Mixed drinks are among the most popular beverages in bars and restaurants. The way different ingredients complement each other is one of the reasons why many prefer to enjoy a cocktail instead of spirits, wine, or beer. Businesses in the food and beverage industry are also actively marketing their cocktails and mocktails. That’s because of the high profit margin on cocktails. Hospitality businesses use that to their advantage and offer a variety of classical and modern cocktails. In this post, we’ll showcase how restaurants can benefit from optimizing their cocktail and mocktail menus. We’ll also elaborate on the average profit margin for cocktails and how to calculate it. If you operate an establishment in the hospitality industry, our articles on restaurant inflation and QR codes for restaurant menus might help you make your business more profitable.
Key takeaway: The average gross profit margin on cocktails ranges between 70% and 85%. Mixed drinks are usually some of the most profitable items on the menu.
What Is the Profit Margin on Cocktails
Cocktails are typically the menu items with the highest profit margin in a bar or a restaurant’s menu. Their gross margin ranges between 70% and 85%. It depends on the type of cocktail, the ingredients used, and the pricing strategy of the establishment. Casual pubs and bars usually have the lowest profit margin on cocktails. On the other hand, places with high-end atmosphere and upscale bars might have a much higher markup on mixed drinks. As cocktails are very popular for special occasions and events, catering businesses often offer mixed drinks. In that case, the profit margin on cocktails for event catering might even be close to 90%.
There are a few major factors that affect the profit margin of cocktails. Let’s briefly examine them.
- The quality of the ingredients;
- Garnish and other presentation elements that add further ingredients but may justify a higher price;
- Happy hours and other discounts that might temporarily lower margins;
- Waste, spillage, over-pouring, and other factors that may cut profits.
Cocktail Profit Margin Formula
Profit margin = (selling price - cost to make) / selling price.
That number can be turned into a percentage by multiplying it by 100. For example, if the sum of all cocktail ingredients comes to $3 and the selling price is $12, the profit margin is 75%.
Ideas to Increase Revenue and Profit Margin on Cocktails
Mixed drinks can be used as part of a restaurant’s marketing strategy. Furthermore, cocktails and mocktails are among the popular trends in the hospitality niche market. Thus, crafting a good cocktail menu can guarantee a restaurant’s success. Here are a few tips on how to increase the profit margin on cocktails and the revenue of your establishment.
- Menu engineering. Create a stunning cocktail menu that combines classic options with unique mixed drinks. Signature cocktails can easily have higher prices and markup, especially if they have an excellent presentation that improves the customer experience.
- Pre-batching. Pre-mixing the main ingredients of popular cocktails allows faster and better service. Furthermore, pre-mixing gives excellent portion control compared to preparing cocktails during the busiest hours.
- Highlight profitable mixed drinks. Clever menu design can help establishments guide customers towards items with higher margins. For example, including labels like “featured”, “new”, or “customer favorite” will encourage clients to pick these options.
- Pairings and bundles. Waiters should be trained to offer suitable cocktail pairings based on customers’ dish choices. In addition, restaurant managers can explore options like happy hour bundles or tasting flights to encourage customers to try different cocktails.
- Review and update the menu. Offering new mixed drinks or other menu items can help with a restaurant’s customer acquisition efforts. For example, establishments can introduce themed monthly specials or limited holiday cocktails.
- Add more revenue streams. As we mentioned earlier, caterers have higher markup on cocktails compared to restaurant businesses. Thus, it can be beneficial to offer both restaurant and catering services. Another potential revenue stream can be to organize mixology classes, cocktail workshops, or ticketed events.
- Proper inventory management. Beverage and food inventory management is crucial for hospitality businesses. Over-pours, waste, spillage, and other reasons for inventory shrinkage can significantly shrink the profit margin on cocktails.
Average Bar Profit Margin
Are you curious whether owning a bar is profitable? There’s more to bar profitability besides profit margin on cocktails. It also depends on the markup of spirits, soft drinks, wine, and beer. On average, the bar profit margin is between 60% and 80%. Dive bars, pubs, and sports bars usually have the lowest gross margin at around 60% to 70%. High-end cocktail and wine bars and resort bars have the highest gross margin at around 80% or more. When it comes to net bar profit margin, high-end establishments still have the upper hand even though their labor and rent costs are much higher.
Frequently Asked Questions about Profit Margin on Cocktails
From advice on how to deal with restaurant fraud and how to manage restaurant tipping to articles on food costing software solutions and restaurant technology trends, there are plenty of resources available on BlueCart. Check out the answers to common questions regarding profit margin on cocktails.
Are Cocktail Bars Profitable?
Yes, operating a cocktail bar can be a profitable business. In order to make it such, business owners need to optimally combine location, menu offerings, atmosphere, and pricing. Although there are many cocktail bars on their own, they can also be part of a bigger business, like a resort or a restaurant. This can further increase the profitability of said business.
The gross margin of cocktail bars varies between 60% and 80%. The net profit margin of cocktail bars is usually between 10% and 15%. This makes them among the most profitable types of hospitality businesses.
What Alcohol Has the Highest Profit Margin?
Beverages with higher perceived value allow establishments to charge a higher price. This means restaurants and bars usually have the highest profit margin on specialty cocktails with unique ingredients. High-end wine sold by the glass also has a higher markup compared to most beverages. Beer, especially most types of craft beer, can also be among the most profitable menu items in restaurants and bars. Bottled spirits are the next category with fairly high profit margins, especially premium brands. Soft beverages usually have the lowest profit margin in a drinks menu. However, they still might have a higher markup compared to most dishes.
What Cocktails Have the Highest Profit Margin?
The most profitable mixed drinks are usually the simplest and most popular ones. Cocktails like Margarita and Old Fashioned have a relatively low cost of goods sold, are easy to make, and are among the most popular mixed drinks. Daiquiri and Aperol Spritz are other examples of beverages with high profit margins on cocktails. Specialty drinks that are hard to make and require unique ingredients can also be very profitable. That’s due to the fact that few establishments can offer and prepare such mixed drinks. Keep in mind that the main factors behind the profit margin on cocktails are bar inventory management, staff training, and menu design & engineering.
BlueCart: Calculate Profit Margin on Cocktails Easily
Thanks to BlueCart’s features, businesses in the restaurant industry can calculate the profitability of each dish or drink. In addition to calculating recipe costs and restaurant profit margins, our platform also helps establishments find suppliers in various fields. Sign up for BlueCart today and see why BlueCart is the restaurant technology solution your business needs. Specialized and broadline distribution can schedule a demo to witness BlueCart’s features for B2B businesses and how our ordering software can help increase wholesale sales and automate daily operations.