A bar’s profitability is largely based on its average pour cost, also referred to as the “cost of goods” percentage. The term means the gross profit margin on what you sell.If your liquor has a pour cost of 15%, it means your business makes 85% in gross profit. In other words, for every $1 of liquor that you sell, your bar makes $0.85.Clearly it's important to lower your pour costs as much as possible, but before you can lower it you gotta figure out what it is.
Here's a 3-step process for how to calculate your pour cost so you can start ratcheting up the profits.
3 Steps to Calculate Pour Cost
Before we get into it, let's start with the formula we'll be using:
Pour Cost = (Inventory Usage ÷ Total Sales) x 100
Step 1. Determine The Inventory Usage
To calculate your bar’s pour cost, you must first calculate your bar’s inventory usage, which is the amount of product that your bar has used over a given time period. This can be determined using the following formula:
Inventory Usage = Starting Inventory + Received Inventory – Ending Inventory
For example, if you want to calculate the inventory usage in March, your beginning inventory is what you have before service begins on March 1st, and your ending inventory is what you have left on March 31st after closing. You would also need to account for the amount of inventory that you ordered during the month, which is your received product inventory.Let’s now assume your inventory report shows that $1500 in wine, spirits, beer, and other beverages were sold during March.
Step 2. Find the Total Sales
Next, you need to find your bar’s total sales in March, which can be quickly pulled from your bar's point of sale system. In the case that you don’t have a POS system in place, you can calculate the sales number for every item then add them all together. To calculate a product’s sales, simply multiply the amount of product sold during the time period by its selling price. For example, at $5 per bottle of beer, you will have the following:
30 (Number of Beer Bottles Sold) x $5 (Selling Price) = $150 (Total Sales for Beer Bottles)
After calculating this for all products that your bar carries, simply add them together for your bar’s total sales. For our example, let’s assume that your bar’s total sales for March are $3800.
Step 3. Calculate Pour Cost Using the Formula
For the last step, simply follow the formula that we shared above to calculate your pour cost with the two key values that you just obtained:
$1500 (Inventory Usage in $) ÷ $3800 (Cost of Product Sold) x 100 = 39.5% (Pour Cost)
The average pour cost that most bar operators strive for is generally between 18% and 24%, so having a pour cost at 39.5% is significantly high.
Ensure Accurate Pour Costs Every Time
There could be many reasons for such a high pour cost, including over-pouring, frequent spillage, unrecorded comps, and even theft. At the same time, suspiciously low pour costs can also be symptomatic of a larger problem. Mistakes in the bar inventory process, having inaccurate sales figures, or miscalculation of pars and variance, can all contribute to inaccurate pour costs. Therefore, we recommend using a system like BinWise Pro that automates these data for you and alerts you when an item’s pour cost is too high or too low.
Contact us to learn more about how BinWise Pro can help you take inventory accurately, calculate your pars and variance, and alert you when your pour costs are too high or too low.