Alcohol Pricing: Calculating Markup & Pricing Drinks

In addition to developing an appealing menu, setting prices strategically is essential to your restaurant or bar’s success. If you’re not sure how to strike the right balance between cost and value, this guide breaks down alcohol pricing for common types of adult beverages and explains how to calculate markup to help maximize your profits.

Key Pricing Terms

In order to learn how to price alcoholic beverages, it’s important to familiarize yourself with important industry terminology:

Liquor Cost

The liquor cost is the amount your establishment pays to purchase alcoholic beverages, such as bottles of wine, cases of beer and handles of spirits. It refers specifically to the wholesale cost of the alcohol itself and does not include mixers, garnishes or other non-alcoholic ingredients. This can be expressed as the cost of all your alcohol inventory—or, less commonly, the cost of alcohol in a specific drink recipe.

Bottle Cost

A closely related term is bottle cost, the wholesale price of an entire bottle of wine or spirits. Even if you purchase alcohol by the case, knowing the cost per bottle will make it easier to calculate the true cost of each drink you serve.

Cost Per Ounce

Once you know the bottle cost, you can calculate the cost per ounce, the cost of an ounce of alcohol used in a recipe. Some drinks have more than one ounce of alcohol or more than one type of alcohol, so remember that when calculating the final price of a drink. To calculate cost per ounce, use this simple formula:

Cost Per Ounce = Bottle Cost ÷ # of Ounces in Bottle

Pour Cost

Pour cost is more specific—it’s the cost of alcohol (and sometimes mixers) to make a drink, expressed as a percentage of the drink’s price. Traditionally, pour cost only included alcohol, but nowadays many businesses also consider the cost of mix-ins. According to DoorDash, pour cost percentages can range from 15% for shots to as high as 30-40% for wine, 20-25% being the industry average. To calculate pour cost as a percentage of the drink’s sale price, use the formula below:

Pour Cost = ((Cost of Alcohol + Cost of Mixers) ÷ Sale Price) x 100

Gross Profit Margin

Related to pour cost, gross profit margin is the percentage of a drink’s sale price that remains after subtracting the cost of ingredients, but before taking out labor or overhead. Average gross profit margin on alcoholic drinks varies from as low as 60% for some wines to as high as 85% for some spirits. To find gross profit margin, use the following formula:

Gross Profit Margin = 100 – Pour Cost

Markup

Not to be confused with margin, markup is the amount (shown as a percentage) added to the cost of a drink to determine its selling price. According to online alcohol marketplace Provi, alcohol markup falls between about 200% for wine and up to 400-500% for spirits. Use the following equation to find markup:

Markup = ((Sales Price – Cost) ÷ Cost) × 100

Steps to Price Drinks

Once you understand industry terminology, you can use the above alcohol pricing formulas effectively. To get a baseline for adult beverage prices in your restaurant or bar, follow the steps below:

• Step 1. Calculate the bottle cost of all alcohol – This is critical to the next step.


• Step 2. Find the cost per ounce of all types of alcohol – Divide the bottle cost by the number of ounces.


• Step 3. Determine the cost per ounce of mixers – Divide the cost of juice, soda, etc. by the number of ounces in each bottle.


• Step 4. Measure the amount of alcohol and mixers in each drink – Be sure to measure as accurately as possible.


• Step 5. Choose a target pour cost – Depending on the type of alcohol, it can range from 15-40%.


• Step 6. Use the pour cost formula or markup formula to find the selling price for the drink – Decide if you want to base your beverage prices on the cost to make the drink or the desired markup, then plug in the necessary information into the formula and solve for the sale price.

Pricing Types of Alcohol

When it comes time to price different types of alcohol in your restaurant or bar, it’s critical to be aware of the unique profit margins, markup rates and serving practices associated with each one. That way, you know if you’re under or overcharging and can adjust prices as needed. Here’s a brief overview of what to consider: 

Wine

As stated in the previous section, wine tends to have a lower gross profit margin (60-70%) and markup (200%) than other types of alcohol. These are often offset by a higher selling price, so selling wine can still be very profitable. When pricing wine by the glass, charging 85-100% of the price of the bottle is a good strategy–that way, if nobody else orders a glass of that wine, you can recoup most if not all of the cost before it goes to waste.

Beer

In spite of the lower price point, beer has a slightly higher gross profit margin and markup than wine, so there’s strong potential for profitability. According to Bohemian Bull Garden’s beer bar profitability guide, beer in general has a 200-300% markup, with gross profit margins ranging from 75% for bottled to 80% for draft options. Although the markup and margin are similar between draft and bottled, keep in mind that draft beer involves more labor and potentially has more waste, so you might want to price it slightly higher to offset these hidden costs.

Spirits

With average markups ranging 400-500%, shot prices for vodka, rum and other spirits are well above the actual cost of the drink. Combined with high customer demand and low labor costs, spirits can be extremely profitable–so be sure to engineer your menu for profitability by featuring them prominently and pricing them accordingly.

Cocktails

Cocktails can be very profitable as well, gross profit margins typically ranging 70-85%. However, it’s important to consider the number of ingredients and level of effort needed to make a mixed drink, so you might lower the price for a Screwdriver that’s simply vodka and orange juice and raise the price of a Long Island Iced Tea with 5 liquors, sour mix and cola to reflect that.

Other Considerations

In addition to formula calculations and industry averages, there are other factors to take into consideration when pricing drinks. Here are a few that you should keep in mind:

Competitor Pricing

Even if the pour cost formula suggests that you should sell your bar’s margaritas for $15 each, customers might think your drinks are overpriced if local competitors sell them for $12. On the other hand, if competition is selling them for $20, you might be able to get away with charging a few extra dollars more than what the pricing formulas suggest. If demand holds steady at the higher price, the margarita could become one of your most profitable mixed drinks.

Menu Descriptions

Instead of simply listing the ingredients for your piña colada on the menu, consider adding an attention-getting menu description. If you describe it as a “creamy tropical blend of rum, coconut and pineapple,” you’ll awaken customers’ imaginations and tempt their taste buds, allowing you to charge a dollar or two more than the pour cost or markup formula estimates.

Customer Demand

Always keep an eye on POS system data and waitstaff observations. If a lower-priced drink is super popular, try increasing the price by a dollar to see if you can increase revenue with no extra effort. Likewise, if a high-priced cocktail isn’t popular, see if a slightly lower price will increase sales volume.

Waste & Theft

Accidents like spills and drops are bound to occur from time to time when waitstaff is busy serving guests. Similarly, shrinkage is an unfortunate reality in many businesses, including bars and restaurants. So, remember to add a small buffer on top of the formula-calculated price to account for unexpected waste and theft.

Utilizing Markup

Although most bar owners and managers focus on pour cost and gross profit margin, markup can be a useful tool as well, especially when setting and adjusting prices. If you want to be as strategic as possible, consider the following uses for this data point:

Setting Your Drink Prices

Instead of using the pour cost formula to base prices on the cost of ingredients, you can use the markup formula to set prices according to desired profit. For example, instead of using the pour cost to set the price of a shot of rum, you could use a 500% markup, along with the cost per ounce, to set the price. Markup pricing is especially helpful if you have a profit amount in mind and want to work backwards to reach it. 

Compare to Industry Norms

When markup on your whiskey shots is 200% but the industry average for spirits is 400-500%, you might be undercharging. If you calculate the markup on a drink and you realize it’s well below the norm, raise the price slightly to see if you can make more money without hurting demand.

Identify High-Profit Drinks

If a drink has a high markup and a high gross profit margin, that means the price greatly exceeds the cost—and most of that difference is profit. If that beverage sells well, it’s likely to be one of the most profitable alcoholic drinks on your menu, so you definitely need to promote it.

Find Low-Profit Beverages

Conversely, a drink that has both a low markup and a low gross profit margin means that the selling price isn’t much higher than the input costs. Unless this drink has a high sales volume, you might want to consider taking it off your menu so you can replace it with a more profitable option.