The Bottom Line on Beverages: 5 Steps to Price Drinks for Profit

Ever wondered how to ensure your bar isn't just surviving, but actually thriving? Strap in for a masterclass as we unravel the secrets to menu pricing that marry competitiveness with profitability. We kick things off with a step-by-step breakdown of how to adjust your prices in response to supplier cost hikes—a timely move as we usher in the new year. Discover the formula for setting margins that keep your business booming, all while navigating the complexities of ingredient costs through practical examples. Whether you're pouring a simple beer or mixing an upscale Paloma, I'll show you how to price with precision.

Let's talk strategy. In the heart of this episode, I put on my bar business coach hat and guide you through profit-boosting solutions that hinge on meticulous product costing. It's about more than just knowing what goes into that cocktail shaker; it's about understanding every cent and its impact on your bottom line. I'll take you through the differences in making a cocktail like the Paloma across various bar settings, emphasizing the substantial effect ingredient quality has on pricing. It's a deep dive into the nitty-gritty of cost calculation, and how that forms the bedrock of a successful pricing strategy.

Wrapping up, we venture into the art of setting a final price that not only makes sense to your customers but pads your profits. Learn why rounding up can safeguard against unforeseen losses, and why keeping an eye on the competition is crucial. I'll even dish out some insider knowledge on when to bend the rules on pricing to stay ahead of the game. So, pour yourself a drink and let's raise a glass to smarter pricing and higher profits.

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Welcome to the Bar Business Podcast, the ultimate resource for bar owners looking to elevate their businesses to the next level. Our podcast is packed with valuable insights, expert advice, and inspiring stories from successful bar owners and industry professionals. Tune in to learn everything from how to craft the perfect cocktail menu to how to manage your staff effectively. Our mission is to help you thrive in the competitive bar industry and achieve your business goals.

Special thank you to our benchmarking data partner Starfish. Starfish works with your bookkeeping software by using AI to help you make smart data-driven decisions and maximize your profits while giving you benchmarking data to understand how you compare to the industry at large.

For more information on how to spend less time working in your bar and more time working on your bar:
The Bar Business Podcast Website
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Chris' Book 'How to Make Top-Shelf Profits in the Bar Business'
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Transcript

Announcer: 0:00

You're listening to the Bar Business Podcast where every week, your host, chris Schneider, brings you information, strategies and news on the bar industry, giving you the competitive edge you need to start working on your bar rather than in your bar.

Chris Schneider, The Bar Business Coach: 0:18

Welcome to this week's edition of the Bar Business Podcaster, ultimate resource for bar owners. I'm your host, chris Schneider. In today's episode, we'll be delving into pricing, and we've talked about pricing and costing before, but we've always done it in a way that was kind of abstract, and I wanted to get a lot more concrete with everyone today, because it's the start of a new year. This is the absolute time that, if you haven't already looked at your pricing, you need to evaluate what you're charging for things and, if you think about it, a lot of suppliers have held off price increases until, frankly, this week the beginning of the year is when we see a lot of prices increase generally, so this is a time when it's really important, as those prices increase, to look at what you're charging your customers and what your price is on the items that you're serving. In an effort to help make this as simple as possible for you because it is the beginning of the year, it is also a busy time what I've done is I've taken this entire process and simplified it down to five steps. So these are the five steps for pricing your menu items in order to make sure you're getting the profit you need, and we'll go into all the steps in detail, but before we do I just want to give you guys an idea of what they are. So, number one determine your margins. Number two know your product costs. Number three determine your theoretical price. Number four add in sales tax and other fees. It's optional, but when we get there we'll talk about all the reasons why you should do that. And then, number five determine your final sales price. And if you stick around to the end, I'll walk you through an example with numbers that you can see this process in action after you already know the theory. So let's dive in. Step one is to determine the margin you need to make on the individual item that you are pricing.

Chris Schneider, The Bar Business Coach: 2:03

Now we've talked a lot about how your goal prime cost to be successful in the bar business needs to be 55%. Prime cost, as we've talked about, is the combination of your food cost, your labor cost and also any disposables or anything that you're using consistently in the production of your product. So essentially you can think of prime cost as the cost of getting your item to your customers. What it doesn't include is overhead items, your software, your bookkeeping, your marketing, legal fees, rent, other occupancy costs. Things of that nature are not included in prime cost. Prime cost is just the direct cost of delivery of your product to your customer. We're in more hospitality terms, what it costs to serve someone something. So prime cost should be 55% and the thought process behind that is, for most bars and restaurants and this will differ a little bit right. So never assume that anything we talk about percentage wise is going to be true of every establishment out there. Different establishments have different income levels, have different cost structures, have different occupancy costs, all of those things. But generally speaking, with a prime cost of 55%, that's going to give you a bottom line in the neighborhood of 15%, which is our goal. Our stretch goal is always 20% bottom line. The only way to get to that 15 or 20% bottom line is to control your top costs, your production costs.

Chris Schneider, The Bar Business Coach: 3:29

So, as I mentioned, your prime cost is made up of your product cost, your labor and your disposables. Now, when I say disposables, that would be things like paper goods. But generally speaking, you're not going to include paper goods in your prime cost if you're not using those in every product. Let's say you ran a concession stand. Every drink serve goes in a paper cup. That paper cup would be part of your prime cost, and actually we would include that when we were calculating what your price should be, because that cup is always a part of serving that beverage.

Chris Schneider, The Bar Business Coach: 4:03

Now, for most bars, obviously, we're not putting everything in plastic or paper cups. Every day we're using glass. So we're much more worried about the ingredients going into the glass than the cost of the glass itself, because that glass is reusable. But if you were doing something where you're using disposable glassware every time you serve a drink, that needs to be factored in with your product cost. To get to that 55%, though, we're looking at labor, around 30% of sales. That's kind of the industry target. That's the industry norm. Now we can get that down to 27 and a half. We can get that down to 25. In some cases, some bars even can run labor closer to 20%, depending upon how many people you have on staff, what your bar staff looks like, how many servers you have, etc. That all backs us into the fact that your product cost what you're spending to put a drink on the table and ingredients should be roughly 25%.

Chris Schneider, The Bar Business Coach: 4:58

Now when we say 25%, that is going to be across all items and it's important to remember that not all items will have the same margin. So, for instance, let's use food as an example, because it can be much more drastic on the food side a lot of times than the beverage side. You are serving small plates kind of a Spanish topist style menu, and you're making croquettes out of spinach cheese and potato Croquettes are really really cheap to make and if you put a sauce on them, make it a fancy plate, you can probably have a food cost close to 10% on a plate of croquettes. Now, conversely, if you're a neighborhood bar and you have some entrees, you know you have some fried chicken, you have some stuff like that, but you also have a steak on your menu. Well, that steak is probably going to have a higher food cost than everything else because right now, with beef prices, where they are to maintain a 25% cost on that steak plate, it's going to end up costing so much more than the other items on your menu. So you will have a higher food cost on some items, a lower food cost on other items.

Chris Schneider, The Bar Business Coach: 6:12

Can't really figure out. Starting out, if you're just starting a bar, it's really hard to guess what your product mix will be. So it's hard to know where you can go higher or where you can go lower. The trick is you need to average right around that 25% mark. Now, in a perfect world, you would make all your food items 25% cost or less, and then you're guaranteed pretty much to hit that 25% mark. But the bottom line is you can't determine what to charge for something unless you know what your margin needs to be, unless you know what your cost percentage needs to be on that item.

Chris Schneider, The Bar Business Coach: 6:50

Hey there, bar owners, it's Chris Schneider, the bar business coach. Are you tired of the daily grind and ready to skyrocket your profits? I've got the solution. With my coaching and consulting services, we deep dive into menu management, team empowerment and business optimization Instead of slogging away in your business day in and day out, washing dishes, covering for employees and working 60 plus hours a week. Picture this A thriving business that runs like clockwork, whether you're there or not, letting you enjoy the successes that you've dreamed of. Let's make it happen. Visit barbusinesscoachcom to schedule your free 30 minute strategy session with me, or you can book a session just by clicking the link in the show notes below. Together, we will turn your business into a profit powerhouse, because at the bar business coach, our only goal is to help you spend less time working in your bar and more time working on your bar.

Chris Schneider, The Bar Business Coach: 7:46

That brings us to the second step of our pricing process knowing your product costs. So we talk about knowing product costs and we've had other episodes, like I said, where we've talked about bits and pieces of what we're covering in this episode, and there are definitely some good episodes back there. There's a great one called what Does A Beer and A Burger Actually Cost? That I would recommend you go listen to if you're not familiar with some of the ways that I approach product costing. But the bottom line here is and this is what that episode really covers in great detail you need to know the cost of every single bit of anything going into your item.

Chris Schneider, The Bar Business Coach: 8:23

If it's a burger and you put ketchup and mayo on it, that ketchup and mayo has cost. It's not free. That needs to be calculated into your price. If it's a cocktail, that means things like the garnish needs to be calculated into your price. So you have to know your product costs, not to the dime, not a good idea of what it is, not an educated guess of what it is. You need to know your product costs exactly to the penny. Because if you don't have that to the penny, there's no amount of data we can mine, there's no research we can do, there's no mathematical model we can run that will tell us your accurate theoretical and actual costs, whether that food cost or beverage cost. So then we can look at variances and optimize your business.

Chris Schneider, The Bar Business Coach: 9:11

It's impossible to optimize your business unless you know your exact cost down to the penny. And again, that means that if you put a wedge of lime on something that counts, if you salt a rim, that salt counts. Now, salting a rim, that salt cost is probably less than a penny. It may not be worth calculating it in. But when you get into fancier cocktails and you're doing fancier rims on things say, you did a caramel apple cocktail because it's winter and caramel apples sound great in winter and you put caramel and sugar and different things on that rim Now you're talking about significantly more than fractions of a penny of cost. You're talking about pennies of cost, maybe even a dime that needs to be counted in. And so, just for sake of an example, real quick, let's look at a paloma and what I like about palomas A they are delicious and they are great when it's warm outside. But B there is so much variation in how one could make a paloma. So it's very basic. Paloma is tequila, lime, grapefruit and soda Usually has a salt rim and, like I said, salt rim is probably under a fraction of a cent, so we won't worry about that part.

Chris Schneider, The Bar Business Coach: 10:28

What gets interesting with a paloma is if you order a paloma at a dive bar in the Midwest. Well, I'll tell you this right now the lime juice ain't gonna be fresh, it's not gonna be real lime juice. Probably it's probably gonna be Rosa's lime. The grapefruit juice may or may not exist, it's probably just some grapefruit soda, whether that's a traditional Mexican grapefruit soda or something like fresca, and then maybe they're gonna add some sugar to it. It's the Midwest probably will add some sugar to it. Versus, if you go into a high-end bar in a place in the South or Southwest where palomas are much more common, you're looking at fresh lime juice, fresh grapefruit juice, as opposed to using a grapefruit soda. We're using grapefruit juice that's fresh, plus soda water, so making that grapefruit soda as part of the process of developing the drink. Now, obviously those are gonna have two very, very different costs. When you add all those ingredients together, it's going to have a huge variance between the cheap Midwest knockoff paloma and a really good high-end traditional paloma.

Chris Schneider, The Bar Business Coach: 11:38

But the bottom line here is, regardless of how you do things, you have to figure out your own cost, because no one's gonna follow the exact same recipe you do. No one's going to have the exact same suppliers you do. No one's going to have the exact same cost structure that you do. So just finding out that some other guys' paloma cost them a buck 75 to make tells you nothing. You have to do this on your own. You have to measure exactly what goes into that drink and then you have to cost out exactly what that is. So if you're using two ounces of grapefruit juice and you're buying grapefruit juice, that is 15 cents an ounce. That's 30 cents of cost. And trust me, I understand this is a painful process, but it's something you must do Because you'll never get to the right price to charge your customers unless you know your cost to the penny.

Chris Schneider, The Bar Business Coach: 12:29

And that brings us to step three. And actually, as we go here, steps three, four and five are slightly easier than steps one and two. Step one requires a lot of abstract thinking. It requires determining where this margin could be and imagining what your product mix may be based upon what you're doing using back data, that you have to develop something. Step two took really diving into your cost, digging into that ingredient list, standardizing recipes. All of that's required for step two. Three, four and five are just math, so it's way simpler. In fact, you could build out a model in Excel that did steps three, four and five for you. Now, granted, depending upon where you are, steps three, four and five will have variable numbers, but you can actually make this into a spreadsheet where you put in your product cost, you put in your margin and it spits out a final price for you.

Chris Schneider, The Bar Business Coach: 13:23

Now step three, which is the first again of these math steps, is to determine your theoretical price. So when I say theoretical price, what is literally the price as you're charged to hit the margin I want, based on the cost that I have, and so this is actually a very simple math problem. It is cost divided by the cost percentage. So if your cost is a dollar and your cost percentage is 25%, one divided by 0.25, which equals four, right, you charge somebody $4 for something. It costs you a dollar to make it. That means your cost percentage is 25%.

Chris Schneider, The Bar Business Coach: 14:05

Now where this can get a little bit difficult, as we discussed when we were talking about determining your margin. If your target margin is 25% and you could just say, yes, everything, we're going to mark up four times and just have 25% costs across the board. So if it costs us a buck, we'll charge four. If it costs us two bucks, we'll charge eight. But if you have this variation that we discussed, where different items have different costs, because when you put them in your product mix they all average out to 25% and sometimes you have items at 10% and sometimes you have items at 30%, then each individual item will require a different cost percentage that you're dividing it by. For most bars, for most standard cocktails, we can just use that normal margin and boom, you're done. Where you really run into this and where you really need to look at that targeted margin is when you're getting into really high-end items, like we talked about before with the steak. But again, determining your theoretical cost is as simple as divide the cost by the cost percentage. And that brings us to step four, adding in sales taxes and other fees that you wanna include in your price. Before we dive into the math here, I wanna take a step back and talk about what I actually mean when I say add in sales tax and other fees. So if you're not adding fees and sales tax to what you're serving and you're going to have, you know, maybe credit card processing fees on your bill that get added on, you're gonna have sales tax on your bill. That gets added on. You're actually already done. That theoretical price is the price you charge around as a time. That makes sense and you don't.

Chris Schneider, The Bar Business Coach: 15:45

Personally, there are two things I really don't like. When I go out and I am weird I use cash a lot. Most people don't use cash. But when you go to a bar 20 years ago, 30 years ago and, frankly, a lot of places around the world that still have largely cash-based economies and are not using as many credit cards If something you're told costs five bucks, it's $5 bill. And in America we've never really included sales taxes and the price of anything except drinks at bars. And when you think about it it's kind of odd as a cultural thing but sales tax gets charged everywhere on everything but a beer at a bar that is four bucks is four bucks is four bucks and that's an expectation a lot, especially older customers, will have. If you're in a more rural area. That's an expectation a lot of your customers will have, because they're used to paying in cash. They're used to paying in even amount. Now, in a lot of cities, in a lot of places where you have credit cards being used in 90, 95% of transactions, there are some restaurants and bars nowadays that are cashless entirely.

Chris Schneider, The Bar Business Coach: 16:52

This isn't going to matter as much, but frankly, I've always assumed in bars, especially neighborhood bars, that you're going to have a higher cash percentage than a lot of other businesses, and people don't want to deal with pennies, they don't want to deal with nickels, they don't want to deal with dimes. Everything should be to the quarter or the dollar. So I'm a huge fan of including sales tax in that price that you're giving to your customers when it comes to any beverage and, frankly, even your food, because I think it just makes life easier when your change drawer, in your cash drawer, where you have your change, you only need quarters. You don't need dimes, nickels, pennies, especially nowadays where in the US we're seeing banks charge more and more for getting cash, for getting rolls of coins, and so it's just easier to not need that many coins, to not need all those different types of coins. It's easier to count, it's easier to maintain, it's easier to stop people from stealing All that is easier.

Chris Schneider, The Bar Business Coach: 17:48

Now, in addition to sales tax, what has been creeping up everywhere and I personally freaking hate this, but I understand it is other fees. You'll see service charges, kitchen service fee. I was at a restaurant the other day and I had some beers and I got my bell and there was a kitchen service fee. It was a brewery. I had two beers and they charged me a kitchen service fee. Didn't get anything from the kitchen. No idea why they charged me that fee. So A it was dumb and B I was pissed because I got charged 73 cents on 20, some dollars.

Chris Schneider, The Bar Business Coach: 18:27

Had they just included that 73 cents in the pricing, had they actually taken the time, rather than adding on a fee, to adjust their prices properly, I wouldn't be aware of it. I wouldn't have cared at all. It makes no freaking difference to me if that beer was $6 or $6.75 or $7.25. I would have ordered it either way. But when you charge me $6 and then tack on a 70 cent fee for the kitchen when I didn't even get food, now I'm annoyed and I know maybe I'm unique, but there are a lot of people out there in the world that agree with me.

Chris Schneider, The Bar Business Coach: 19:01

And if you look online, the number of people that have been complaining and going off about all these fees they've started to see on restaurant bills. It's really not good and it's not a good spot for our industry to do that. So the much simpler option is just to include those. So any service fees you want to charge sales taxes and then, heck, I even always calculate into prices what the cost of a credit card charge is. So rather than do this thing where you get a bill and there's a credit card price and a cash price, people say, oh, that's great, you never pay extra for credit cards and you always your cash customers feel good, it can still round there, but then you're getting extra money. I like credit card people to cover the fees. You can do that. Or you can just raise your prices 3%, because no one's really going to notice 3%. Think about that. It's a difference on a drink of being eight bucks or eight and a quarter. No one's really going to notice. So add those processing fees into your calculation.

Chris Schneider, The Bar Business Coach: 19:59

Now the hard part there can come in to determining how much do you add. Because, as we know, if you're on interchange plus credit card pricing, you're paying the interchange rate plus some percentage plus a flat rate. For a lot of folks that are using more modern credit card processors that aren't quite interchange plus, but they're charging a flat fee, there's still a percentage plus a flat rate on every transaction. So you have to kind of guess here. But, frankly, if you've had a business that's been going for a while, you can look over the course of a year and see what that average credit card processing rate has been for you. For most places that's going to fall somewhere in the neighborhood of 3%. It depends on, again, the pricing model and it also would depend, if you're on an interchange plus system, of the number of, say, debit cards versus AMEX rewards cards and Mastercard world benefits or whatever it is cards. But the bottom line is you need to factor that in. You can figure it out If you're using. If you just don't know, I kind of default to 3%.

Chris Schneider, The Bar Business Coach: 21:00

3% is give or take what most people pay when it comes to merchant processing fees. So all of those things need to get added to your theoretical cost and one of the problems is that some of these are dependent upon each other. So, for instance, your credit card processing fee is determined based upon the total amount that you run the credit card for, so inclusive of tax. But if you add your credit card processing fee into your price, the sales tax will be added on to that percentage plus the percentage for sales tax. So there's a little bit of play back and forth here. They both get charged last, but they both affect each other. Good part is we're not talking giant numbers, we're not selling a $30,000 drink, so we're again. We're talking about pennies. Really, this gets washed out and rounding, but you can play with it.

Chris Schneider, The Bar Business Coach: 21:52

There are ways to make advanced theoretical models that will close that loop, if you will, but generally it's unnecessary. I always go for add in my service fees, add in my credit card fee, add in my sales tax. And if you're really worried about that credit card fee, say you're it's 3%, but then the sales tax isn't included, so there's gonna be some amount of additional credit card fee there. You could do 3.2%. You could add a little buffer there just to keep yourself safe. In general, if you charge a little more, it's better than charging a little less when it comes to your metrics. It's not always true, though, based upon your competition. But you need to add in your sales taxes and fees. So we take our theoretical price model from the prior step and we apply processing fees, service fees, sales tax anything percentage wise, that's gonna get added into that number.

Chris Schneider, The Bar Business Coach: 22:46

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Chris Schneider, The Bar Business Coach: 23:24

That brings us to step five determining your final price. So we've taken our margin, we've figured out our cost, we've used our margin and our cost to determine our theoretical price and we've added in sales tax, processing fees, all that sort of good stuff the price we have now, if you just ran all that math, is probably some screwy number. You know it's 673. It's not a number you actually wanna charge Because, again, if our idea is to come up with easy numbers that are inclusive of everything, 673 ain't gonna do it.

Chris Schneider, The Bar Business Coach: 23:58

So we need to round to a common currency. A lot of times in the US, canada, north America 25 cents right, we're going to the quarter, or maybe it's a higher end place we have a little bit higher prices, so our customers are not worried about the difference between 525 and 550. So we have cocktails that are 11 bucks, 12 bucks, 15 bucks. We can go 15, 50, 16. We can round to the nearest half dollar. In other countries Europe, let's say where there is no 25 cent coin, there's a 20 cent coin. Well then you would go to either the 20, or you'd go just to the half dollar, half Euro coin and go to the 50. But round to a common piece of currency, because the whole purpose of this is to simplify, a cash management and, b make it easier for your guests to understand what you charge.

Chris Schneider, The Bar Business Coach: 24:55

When you're rounding, though, the question comes up a lot Do I round up, do I round down? You know, if we're going to the quarter and something costs 512, do I charge $5, or do I charge five and a quarter? Because 513 would round up to five and a quarter 512, if we were just straight rounding we'd round down to five. Generally speaking, I say round up. I round up most the time when I'm looking at these models if we're not within, say, five or 10% of that lower number. So I almost always round up, the reason being you're going to have some weights, you're going to have some spellage, you're going to have issues that happen, and when we round down we're cutting into what our theoretical cost is. When we round up we're just adding a little padding to our profits there and we're not talking about huge padding. But you know, the difference of 12 cents can actually be a lot compounded over time. If you're serving 10,000 drinks a month, 12 cents is $1,200. So it actually can make a bunch of difference how you round and what that does to the way your numbers look and when you run data, what that does. So I tend to always round up, unless of course I'm running to, say, 550, and when I do all my theoretical I end up at 552,. I'll round down 555, I'll round down 560, I'll round up to 575. So it takes a little bit of just picking one. But again, in general, round up, not down.

Chris Schneider, The Bar Business Coach: 26:32

Now, once you've determined your final price, there's one last piece of determining this price. That's important. You gotta go look at your competition Because everything we've done is cost-based, theoretical, it's mathematical. And again, if we go back to the example I used really early on about how you may have a higher cost percentage on a steak than some potato croquettes, if you do the model and you say, well, I need to charge $26.95 for this steak out of my dive bar and the dive bar down the street is charged in $19.95. Well, you're gonna have a problem selling that steak If you're selling the same steak for $6, $7 more than your main competitors. That is not going to work. So you need to always check the final prices you come up with mathematically against your competition. Assuming that you're in line, you're great.

Chris Schneider, The Bar Business Coach: 27:22

Now if your price is way higher, be aware that that's not a good move, like we just talked about, and either you're gonna have to accept a lower margin or you're gonna have to modify the cost of that dish. Use a different cut of meat, put different sides with it, use a different preparation method that costs less money and contributes to less product cost. All of those are going to help lower that cost and therefore allow you to lower your price. Now, on the flip side of that, let's say we were doing these potato croquettes. That cost us a buck.

Chris Schneider, The Bar Business Coach: 27:56

Everything on our gastropub small plate top is menu is $9 to $20 and the croquettes cost us a dollar. So we want a 25% cost, so we should charge for a box. Well, we're gonna raise that price $5 to $9. Those are the items where you're gonna make huge margin and you're gonna have some of those and that's great. Most places I've played a French fries they're making five or six times what that plate costs. So don't be stuck with what the mass shows. You Round it, come up with what that cost should be and then use your brain to say should it be higher or lower.

Chris Schneider, The Bar Business Coach: 28:37

But again, the goal here, at the very end, is to come up with this inclusive price that reflects your costs, that sets you up to make money, because every time your costs change, every time you change your product, every time you change the way you do something, if you don't look at your price, there's no way to maintain your margins. If you don't maintain your margins, if you're not paying attention to that level of detail, you will not be successful in the bar business. The bar business is a business of details and it's a business of math and numbers. It is a business, and so you have to pay attention to all these little things to get the prices right, so that you charge the right amount in order to allow yourself to make money, as I promised at the beginning. Now let's take those five steps and run through an example. I want to make sure that you guys don't just hear the steps and see this long drawn out process with all the side comments and little random bits of thrown in information that I'm prone to do. I just want to walk through an example, that is, the numbers very straight, very clear.

Chris Schneider, The Bar Business Coach: 29:45

So, step one determine your margin. In this case, we're just going to say that our cocktail list we're making a new cocktail list. We've decided that the margin on every item is going to be 25%, so our margin 25%. Step two know your product costs. This cocktail will just, for fun, say it's a Paloma, because we were talking about those earlier. The Paloma that is on our cocktail list costs us a $1.25 to make, and that's including the cost of the grapefruit wedge that's going on a garnish, that's including the cost of the grapefruit soda that we're using, that's including the cost of the lime juice that we're using. That's everything costs us $1.25.

Chris Schneider, The Bar Business Coach: 30:26

Step three we're going to determine our theoretical price. As we said, our cost is $1.25 and our margin on all the items on our cocktail list is going to be 25%. So determine that theoretical price. Remember it is cost divided by cost percentage. So $1.25 divided by.25, which will give us $5. So that is our theoretical price.

Chris Schneider, The Bar Business Coach: 30:50

Now for step four. We're going to add in some things and I'm just going to use where I live as an example. Here, where I am in Indiana, our sales tax is 7%, so we're going to add 3% for credit card processing. So we're taking that $5 cost, multiplying it by.03, that gives us.15. So now our theoretical cost is up to $5.15, and we're going to multiply that by our sales tax, which again is 7%. So $5.15 times.07, which will give us $0.36. $5.15 plus $0.36 is $5.51.

Chris Schneider, The Bar Business Coach: 31:28

Step five determine our final price. As we talked about, we're going to round and this is one of the few cases at $5.51, where I'm not going to round to $5.75, I'm going to round down to $5.50. So our final price is $5.50. That's what it goes on the menu for and that should give us a 25% cost margin. Is inclusive of our sales tax, of our credit card processing fees. All in we're at $5.50.

Chris Schneider, The Bar Business Coach: 31:54

And as long as we follow standards and procedures, as long as we follow our recipe for that drink, we should be making money period, because we've used math, we haven't used our gut, we haven't used anything, we've used math to come to that $5.50.

Chris Schneider, The Bar Business Coach: 32:08

So just to give you those steps one more time before we go, your five steps to pricing your menu items Determine your margin, know your product costs, determine your theoretical price, add in sales taxes, processing fees, other fees that exist, and then determine your final price. Follow that formula and you will price your products on your menu in a way that allows you to make money. And that about wraps it up for today. If you enjoyed today's insights, make sure you like, subscribe and leave a review. If you want to gain more insights, join Bar Business Nation, our Facebook group, for ongoing conversations with me and other bar owners, where we're building a community so that everyone can help each other. Another way to get more insights and to help optimize your bar is to schedule a free coaching strategy session with me to explore how we can collaborate together and optimize your success. You can find links for both the Facebook group and to schedule a strategy session in the show notes below. Until next time, I hope you guys have a great day and we will talk again later.