When it comes to setting price points, certain rules are hard-and-fast while others are more malleable. Learning to tell the difference can greatly affect your bottom line.
By Demi Stevens
They say that the devil is the details. Well, when it comes to on-premise pricing, that devil is in more than just the details. It lives in the outdated perception that having all your percentages in line always equals profitability. Percentages are just a guide – like only wearing white before Labor Day or waiting two days to call after a date. Following it can rarely hurt you, but playing it safe can also muffle that sound of the cash register, which we all love so much.
One of the first things I learned about restaurants—and life, for that matter—was from my mother’s boyfriend who happened to be a French-trained chef. He taught me how to make crepes. Over and over and over again. At the tender age of eleven I found this boring, frustrating and supremely annoying. For quite awhile, somehow, they turned out quite different each time, but eventually, I got the feel for it. I could tell just by looking at the crepe if I needed to add more liquid, if the refrigerator wasn’t as cold as it should have been, and other things most eleven year-olds would never even begin to think about.
What the heck does making crepes have to do with running a bar or restaurant? Well, as it turns out, everything to me. His broken English was precisely what I needed to learn the rules of cooking and why those rules were in place, so that I'd know when, and why, to break them. Fast-forward to today, where I’ve set pricing for corporate and private restaurants, where many rules are set in stone and my bonuses align with said rules. I became more concerned with making my bonus than in figuring out actual bottom line profit. So, now let’s lay some groundwork for the basics of on-premise pricing.
Generally speaking, it’s best to set wine at four times the wholesale bottle price, keep beer at 25%, food equal to or under 30%, and that just leaves our old friend liquor. Liquor is magic because it can help you break the other rules and make money on it, with a sweet spot right around 15%. For bartenders and servers, liquor equals bigger tips, especially if you have a good wrist and a perfect pour. You can break the rules on a non-specialty cocktail but should not for specialty cocktail recipes though. If you know your ratios, and someone has given you a pre-made margarita mix and you hit it with a little orange juice, then you have just taken your first step towards the devil. You'll likely sell at least one more and that guest will be coming back to you. If you apply this same principle with pricing vs. percentage that you did with the recipe, then you are opening a challenging, yet potentially very rewarding door.
When I opened my own restaurants, I became very attuned to my actual profit. I’d learned the rules, but which were breakable to increase profits and which had to stay? That’s the eternal question. Here in California, the pressure to find actual profit in today’s market can be harder than in many other cities. So where is the profit hiding? Well, the short answer is everywhere. For the longer answer, you must view the sales of your establishment as a whole, knowing when—and how—to pair food and liquor.
Let's say you have an expensive cut of meat coming in that's running at a higher percentage. Then it’s OK to keep it a bit expensive going out too. But here's the key: Don’t get greedy. Certain cuts of quality meat, come in expensive pre-renders and the common approach is to mark it up about three times the original price to cover costs on your end. Generally speaking, that would work out fine, but it’s not always the most profitable way to go. Let’s say that meat comes in at $15 a serving. Would you put it on the menu for $45? In most cases, yes, that's exactly what you’d do. But in this particular example, it probably wouldn’t move because it’s just too expensive for most patrons, leaving you with a fair amount left over. Prices are based on percentage too, not just straight profit. So the trick is: Find a drink, any drink, that pairs well with the meal and will increase your actual overall profit. Now, this will inevitably start debates with those stuck in the old mindset of simply lowering the price of the protein. But by doing this, you'll actually give yourself a double hit.
To keep the arithmetic simple, let’s call the meat $30. You are now you are at 50% p/c, but you have $15 cash as opposed to a cut of meat that comes in at $3 that you’ve sold for $10, leaving you with a $7 profit. Percentage-wise, that meat is properly priced, but you’re actually making less cash and the likelihood of you bringing our old friend liquor into the mix is now much less likely. Maybe you can sell a glass of Sauv Blanc at $10 with a 30% pour cost, keeping your total cash above
the actual cost of $14 (not including labor), or you get that meat on the table, a few middle of the road scotches for $10 each at a 15% pour cost, you have a happy server and, depending on their choice of scotch, your cash stays above actual cost at $23.50 with one scotch and $32 with two. Which would you prefer? Granted this isn't something you can do with just any item but, give it time, and you'll be sure to find that happy medium. Make sure to instruct managers, servers and bartenders
on this equation, so they too can pair specific spirits with the right menu items when necessary, and this math can easily translate into added revenue for the house and your staff.
Demi Stevens has worked in hospitality since the tender age of 14, navigating a male-dominated industry with a pioneering female spirit that took her from a fry cook many years ago, to one of California’s top mixologists. She opened Redondo Beach’s Ortega 120 in 2008, winning numerous awards such as “Best Classic Margarita” (LA Weekly) and “Best Tequila Bar” (Easy Reader). She followed that up in 2014 with Hey 19 Public House, which occupies the intersection of gastronomy, nostalgia and classic cocktails—which comedian Bill Burr once referred to as “dangerous” on Esquire Network’s Best Bars in America show.