Pricing the beer in your bar or restaurant can be tricky — you want your customers to spend their time drinking and enjoying themselves, not focusing on sticker shock.
Beer prices aren’t decided on a whim, though. They are typically based on a calculation involving the amount of beer purchased, the amount served, and an appropriate level of markup, allowing the bar to bring in profits. So, what do you need to know before you begin pricing the draft, bottled, or canned beer for your bar?
It’s best to start with your desired pour cost in mind.
Pour cost is the ratio of the cost of the beer itself to the revenue brought in by the sale. Pour Cost is typically around 25% for bottled beer and 20% for draft beer. To make things simpler, pour cost is inverse to the profit margin. So, for a bottled beer with a 25% pour cost, your profit margin will be 75%. The higher your pour cost, the lower your profit.
Pricing bottled or canned beer can be much more straightforward and consistent because it comes readily pre-portioned and packaged. Since it comes in its own container, it also alleviates the need to account for problems like spillage or spoiled product.
To price bottled or canned beer for your bar, start by determining using your desired pour cost. You will first take the wholesale purchase price, divide the number of bottles included, and then divide that amount by your desired pour cost. Pour cost is often about 25% in the case of bottled beer.
(Cost of Package/Number of Beers)/ Desired Pour Cost = Retail Price of Bottle or Can
Example: If you purchase a case of beer (there are typically 24 bottles in a case) at $24, the wholesale price of each beer is $1. You would then take that amount and divide by your desired pour cost of 25% (.25) to get the retail price of $4.
Fixed Markup Method for Bottled Beer
Some bars also incorporate a fixed overhead service charge for their bottled beers. This could be an extra $.50 or $1 in addition to the price calculated using the methods above and can be a little bit higher for craft beer.
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Pricing draft beer involves a little more legwork, but it can bring in profit at higher margins, often about 80%. Offering draft beer also gives you more options for beer variety and serving size, and can be a great way to offer regular drink specials at your bar.
The legwork comes in because you’ll need to do the additional work of determining the volume of an average pour at your bar or restaurant, and take a number of other measurements into account. Maintaining a draft system requires additional overhead as well, requiring equipment maintenance and repairs, as well as regular purchases of nitrogen and CO2.
How to Calculate Percentage Cost on Draft Beer
Step 1: Determine how many beers you can pour from each keg.
OZ per Barrel/OZ per Pour = Pours Per Keg
Example: If you have a typical domestic ½ barrel keg at 15.5gallons (1984 oz) and an average pour at your bar is about 14.5 oz, you can get about 136 pours from each keg.
Step 2: Determine the pour cost of your keg
Once you know how many pours you can get out of each keg, you can then multiply the purchase price of your keg by your desired pour cost to find its retail price.
Wholesale Keg Price / Desired Pour Cost)/Pours Per Keg = Price Per Pour
Example: If you purchased a keg for $115, and your desired Pour Cost is .20, the retail price of your keg comes out to $575. Take that amount and divide it by the number of Pours Per Keg you already determined, and voila! You’ve got your price per pour all figured out.
Craft beer provides bar owners with more liberty with regard to pricing because consumers are often more open to price variation and the idea of paying a little extra for higher quality.
A common method of pricing bottled craft beer is to take the wholesale price of an average pour or a bottle and then multiply that amount by 2, 2.5, or 3, depending on how pricey the wholesale cost was in the first place. So, for more expensive beers, keep that multiplier to 2, but feel free to bump it to 2.5 or 3 for beers that start out at a lower price.
(Cost of Package/Number of Beers) X 2, 2.5, or 3 = Retail Price of Bottle or Can
Example: You purchased a case of beer for $28, making the wholesale bottle price $1.17. After considering the price of that case compared to your other beer offerings and the prices your competitors have settled on, you might choose to multiply this amount by 2.5, bringing you to the retail price of $2.93.
For craft beer packaged in a keg, the wholesale price can be between 40-50% less than it would be bottled, so a higher markup can be used. This higher markup can also be helpful to cover the additional overhead costs associated with draft beer.
8 Additional Factors for Pricing Craft & Draft Beer
1. Tap Rotation
If done right, rotating the selection of beer on tap in your bar can keep customers excited and enticed. Do a little customer research to determine whether your base will be more inclined to mix things up from time to time or if they’d be more comfortable sticking to their regular orders. If tap rotation seems like a good option for your business, this could allow you to try out a number of different beers at more premium price points.
2. Keg Size
When it comes to kegs, size matters. The generally acknowledged standard for stocking draft systems is the half barrel keg, coming in at 15.5 gallons. If you stock European imports, you’ll most often encounter a 50-liter keg, which holds 13.2 gallons. Note that the more options you have available on tap, the fewer individual kegs you will go through per week – this may mean opting for some smaller kegs to offset any potential waste due to spoilage.
3. Alcohol Volume
As with craft beer in general, a beer with a higher alcohol volume can seem more alluring to some bar patrons and therefore worth a higher price. Again, knowing your customers is important, but if this seems on-target for your patrons, adding in a few extra cents for these beers could certainly be worth your while.
4. Seasonal or Rare Beers
Incorporating unique and limited-run beers into your bar’s offerings could be another way to offer premium value to customers at a higher price point. You can also use them as an opportunity to offer drink specials that could bring more customers in the door.
You may also consider building sales tax into the price of your beers. Doing so could potentially streamline cash management and encourage patrons to tip extra, but many bars refrain for fear that the price may appear too high to customers. The important thing here, whether or not you choose to include taxes, is to clearly communicate your choice to the customer.
6. Pour Size
Your establishment might not use the same type of glass for each draft beer served. Most of your beer might be served in a pint glass, but maybe your Belgian IPA is poured into a tulip glass. Be sure to account for any difference in pour volume while you are calculating your beer costs.
7. Production or Inventory Cost
For breweries and brewpubs, the retail price of your beer must cover your production and inventory costs to be profitable. Commonly referred to as the Cost of Goods Sold (COGS), this metric includes all costs, direct and indirect, of producing a given beer. Think materials, labor, overhead, and taxes.
8. Competitive Pricing
Keep in touch with what’s going on in your neighborhood. Be sure to look around and make sure your prices for a given beer aren’t wildly different than your local competitors.