The Million Dollar Question – Cocktail Profitability and Recipe Deviation Cost

Million Dollar Question

When is the last time you examined the relationship between production cost and recipe deviation rates or calculated cocktail profitability? It’s probably been a long time, if ever. Everyone is quick to tell you what they think about cocktail profitability, but reluctant to disclose why. Reluctant disclosure is pure speculation influenced by opinion. Unfortunately, speculation is the foundation for failure in the bar business.

Two things are certain. Money is the byproduct of success, and accidentally succeeding in the bar business does not occur.

High volume nightclub operators, restaurant tycoons and the best bar owners all have one thing in common. They embrace bar math because it empirically proves cocktail profitability. I constantly tell clients, “Don’t tell me what you think. Show me the numbers because numbers don’t lie.” Regardless of your role in hospitality, seniority level or executive title, abandon what you think it costs to create a cocktail and do the math. Bar math begins with calculating cost per ounce and portion cost. Cost per ounce (CPO) determines how much an ounce of liquor costs. Calculating requires dividing the wholesale liquor bottle cost by its total ounces. For example;

Portion cost (PC) examines the relationship between cost and serving size. Calculating portion cost requires establishing cost per ounce (CPO) then multiplying by serving size (SS).

These calculations are phenomenal barometers for gauging cocktail profitability. However, gauging profitability and achieving it are radically different Achieving profitability requires application. Cocktail production is the most powerful application in the bar business, but systematic cocktail production per recipe is the most profitable.

A great cocktail is always profitable because it does not fluctuate. Taste and cost to manufacture remain constant. Systematic production ensures consistency. The most profitable way to make a cocktail is right the first time. By right, I mean per recipe based on beverage cost. For example, a seven ingredient Adios costs $0.89 to manufacture.

Recipe deviation rates destroy cocktail profitability. A bartender’s unwillingness to prepare cocktails per recipe is financially debilitating. Witness the profit destruction incurred by ingredient substitution and over pouring. The $0.89 production cost inflates to $2.40.

Recipe deviation rates cause production cost inflation. Rising cost equal profit loss. Over pouring and ingredient substitution yield a -$1.51 loss. Losing -$1.51, per Adios compounds faster than polished steel. Selling 1,060 Adios annually, with a 20% recipe deviation rate, yields -$320 loss.

At first glance, a -$320 annual loss seems inconsequential, but appearances are deceiving. This loss only reflects one cocktail with a 20% deviation rate. Reality sets in when you realize your product mix reflects 90 cocktails. The million-dollar question is “how many cocktails are going across the bar for a loss and how do you fix it?”

Hiring a bar consultant is the answer.

About the author

Preston Rideout is a highly sought-after Dram Shop Expert with 25 years of experience and 75 alcohol safety certifications.  He is the CEO of Rideout Hospitality and Founder of The Dram Shop Experts. Preston is widely considered the leading nightclub management and bar operations expert in the legal industry. Attorneys across the nation rely upon his comprehensive knowledge of nightlife to provide powerful insight into all aspects of responsible alcohol service, bartender training, bottle service, intoxication identification, industry-standard operations, and nightclub negligence.

After graduating from the University of Mississippi, Preston Rideout relocated to Las Vegas to work for Pure Management Group. While in Vegas, Preston operated Coyote Ugly Saloon, Tangerine Nightclub, Pure Nightclub, Pussy Cat Doll Lounge, LAX Nightclub, Noir Bar, Audigier Nightclub, Eve Nightclub, and Rehab Pool Party inside the Hard Rock Hotel Casino, Treasure Island Hotel, Ceasar’s Palace Hotel Casino, Luxor Casino, and Aria at City Center. After opening and operating multi-story high-volume nightclubs in world-class casinos, Preston launched Rideout Hospitality Consulting.

As CEO of Rideout Hospitality, Preston and his team of consultants provide casino, hotel, resort, restaurant, nightclub, and bar consulting to over 100 clients across the United States, Mexico, and the Bahamas. Clients retain Rideout Hospitality to codify alcohol service policies, create standard operating procedures, and conduct bartender training. Additional services include concept development, construction, bar design, equipment selection, restaurant rescue, bar audits, cocktail creation, and on-site management participation. After successfully positioning Rideout Hospitality, Preston began providing Dram Shop Expert Witness Testimony.

Preston Rideout launched the Dram Shop Experts to provide comprehensive insight into Customer Intoxication Identification, Bartender Training, Responsible Alcohol Service, Industry Standard Operating Procedures, Bottle Service, Nightclub Negligence, Mechanical Bull Operations, Pool Party Injuries, Music Festival Safety, Mass Shooting Emergencies, and Security Use of Force.