It's extremely important to watch out for your bar’s pour cost because that number represents the gross profit you make on what you sell and is a big part of running a profitable bar. Pour cost can be calculated by dividing an item’s inventory usage with the cost of product sold.
Pour Cost = (Inventory Usage ÷ Cost of Product Sold) x 100
Here's some more detail about how to calculate pour cost with detailed examples. Most food and beverage directors expect a pour cost of around 20%, but the lower the better, and bar operators strive to keep it as low as possible to drive profitability. So here are 4 suggestions to bring it down and keep your profit margin up.
4 Tips to Lower Your Pour Cost Percentage
Price Your Drinks Smartly
One of the easiest ways you can start is by pricing your drinks strategically, also known as menu engineering. Set a target pour cost first, then set your alcohol pricing and beer pricing accordingly to achieve it. Here’s a handy formula to help:
Drink Price in $ = Ingredient Cost in $ ÷ Target Pour Cost in %
For example, let’s say you want to start serving BinWise Signature Wine as a new item on the menu. Since the average pour cost for wine is between 30% and 40%, you want to set your target pour cost for this menu item at 30%. Let’s assume that you bought the BinWise Signature Wine for $5 per bottle from your favorite distributor, you will have the following:
$5 per bottle (Ingredient Cost) ÷ 0.30 (Target Pour Cost) = $16 per bottle (Drink Price)
This means that the ideal price for your BinWise Signature Wine should be $16 or higher. To learn more about the average pour cost of liquor, beer, wine, and download our pour cost calculation spreadsheet, check out this post.
Manage Your Variance Effectively
Product variance, or “shrinkage,” is the difference between the amount of product sold and the amount of product used within a given time period. We've also answered the question "What is shrinkage?" is another post. Unless your bartenders know how to free pour perfectly, your variance likely has room to improve. To calculate variance or shrinkage, you can follow either one of these formulas:
Monetary Value Variance = Cost of Product Sold in $ – Usage in $
Percentage Value Variance = (Variance in $ ÷ Usage in $) x 100
For example, let’s say you want to determine the variance of BinWise Signature Gin in April. Your records indicate that your bar’s usage was $12,000 but the total cost of product sold was only $8,000. Using the formula, you will have:
$8,000 - $12,000 = $4,000
($4,000 ÷ $12,000) x 100 = 33.3%
This simple calculation shows that you lost 33% of BinWise Signature Gin you bought and made no money on it, which drastically brought down your business’s profitability. Knowing the variance helps you identify potential inefficiencies happening at your bar, from inventory miscounting, over-pouring, and even theft. These are the same issues that cause too high or low a pour cost, so by minimizing your variance, you're helping greatly.
Order Your Products in Bulk
We always strongly recommend bar operators to take their inventory either weekly or bi-weekly. This will let you know which products are being used and sold quickly at your bar, so you can order them in bulk. Most distributors prefer to sell more without breaking up cases, so they offer buy-in-bulk deals and specials (also called “volume discounts”). By knowing your usage and ordering smartly, you can easily lower your pour costs. At the same time, keep in mind that this shouldn’t be applied to expensive items that are not selling out quickly because this can lead to sitting inventory. Therefore, always take inventory regularly!
Automate Your Pour Cost Analysis
All of these tasks are necessary for your bar to become profitable and successful. However, doing them by yourself and getting all these numbers manually can be prohibitively time consuming and cause counting errors. Therefore, our final, extra-special tip is finding a system like BinWise Pro that helps you keep an eye on your bar and automates these tasks for you. Book a demo to learn more about how BinWise Pro can help you improve liquor inventory control, calculate your pars and variance, and alert you when your costs are too high or too low.