(Scroll to nearly the bottom of this post to see some actual costing-and-pricing sheets)
Do you know how your bar reckons its prices? Over the years, I have learned that many bars do not use, or even understand, kitchen math. This is true even of many bars within restaurants, where one must assume that at least the chef de cuisine uses kitchen math. Often, one finds the management of the bar simply winging it by getting a sense of what drinks cost at other, similar bars and perhaps only modifying that by what they believe their own customers will pay. The result is often that drinks are overpriced beyond any justification based on costs and overhead. As long as the owners are happy, this amateurish and costly (to the customer) state of affairs will probably continue.
Any respectable culinary school will teach its students kitchen math, and that’s where I learned it. Kitchen math is what allows for the calculation of menu prices within a flourishing business. The ideal percentage of the money paid by the customers that is required to purchase the ingredients for what they have been served is called the menu cost percentage.
The menu cost percentage can be arrived at by first establishing the desired profit percentage – the percentage of all money (not including taxes and tips) taken from the customers that is desired by the owners as profit. Let’s hope that they don’t have a proclivity for the use of South American nose powder. Secondly, the overhead cost percentage must be calculated – the percentage of all money (not including taxes and tips) taken from the customers that must be spent on the property lease-or-mortgage, property maintenance, labor, utilities, maintenance-and-replacement of equipment, cleaning supplies, office supplies, insurance, petty cash, etc. The percentage left over is the targeted menu cost percentage.
Since a restaurant or bar cannot, in good faith, charge a customer for the accidentally over-cooked steak, the bottle of liquor that the bar-back dropped and broke, the items sent back by other customers, or the drinks served free-of-charge to the bartender’s friends that were not accounted for, the menu cost percentage for any amount of intake can vary from day to day. That is why the menu cost percentage is set as a goal, and why all well-managed establishments require that all ingredients be accounted for – even if they are wasted or end up being served free-of-charge. It is important to keep track of ingredient costs and to calculate the actual menu cost percentage routinely.
As an example of the above, let us say that in a given day, an establishment took in $1,314.57 (not counting taxes or tips). Let us say that on that same day, the establishment used $260.81 worth of ingredients (including loss, wastage and ingredients that went into menu items not charged for). Dividing 260.81 by 1,314.57 gives us 0.1984. That means that on the day in question, the establishment ran an effective menu cost percentage of 20% – even though its targeted menu cost percentage was probably something like 18%.
Considering that the hospitality industry generally does not pay very much for labor, it is my opinion that a menu cost percentage of lower than 16% is the result of sheer greed on the part of the owners, or the manager simply winging it at the expense of the customers. If the cost of the lease or mortgage is foolishly exorbitant, a lower menu cost percentage may be understandable – but that’s why it’s foolish to buy drinks in places where the cost of the local image is foolishly exorbitant.
On the other extreme, a business with an actual operating menu cost percentage of much higher than 20% can eventually end up in financial distress.
Once the targeted menu cost percentage is set, calculating menu prices can be done. In kitchen math the word ‘cost’ is reserved for what the establishment pays, while the word ‘price’ is reserved for what the customer is to be charged. It is very simple. If the targeted menu cost percentage is a healthy-but-not-greedy 18%, it means that the total for the cost of all the ingredients in a menu item should be divided by 0.18. The result will be the minimum menu price for that item. The actual menu price can then be rounded up to the next whole quarter-dollar for currency-unit uniformity.
In the interest of discretion, I have used current retail costs for all of the items below. This has made the drinks more expensive in these examples that they need be in a place of business. It means that the liquor costs include sales tax as applied in Los Angeles. The lemon cost is for relatively-small, organic, tree-ripened and un-waxed Eureka lemons from the farmers’ market that tend to yield 1 fl-oz. of juice each. The superfine baker’s sugar cost is as from Surfas in Culver City. The egg white cost is for a carton of organic and homogenized egg whites from Trader Joe’s (and more expensive than egg whites manually separated by a bartender from fresh, whole eggs). The method ice used in making the drinks is from water, which is already covered as a utility in the overhead costs. The garniture of a marasca cherry is per the cost found at Beverage Warehouse in Culver City.
Using the industry-standard 18% for menu cost percentage, here is what costing-and-pricing sheets for the Bourbon Whiskey Sour made with either of two different Bourbon whiskies might look like:
Again, it is important to stress that retail costs have been used here instead of the wholesale costs paid by restaurants and bars. If the sheets above were for an actual restaurant or bar (where the owners were not too greedy), the menu prices for these drinks, made with the same quality of ingredients, should be even lower.
How do you feel about your bar’s drink prices?
At any rate, I hope this post will help in the understanding of what goes into the rational setting of menu prices. I also hope that it may be of some assistance to those of my students and associates who own bars or now work in positions that might require kitchen math.
Now, make yourself a drink, and start noodling.