How to calculate the cost of a cocktail

calculating the cost of cocktail

One of the most important things when designing your first cocktail menu is to be able to cost it out. A seemingly basic process in the bar business can be far more difficult than anyone would imagine. 

But let’s start with basics and industry standards as there are a lot of factors to consider when pricing your cocktail menu. Here you will explore how to do that in the step-by-step process. 

But if you want to skip a process that I use for pricing a cocktail menu then you can download my Cocktail pricing calculator spreadsheet and then figure it out for yourself.

cocktail pricing calculator spreadsheet

Cocktail Pricing Calculator Spreadsheet

#1 Figure out how much a cocktail costs to make

Firstly, you need to figure out the cost of your cocktail to produce. To do that, you need to know the cost of each individual ingredient of your cocktail and then add them all together to get the total cost.

Here’s how to Cost individual ingredients in both ounces(US) and millilitres(UK/EU).

cost of each ingredient in cocktail cost of each individual ingredient of cocktail

For other ingredients (not in ml/oz.) use approximate cost: If 1 Lemon costs $0.40 and produces 1 oz. of Lemon Juice and the amount used in your cocktail is 3/4 oz. then the cost would be $0.30.

Let’s take for example Negroni cocktail:

Gin $0.74 + Sweet Vermouth $0.48 + Campari $0.45= Total Cost $1.67

#2 Divide Total Cost of your cocktail by a targeted Pour cost(%)

Pour cost is industry standard interpreted as a bar’s percentage of the cost of goods sold divided by your total sales. A targeted pour cost is usually around 20% but ideally should be as low as possible.

POUR COST = COST OF GOODS SOLD / TOTAL SALES 

Now, let’s imagine that a bar sells around $1M/year and the COGD is around $200000/year  that would make desired 20%.  But what if your targeted pour cost would rise to 30% with around $1M total sales a year? That could also mean a loss in the profit roughly by $100000/year.

Pour cost is influenced by a Price of your drink, Cost of your drink and a Product loss(wastage) and all of these factors should be taken into consideration when calculating your pour cost. 

Now, let’s go back to pricing your cocktail.

The total cost of the drink divided by a targeted pour cost(20%) would give us the price for Negroni cocktail. 

The price of the cocktail: $1.67 / 0.20 = $8.35

As you can see, there are a lot of factors to consider when pricing your cocktail. If anything else you need to do your math and price every cocktail carefully. 

But relying only on that without any strategy in place can set you up for the failure in the long run.

#3 Focus on the perceived value by a consumer when pricing a cocktail

The cocktail industry has a huge advantage in comparison to beer or wine businesses because the perceived value by a consumer can be much largely influenced by a cocktail creator.

There are many factors that can influence the perceived value but if we ignore the outside environment and focus mainly on the drink itself then a perceived value is influenced by presentation, flavour and price of the drink. Now, the first two elements can massively raise the perceived value which although doesn’t necessarily mean the higher cost of the cocktail.

Higher perceived value of a drink ≠ Higher cost of a drink

Now, I am not talking about a less valuable cocktail with poor ingredients. But imagine that you can keep the cost of your drink low but increase the perceived value. For an experienced cocktail creator that understands profit margins and the most importantly his consumer, it’s not impossible.

In the best case scenario, you should be able to craft a well-presented(unique), tasty drink with a high level of efficiency which is another factor to consider. 

Because the truth is that nobody cares how long you’ve been crafting your homemade bitters and you should never consider including that in the price of your drink.

It starts with a research and knowing how much your customers are willing to pay for your drinks. You can’t set the prices for drinks unless you know that people can afford to pay for them.

Well, how do you know then how much to price your drinks?

According to the Journal of management and marketing research, your pricing should be in a range described as Zone of agreement.

Perceived Value Pricing

perceived value pricing of cocktails based on zone of agreement

 

Zone of agreement is a pricing range that you can add up to the price of a cocktail if we consider that you did your research and efficiently raised the value of a drink that is perceived by your customer.

This strategy will let you enhance customer perception of your bar and most importantly increase profit.

Did you like this article? If so then share it. Still got some questions or looking for more info? Then go over to my consulting page and let me know what you’re struggling with. You never know, I might be able to answer just that.

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