 4 9.80 9.99
    30% 3.33 8.16 8.99

    On average, you need to charge about five times what a drink costs you to make, giving you a 20 percent overall beverage cost. Some drinks may be a little higher, some a little lower. And always consider what your market will bear. If no one will buy a $17 margarita in your town, then you can’t sell it.