Ideal Profit Margin for Bar Drinks
While industry standards offer general outlines for a bar's profit margin on a drink, it's hard to nail down what the perfect number is for your bar and customer mix. Profit margins vary depending on the type of spirit, the quality of the spirit, and the quantity of the pour. Maintaining a pour cost in the neighborhood of 20 to 30 percent -- meaning that 70 to 80 percent of a drink's price is gross profit -- is a good target, although if you can keep pour costs in the high teens you're doing even better.
The key component of your bar's profit margin is your pour cost. For example, a 750 ml bottle of whiskey contains 25.4 ounces. If your bar pours 1.25 ounce shots, you'll get 20 shots per bottle, with about one-third of a shot left. If the whiskey costs you $15 per bottle, your pour cost is 75 cents. When you sell that shot for $4, you're achieving an 18.75 percent pour cost and an 81.25 percent gross profit margin.
While an 81 percent profit margin is attractive, focusing only on the profit margin can hold your bar's financial success back. For example, if you pour a high-end whiskey costing $50 per bottle, your pour cost is $2.50. This works out to a 75 percent profit margin if you sell that drink for $10 per shot. However, you're making $7.50 per drink rather than $3.25. Your margin is lower but your profit per unit is higher. This commonly occurs with higher-end spirits.
When properly poured, draft beer can be one of the most profitable drinks in a bar with profit margins of 85 to 90 percent possible. However, draft beer also is one of the hardest products to control due to the special equipment and skill required to pour it efficiently. Bottle beer, on the other hand, is frequently sold at a two to three times multiple relative to its wholesale price -- leading to a 50 to 66 percent profit margin.
While paying attention to profit margins is important, controlling costs will help your bar hit its profit targets. For instance, if your margins are based on 1.25 ounce pours and your bartenders are dispensing 1.5 or 1.75 ounce shots, it will cut into your profits. Free drinks given to customers to increase tips or staff use of your alcohol can also reduce your margins. Finally, even if everything is running smoothly, strategically planning your recipes to maximize profit is also a strategy that can impact your bottom line.