Ballpark Liquor Costs - for Planning

[Amy&Bart]

I am trying to get an idea of what I could be spending on liquor costs so that I can plug this number(s) into my business plan.

However, the distributors that I have phoned in the bay area say that I must have an ABC license to discuss prices, even though I am only tyring to get round numbers. As we are trying to consider all costs before plunging headlong into this project, thus buying a liquor license, is there another way to figure out the ballpark costs?

A little more info: We plan to serve alchohol, beer and wine. Our target size of space is around 2,500 sq. Anything else that would be pertinent?

Thanks!

[Amy&Bart]

I think I may have figured out a way to get a loose number for the liquor costs, but I wanted to get some feedback:

Take one-third of the average drink price and multiply that by the estimated number of drinks per year (per quarter, per month, etc).

Does that sound about right? One third of a drink price is the wholesale price of the ingredients/liquor? Is there a more fine tuned ratio for premium liquors vs. well brands, or is what I have good enough without being under?

Your feedback is greatly appreciated.

Thanks.

[Baudtender]

You're approaching what I'd call a "Yikes!" zone. Percentages
are the most popular, and least appropriate way of measuring
your expenses and net. Seriously, I can't begin to tell you how
many businesses I've seen fail that had great profit margins and
low pour costs - the only thing they were missing were sales.

Expense percentages (a/k/a markup) is a disillusionary form of
profit planning. Let me give a real-world example. In my club,
we consider Grey Goose vodka to be a popular and premium brand.

Because I live in Pennsylvania, I have no choice but to buy this
brand from our State Stores at $24.99 per 750ml bottle. The
playing field is level. Shitty, but level. O.K., let's say I pour a 1.25
ounce shot. Do the math and I get 20.28 shots per bottle or
$1.23/shot my cost.

O.K., we work with a 1/3 cost as you propose and I charge $3.75
per shot. Problem here is when someone orders a Grey Goose
martini. Do I charge them $7.50? Won't sell two to them, won't
get many happy returns.

I get to the high-end single-malt Scotch whiskeys and if I go for
that 1/3 cost-percentage, I end up with a lot of expensive Scotch
not moving on my shelves. However, I sell a bar sausage for
50 cents that cost me 15 cents and I'm feeling good. What I'm
not taking into account is that I have to sell 7 of those sausages
to get the same profit I get from selling one shot of Grey Goose.
It's a whole lot easier to train a bartender to upsell a shot of
vodka than it is to train them to foist bar sausages off in quantity.

The math: 50 - 15 = 35 cents profit per sausage
3.75 - 1.23 = 2.52 profit per Grey Goose shot.
2.52/.35 = 7.2 times greater profit for the Goose.

It's not the percentage cost multiplied by the amount sold, but
the amount contributed per sale to profit multiplied by the
amount sold that makes the register ring and the business
endure. Overstocked inventory is the primary and most expensive
tax on ignorant and/or lazy management.

The whole point of carrying inventory is to carry it for the least
amount of time possible. Otherwise, it's just money tied up doing
no work for you.

Percentages lie. Profit contribution is what gets deposited in the
bank. If you (like so many before you) base your business plan
on percentages, you're working with bad numbers, because they
don't relate to the real world. Instead, work your business plan
backwards. Determine your fixed costs (a/k/a "the nut") and
then play "what-if" with your variable costs. Product pricing is
a necessarily arcane art that has more to do with filling your
seats, and how much importance you place on your salespeople
being sellers than it does with percentages. Given proper
marketing, the enlightened owner necessarily puts competing
businesses into a "price war" frame of mind, but never, ever
responds to that way of thinking.

The most expensive expense in your business is an empty seat.
No matter what anyone tells you, or advises you, an empty seat
makes no money. An untouched bottle makes no profit. I'd much
rather give away bottles of Budweiser for 3 hours per night to
fill my club than sit back and watch an empty club for the whole
day. Where do people go? Where people are. Management
likes to say "we're better than giving it away, we don't have to
do that." I love to compete against masochists like that.

Screw percentages, your business plan entirely depends not on
quantity, nor quality, but on a well-crafted mixture of the two.
I'd sweat the quantity first, if I were you - slowly moving folks up
to a higher price point is best done with a crowd you own, and
then gingerly. There are, I'm sure, lots of places where being
the most arrogant, high priced, haughty, and self-important
counts for sales. If you're there, then disregard all of the above
(and in that case, percentage pricing is equally moot.)

Baudtender