Time Really is Money: Costing Your Most Expensive Ingredient
“Time is money.” So goes the old adage that is correct in so many ways. This being the case, we should be sure we are being paid for our time. And yet mostly we aren’t even considering it when establishing prices at the bar. Here’s a look at why you should be considering your time when pricing your drinks, and a strategy for doing it in a considered and logical manner.
A Traditional Pricing Strategy
The traditional method of establishing prices at the bar is based on product and not the time associated with the creation of the finished product. For years we have been employing a method for pricing that focuses on the cost of goods of the product being sold. Beer has been marked up the least, somewhere between 3 and 5 times cost. Wine is next with a price around 4 to 6 times cost. Spirits and cocktails are priced at 6 to 8 times cost. Actual prices for specific drinks are adjusted from these results based on cost (low-cost items are marked up the most, high-cost items are marked up less), concept, market, and a survey of what competitors are charging.
This is a pretty good method for determining the price of your offerings, especially considering that so many operators don’t apply any method to pricing and simply charge “what the competition is charging,” or charge “what seems right.” But it fails to take into account the work that goes into creating specific offerings. This is especially more relevant in the present than just a few years ago…now that so many more cocktails require so many more steps to produce. These drinks should be priced accordingly, resulting in you getting paid for your valuable and limited time.
A New Pricing Strategy
Ask a question: Does this make sense for your operation?
Time is valuable when it is scarce. If you have plenty of time to make all of your drinks, to provide personal service to all of your customers all of the time, to keep your bar stocked and immaculately clean all of the time, then your time is not scarce and not valuable enough to include in your pricing model. This circumstance being the case you are probably out of the business by now or running the bar in the lobby of a Marriott Courtyard.
Think about your week. Are there busy times when it’s challenging to make drinks, make customers happy, and keep the bar clean? If this happens some nights and most weekends…read on.
Apply your standard markups.
I’ll assume that your standard markups, probably based on the cost of goods sold of each offering, are working pretty well for you. Keep using them as the basis for your pricing. We’ll consider adjusting some of these prices when we have some additional information.
Identify drinks that take a long time to make.
Which of your offerings take the longest time to make? Really slow down production and service when your bar is busiest? Muddling and juicing take time. But this consideration is not just for craft cocktails and bars: blended drinks can take forever to make.
Identify drinks that don’t take a long time to make.
Taking a cap off of a beer bottle, drawing draft beer, and pouring glasses of wine take almost no time compared to “prepare” and serve. They are marked up less than cocktails, and they should be. Spirits neat and over ice take almost no time. Batched cocktails take time to make, but are made in advance – pre-shift for instance – when time is less scarce and therefore at less of a premium.
Charge a premium for drinks that take a long time to make.
Muddled, juiced, blended… Consider charging a premium for drinks that slow your bartenders down at your busiest times. This can be accomplished in one of two ways. You can establish an add-on to cost of goods to account for time. Establish your cost of goods for a cocktail, multiply this amount by 10%, add the result back to the original cost of goods, and apply your markup factor. It will look like this:
You can also increase the markup by the same factor of ten percent if that seems easier to you. Here’s how that looks:
Using either method, the new selling price results in a $1.00 increase in selling price, accounting for the extra work that goes into producing the drink.
Consider discounts for drinks that don’t take a long time to make.
Beer and wine don’t take a long time to “make,” but that fact is already accounted for in the markup factor for each. Neat and over ice cocktails also don’t take long to prepare, but the wisdom of discounting drinks like this and encouraging their increased consumption is dubious. Batched cocktails can take a long time to make; but as mentioned above, they can be made when time is less valuable. Especially at your busiest times, consider offering batched versions of available cocktails at a discount. You’ll encourage your guests to drink some of the best you have to offer, they may drink more, and you may find that you have more time to make more drinks, sell more drinks, and take better care of your bar and custiomers.