Gross Margin

What gross margin actually means

Gross margin is the money that stays in the bar after paying for the liquid. If you sell $100 of drinks and the liquor cost $22, your gross margin is $78, or 78 percent. That $78 has to pay for labor, rent, utilities, insurance, and anything left is profit.

Gross margin is the inverse of COGS percentage. If pour cost is 22 percent, gross margin is 78 percent. They always add up to 100.

The formula

Gross Margin % = (Revenue - COGS) / Revenue x 100

Or put another way:

Gross Margin % = 100 - COGS %

Example: a craft cocktail bar does $70,000 in monthly revenue. COGS for the month is $15,400. Gross margin is ($70,000 - $15,400) / $70,000 = 78 percent.

Industry benchmarks

Healthy bar gross margins by segment:

• High-volume dive bars: 78 to 82 percent
• Sports bars: 76 to 80 percent
• Neighborhood bars: 75 to 80 percent
• Craft cocktail bars: 75 to 80 percent
• Fine dining (wine heavy): 65 to 72 percent

Every point of gross margin is serious money. On a bar doing $1 million a year in sales, a single point of margin is $10,000. Getting from 77 to 80 percent is $30,000 a year of recovered profit.

How it is used on the floor

Owners look at gross margin on the P&L every month. Managers watch it as a lagging confirmation that pour cost is in line. If pour cost is climbing, gross margin is shrinking in lockstep.

On the floor, gross margin is the bigger number everybody cares about without naming it. “How much did we make?” is really a gross margin question.

Gross margin vs net margin

Gross margin is what is left after COGS. Net margin is what is left after COGS, labor, rent, and all other expenses. Gross margin is always higher than net margin, because net margin subtracts more things.

A bar with 78 percent gross margin might only have 8 percent net margin after labor and overhead eat the rest. Both numbers matter.

Common mistakes

Confusing gross margin with net profit. Chasing lower COGS while ignoring labor. Treating gross margin as monthly noise instead of a weekly KPI. Not knowing the benchmark for your own segment.

How PourIQ handles it

PourIQ calculates gross margin in real time based on count and POS data. You can see blended margin, margin by category, and margin by menu item. The big win: seeing which drinks on the menu are actually making money versus which are dragging margin down.