How To Calculate Liquor Cost in Your Bar or Restaurant
Figuring out your liquor costs can feel like a bit of a guessing game, especially in the U.S. If your bartenders are like most and rely on the classic “free pour” technique.
And let’s be honest: during a busy Friday night rush, there’s no way you’re stopping to track every single ounce of liquor being poured.
But here’s the thing: knowing how to calculate your liquor costs is key.
When you’ve got a handle on your costs, you’ll have a clearer picture of how your bar is really performing.
Plus, it’ll help you price your drinks just right—competitive enough to keep customers coming back, but still profitable for you.
Here’s how you can do it effectively.
The Math Behind It
When calculating liquor costs, you don’t need to aim for absolute precision. Computing per ounce isn’t practical and can bog down your operations with too much detail.
Instead, think on a larger scale.
Liquor is typically sold by the shot or glass, and small variances in pours won’t significantly impact your bottom line unless someone is giving out free drinks or stealing drinks on the bar.
To calculate liquor cost, start with the Cost of Goods Sold (COGS) formula:
COGS = Beginning Inventory + Purchases – Ending Inventory
For example, if your beginning liquor inventory is $12,000, and you purchase $5,000 worth of new liquor during the week, with an ending inventory of $10,000, your COGS is:
$12,000 + $5,000 – $10,000 = $7,000
This $7,000 becomes your liquor cost for the week. To set selling prices, consider your desired markup. For a 80% Margin, your sales target would need to be five times your COGS:
$7,000 × 5 = $35,000
Or
$7,000 / (100% – 80%) = $35,000
With this sales figure in mind, you can price your drinks to hit your revenue goals while staying competitive.
Setting the Unit Cost and Selling Price
COGS represents the total cost of all liquor sold in your establishment, combining all the products served throughout a specific time frame.
To effectively achieve your sales goals and maintain profitability, you’ll need to break this number down and compute the standard cost for each liquor product you serve.
Start by estimating how many shots you can get from a single bottle.
Let’s take the example of a whiskey bottle that costs $25 and contains 25.4 ounces. If your bar uses a standard shot size of 1.5 ounces, here’s how you determine the number of shots:
25.4 oz ÷ 1.5 oz/shot = 16.9 shots
Let’s round that up to 17 shots. Now that we have that figure in mind, you can calculate the cost of a single shot by dividing the bottle price by the total number of shots:
$25 ÷ 17 shots/bottle = $1.47 cost per shot
To ensure profitability, you’ll need to add a markup. Let’s say you aim for a 80% margin. The selling price for one shot would then be:
Sales Price per shot = $1.47 / (100% – 80%) = $7.35 per shot
At this price, each shot generates a modest profit.
To simplify for both customers and staff, you might round the price to $7.50 per shot. This adjustment not only makes transactions easier but also slightly increases your gross profit.
While markup is important, it’s not the only factor to consider when setting prices. Your bar’s atmosphere, service quality, and location can greatly influence what customers are willing to pay.
For example, a high-end bar with premium decor and an exclusive feel can charge more for the same product than a casual venue.
Similarly, bars with a great ambiance or entertainment can set higher prices because patrons see value in the overall experience, not just the drinks.
By factoring in these elements, you can set prices that reflect your establishment’s unique offerings while maintaining profitability.
Monitoring Liquor Costs Regularly
Computing the liquor cost is just one way of monitoring, but you need to monitor costs constantly to see trends and patterns.
Here are some ways that you can do this:
- Conducting weekly inventory counts: Before the start of the week, conduct an inventory count of liquor products. Inventory counts help you identify existing stocks and determine how much you need to purchase to restock your inventory.
- Tracking inventory turnover: This helps you understand how quickly your liquor stock is being used and when to reorder. A high turnover rate may indicate popular drinks or potential waste, while a low rate could signal overstocking. By analyzing this, you can adjust purchasing, reduce waste, and ensure you always have the right products to meet demand. It also helps you prepare for peak seasons or promotions, improving efficiency and profitability.
- Determining waste and theft: It’s common for restaurants and bars to encounter spoilage, shrinkage, and theft. These factors directly affect liquor costs because any discrepancies between inventory and sales impact your COGS. In other words, you shoulder the cost at the end of the day. Waste, overpouring, or theft raises your actual liquor cost, reducing profit margins. Identifying and addressing these issues ensures accurate liquor cost percentages, keeping your pricing strategies profitable and your expenses under control.
Get More Insights from Restaurant and Bar Accounting Experts
Costing in a restaurant or bar can be challenging because not every activity is easy to track or monitor precisely. Many costs rely on estimated consumption and usage, which can affect your actual bottom line.
At U-nique Accounting, we’ve helped bars and restaurants streamline their liquor cost calculations and tracking. We take the guesswork out of the process and provide reliable methods to help you make smarter, more informed decisions.
Ready to gain clarity and control over your liquor costs? Contact us today and let our restaurant and bar accounting experts guide you to success.
By MATT CIANCIARULO
