A gifted mixologist wastes hours staring at liquor bottles ... taking bar inventory. A sommelier fritters away the evening in a dark cellar ... taking bar inventory.
These grim scenes repeat over and over again in restaurants everywhere.
Talented and creative people spend lots of time on a necessary evil. Wrestling with inventory management.
It can be difficult, tedious, and error-prone. And it takes lots of time. If you do it poorly, your profits will evaporate. And if you do it well, you will increase your bar's profitability. But it's low-hanging fruit. It seems like a monster task, but it can be made so much easier (for example, by implenting a bar pos system).
This guide is going to help you get there.
What is Bar Inventory?
At its most basic, taking bar inventory is the process of counting everything you have twice.
Then, you figure out how much of it you used over that period of time. That's known as calculating inventory usage. Based on your inventory usage, you calculate your variance, pour cost, and par levels. All crucial metrics to running a profitable bar.
Bar Inventory Basics
What, exactly, does taking bar inventory tell you about your bar? A lot:
- The financial health and profitability of your bar, along with opportunities to enhance both
- Your bar's variance, AKA your shrinkage or loss
- What your par level for each product should be
- What your pour cost is and ways to decrease it
- Which products are in demand and which aren't. With implications on how to price drinks and what you should order from your vendors going forward.
In fact, taking bar inventory is the single most effective way to optimize your bar's operations and profitability.
How to Do Bar Inventory
Let's first go over the inventory counting process. Then move on to how to calculate inventory usage.
Every. Single. Thing. We’ll come right out and say it: taking inventory is a glorified manual counting process. Any way you cut it, you’re going to have to repeatedly count individual amounts in individual bottles.
That can be a massive time suck.
Start at your front bar, note how many liquor bottles of all sizes and types you have.
To gauge levels, visualize each bottle divided in 10 parts. Then have them estimate how many tenths of the bottle is still left. If the bottle is half full, they’ll record 0.5. If the bottle is 9/10ths full, they’ll record 0.9. And so on.
Then, move from the front bar to any back bars, storage rooms, walk-ins, refrigerators, and cellars. The order you take inventory now will be the same order you take it in later. For your ending inventory levels.
After you finish filling out your spreadsheet, decide when next to take inventory.
Here's a good idea:
Take your bar's inventory every two weeks.
Though some beverage programs take their liquor inventory every month. Longer than that and you're missing out on the chance to react to sales patterns and optimize for profitability.
Taking inventory, then, is a two-part process. Count your stuff (beginning inventory), wait, then count your stuff again (ending inventory).
Get a Beginning or Starting Inventory
Opening or starting inventory is the first count you take at the start of the time period you're measuring. It consists of all remaining inventory from the previous time period. Usually, your bar will take opening inventory on the first day of the month.
It will set the standard for your bar's performance and is an important measure for cost analysis.
Get an Ending Inventory
Ending inventory is the final count of your inventory during the time period you're measuring.
Your bar will likely do this count on the final day of the month. In conjunction with the starting inventory count and any purchased inventory. This will determine your usage over the given time period.
No you can compare your two inventories. And calculate a bunch of useful numbers. Which we'll get into now.
Calculate Inventory Usage
Calculating inventory usage is straight-forward and mega-important. It’s the beating heart of every successful beverage inventory system. Because it shows you how much of an item you’re selling.
There are four components to calculating inventory usage:
- A time frame
- The starting amount of product
- The amount of product received
- The ending amount of product
Let’s consider an example: a time frame of one month and our bar’s Barolo wine.
At the beginning of the month, we have 8 bottles in the wine cellar. Our starting inventory is 8 bottles. During the month, we receive another case (12 bottles) of the wine. At the end of the month, we have 3 bottles of Barolo in the wine cellar. Our ending inventory is 3 bottles.
Inventory Usage (Bottles) = Starting Inventory + Inventory Received - Ending Inventory
Usage = 8 Bottles + 12 Bottles - 3 Bottles
Usage = 17 Bottles
It was a good month for Barolo. To find your monthly usage in dollars, multiply the usage by how much the bottles cost the bar. If a bottle of Barolo cost you $20 from the distributor, then:
Usage ($) = 17 bottles X $20
Usage = $340
You'll slowly get a good grasp of the usage for every product you sell. Then you can start drawing conclusions based on usage rates. Those conclusions will save your bar money.
How Taking Bar Inventory Saves Money
Let’s talk about most peoples’ favorite subject:
Specifically, all the ways inventory management can make you piles of it.
You can now put your inventory usage levels to work for you. There are three metrics that use inventory usage that affect bar profitability. Variance, pour costs, and par levels.
Identify Product Variance
Variance is the difference between the amount of product sold and the amount of product used. It's also called shrinkage or loss.
In a perfect world, those two amounts are the same, but this is not that world.
Here’s the formula for calculating your bar’s variance:
Variance ($) = Cost of Goods Sold ($) - Usage ($)
And to find the percentage:
Variance (%) = Variance ($) / Usage ($)
If a product's variance is 20%, it means that, of all the product used, 20% is lost and not sold.
Calculating variance for every product will give you a precise picture of where money might be slipping through the cracks.
It’s one of the best ways to use inventory usage rates to boost your profits, but not the only way.
Calculate Pour Cost
A product’s pour cost is one of the key insights into its profitability. And, all products taken collectively, into a bar’s overall profitability. To calculate liquor cost, take that product’s inventory usage in dollars and divide by that product’s total sales.
Pour Cost (%) = Inventory Usage ($) / Total Sales ($)
Most bars shoot for an average pour cost of 20%, with target liquor pour costs dipping even lower, to around 15%.
But there’s still one more important way to use your inventory usage rates to save money and boost profit. Par levels.
Setting Par Level Inventory
Finally, you set par levels. A product’s par level inventory is the minimum amount needed to keep it in stock at all times. It also helps cut down on sitting inventory. This is where consistently calculating inventory usage comes in handy. Because par level is set on your past inventory usage trends.
Back to our Barolo.
Our usage for 1 month was 17 bottles. Let’s say our usage the next month was 12 bottles, and our usage the following month was 19 bottles.
Par Level Inventory = (17 Bottles + 12 Bottles + 19 Bottles) / 3 Months
Par Level Inventory = 16 bottles
16 bottles is your par level inventory for Barolo. That means Barolo has an average inventory usage rate of 16 bottles per month over a 3-month time frame. It also means that 16 bottles is the safest minimum number of Barolo bottles to keep on hand per month. That ensures you’re meeting demand but not sitting on too much unused product, or sitting inventory.
Cutting Down on Sitting Inventory
Sitting inventory is product on your shelf that you’re not selling … yet. It could even be spoiling and going bad. It’s taking up valuable space from other products you could be selling, and it's tying up your money. Here’s a look at the benefits of decreasing your sitting inventory and how to do it. The benefits of reducing your bar’s sitting inventory are many.
- Free up more cash for operations and profit
- Free up more space on your shelves for products that are selling
- Save money on distributor delivery costs, because you’re ordering less
- Save time taking when taking inventory, because you’ve got less inventory to manage
- Reduce your shrinkage; the less product you have, the less you stand to lose (learn more about how to stop shrinkage)
Here’s how to reduce your bar’s sitting inventory:
- Set the right par levels. This can’t be stressed enough. This is the reason par level inventory exists.
- Don’t be swayed by bulk discounts from your distributor. Unless you know, based on usage levels, that you'll use all the product you order.
Knowing how to calculate this stuff is half the battle. The other half is mastering the process.
Mastering the Art of Bar Inventory Management
Now you know how to do bar inventory, and you know that it can lower costs, increase profit, and save time.
But to make sure you’re getting it right, you need to take inventory consistently. You should also train your staff properly and experiment with your process.
Take your bar inventory consistently. You should do it on the same day, whether it's done wekkly, bi-weekly, or monthly.
In addition to when, pay attention to how and where. Make sure your inventory is taken in the same way each time:
- Start in the same spot in the same room
- Progress throughout your bar the same way each time (from front bar to back storage room, etc.)
The more reliably you take inventory, the more reliable your inventory numbers will be. That makes your decisions based on those numbers as effective as possible.
Train Your Staff
Your staff is the last touchpoint between your inventory and its fate. Loss or profit. Training staff on the rule of tenths, how to identify shrinkage, and your bar's beverage inventory management processes will help in a big way.
First, train your staff to begin or end shifts by visualizing each bottle in 10 parts. Then have them estimate how many tenths of the bottle is still left and record it. If the bottle is half full, they’ll record 0.5. If the bottle is 9/10ths full, they’ll record 0.9. And so on.
You’ll have rotating beginning and ending inventory counts to calculate usage with.
Next, teach your staff to identify shrinkage. Typically, this means reiterating the:
- Need to record breakage, spillage, and drinks made incorrectly
- Correct quantity for a standard wine and liquor pour
- Comp policy
Finally, your staff should be very comfortable with the process for taking inventory that your bar uses. This includes the actual counting method you use. Along with how to figure out usage, pour cost, variance, and par levels. The more your staff understands how their daily tasks affect the health of the bar, the quicker they’ll notice where improvements can be made. Then staff will have ideas for management about how to do bar inventory better.
Experiment with Your Process
Thomas Edison is one of the most successful people to have ever lived. We know him for the light bulb and the phonograph, but he had over 1,000 patents for inventions. And many of them were failures. But to become one of the most productive, successful people ever, he tried things again and again until they worked. The same goes for what inventory management process works for your bar.
- What day of the week and time of day should you take your inventory?
- How many employees should you ask to help?
- What’s worked well in the past?
Every time you take your bar’s liquor inventory, note what worked and what didn’t. Solicit feedback from those involved. Constantly update your process until it’s working just right. It may take a while, but everything worthwhile does. Following these steps will get you well along your way to an optimized beverage inventory management system. There are, however, some special considerations if you're dealing with wine and beer.
Every time a great bottle of wine swirls down the drain, a sommelier somewhere sheds a tear.
It's the very definition of sommelier. Here are some wine inventory management tips to make sure you’re keeping eyes dry.
- Store your wine labels out, if possible. Turning the wine too often can interrupt the natural aging process.
- Cork is important for the development of the flavor profile. Store bottles lying so the cork is in contact with the wine.
- Keep wine out of direct light. Wines are happiest in places like cellars, where light and the resulting oxidizing is at a minimum.
- Keep a separate wine log or wine inventory spreadsheet. Wine has unique characteristics like vintage, varietal, vineyard, etc., that are helpful to record and review as time goes on.
- Tenthing AKA the “lift-n-guess” method. Good news, everyone! The rule of tenths is back, but this time you can’t see anything! But seriously, you can still use the rule of tenths to estimate the amount of beer in a keg. You have to lift the keg up and do it by gauging its weight.
- Get a keg scale. This is a lot like the option above, but with machine precision.
- Use the Keg Check. It’s a torque wrench designed specifically to measure the amount of beer left in a keg.
Another useful tip to make beer inventory management easier is to adjust the bar inventory spreadsheet into a beer inventory spreadsheet by customizing a few fields. Like the wine spreadsheet, it will capture a lot of things unique to beer. Draft, bottle, domestic, imported, brewery, style, etc.
Recording such specifics can help you determine the exact type of beers your customers like. Let’s take a look at all this good stuff in action using an example.
A 6-Step Example of How to Manage Bar Inventory
Here’s an end-to-end example of how all these pieces fit together. Let's look at BinWise Saloon*, a lovely old bar that sells only one kind of whiskey: Old Boondoggle**.
*Sadly, not a real place. **Sadly, not a real whiskey.
Step 1: Count Inventory
It’s Sunday, 10 a.m. The barkeep at BinWise Saloon counts—using the rule of tenths—8.5 bottles of Old Boondoggle behind the bar. They then make their way to the back storage room and count 10 more bottles. The bar paid $20 for each bottle.
Starting Inventory = 18.5 Bottles or $370
Next Sunday at 10 a.m. the barkeep counts—again using the rule of tenths—2 bottles of Old Boondoggle behind the bar. Then they make their way to the back storage room and count 7 more bottles.
Ending Inventory = 9 Bottles or $180
Over the course of the week, they received 10 bottles of Old Boondoggle from their distributor.
Liquor Received = 10 Bottles of $200
Step 2: Calculate Inventory Usage Rate
These numbers are all based on when liquor inventory was taken, so they’re weekly. We’ll use the same formula for inventory usage that we used earlier:
Inventory Usage = Starting Inventory + Inventory Received - Ending Inventory
Inventory Usage = 18.5 Bottles (or $370) + 10 Bottles (or $200) - 9 Bottles (or $180)
Usage = 19.5 bottles (or $390)
BinWise Saloon used 19.5 bottles or $390 worth of Old Boondoggle that week.
Step 3: Calculate Variance (Using Usage Rate)
How much Old Boondoggle is dripping through the cracks every week? We need to find out how many bottles we sold during the week. I just asked the barkeep and he said 15. Now we need to figure out the cost of goods sold. That's the number of bottles sold multiplied by how much each bottle cost the bar, $20.
Variance ($) = Cost of Goods Sold ($) - Usage ($)
Variance = $300 - $390
Variance = -$90
To figure out the % variance, we use:
Variance (%) = Variance ($) / Usage ($)
Variance (%) = -$90 / $390
Variance = -23%
BinWise Saloon is unable to sell 23% of the Old Boondoggle used because of breakage, spillage, overpouring, comps, and maybe even theft.
Step 4: Calculate Pour Cost (Using Usage Rate)
Now let’s see how profitable Old Boondoggle is. We’ll need to sort out how much money we brought in selling it. There are 25 shots in a bottle, and each shot sells for $4. Remember from above, we sold 15 bottles. That’s 375 shots at 4 bucks a piece.
Pour Cost (%) = Usage ($) / Total Sales ($)
Pour Cost (%) = $390 / $1,500
Pour Cost = 26%
Eek. 26% is a high pour cost. 20% is what most professional bars shoot for, with liquor and spirit pour cost being even lower, on average.
Step 5: Calculate Par Level Inventory (Using Usage Rate)
As we found, our usage for the first week was 19.5 bottles. Now let’s say our usage for the following week was 15 bottles, and our usage for the week after that was 22.5 bottles.
Par Level Inventory = (19.5 Bottles + 15 Bottles + 22.5 Bottles) / 3 (Weeks)
Par Level Inventory = 19 bottles
That’s an average liquor inventory usage rate of 19 bottles per week over 3 weeks. That's a 3-week par level inventory of 19 bottles.
Step 6: Put it All Together
Here’s a snapshot of BinWise Saloon based on this example. They can use this information to improve their liquor inventory control. And their profit margin.
- Variance is high at 23%. They should train their barkeeps on standard pours, the comp policy, and their bar inventory management process.
- Pour cost is high at 26%. If they increase the price of Old Boondoggle by $1 per shot, pour cost will go down to 20%. Alternately, they can look for a cheaper whiskey from their distributor. Or negotiate the price of Old Boondoggle down.
- Par level inventory is 19 bottles per week. So they need at least 19 bottles of Old Boondoggle on their shelf at the start of every week. This minimizes the amount of money tied up in sitting inventory. That money that can go straight into their pocket or be reinvested into their business.
This will all get you well along the road to improving your beverage inventory management system.
But there’s a shortcut:
Using bar inventory software.
How Bar Inventory Software Can Help
Doing everything we’ve described manually with a spreadsheet is a huge task. Doing it all manually, consistently, and accurately is almost impossible. Bar inventory management software can make it easier and save you time and money. It automates the whole process, speeding up counting and quickly providing all the reports and analytics you need. To see why using software instead of spreadsheets is a win-win, let’s look at what bar inventory software does. And how it improves things over manual inventory.
What Bar Inventory Software Does
Most inventory management software often comes with the features that streamline your inventory process.
- Generates a database of all liquor, alcohol, and beer that you own—be it bottles, cans, kegs, cases, etc.
- Creates a printable or digital wine list, beer menu, or cocktail menu. All of which can be modified or updated quickly.
- Scans inventory during the counting process
- Records exactly where bottles are stored
- Logs all brands and flavors of wine, liquor, and beer you have in stock
- Stores which distributor you ordered from, when, and for how much
- Knows which bottles have been used, sold, and which ones need to be restocked
- Keeps a running total of how long each bottle has been sitting on the shelves
- Catalogs which bottles are selling fast and where
- Documents tasting notes and other relevant information
The Benefits of Using Bar Inventory Software
Speed Up Counting
To speed up the counting process, beverage inventory management software typically has barcode scanners. BinWise Pro’s can scan over 50 items per minute. If a scanner isn’t your thing, you can use the BinScan app. And turn any smart device into a scanner.
Finally, with multi-user inventory, team members can collaborate on taking inventory using multiple devices at the same time, and it gets even quicker.
Eliminate Mistakes and Errors
Bar inventory software records inventory far more accurately. Because it automated everything. The benefits of that have a ripple effect: all of the figures you get from taking inventory, like pour cost, liquor variance, and par levels, are all as accurate as possible as well.
Bar inventory software integrates with your POS to automatically deplete inventory as it’s sold, otherwise called maintaining a perpetual inventory. Say goodbye to the errors that screw up your liquor inventory numbers. Say goodbye to wasting hours upon hours causing those errors.
Seamless Reporting and Analysis
Any beverage inventory management software worth its salt will pull reports based on your inventory counts. A good bar inventory software will also track all the places in your bar or restaurant were inventory is sold and used.
This further helps you isolate exactly what products sell, or are wasted, where.And it’s usually as easy as pressing a button. There are dozens of built-in reports that make figuring out numbers like pour cost and variance a cinch. Then you can easily export the data to your accounting system.
One of the biggest benefits of using an inventory management software is having all the important information on your items stored in its database, making reviewing your inventory and how long you’ve had it only a few clicks away.
The system can alert you when certain items have been sitting on your shelves for too long, and are not selling fast enough. This way, you can run specials to get rid of those items, and know not to order them in the future.
If your staff is prone to spillage, breakage, or giving away free comps, the software helps keep track of those incidents. Then bar managers can isolate what the problem is. Maybe a certain drink recipe isn’t being made to spec.
Maybe a bartender isn’t clear on the comp policy. Knowing what causes variance puts bars in the best position possible to lower it.
Never Run Out of Stock
A bar cannot be successful if it runs out of essential items and ingredients. At the same time, it can be difficult to keep track of inventory in a high-volume, high-traffic bar that’s moving thousands of bottles.
Luckily, a bar inventory management system helps monitor it all. It sets up par levels and alerts you when items are running low so you can take action immediately. No more 86ing.
Improve Your Sales and Profitability
Making life easier is great, but that’s probably not why you’re running a bar. You’re trying to make more money. That is, in fact, the single biggest reason why bars today should embrace bar inventory management softwares and apps.
Making the most profitable decisions possible depends on having consistent, accurate data. Using software to count your inventory then turn that inventory process into actionable insights is why bar inventory software matters. You’ll be running a business that always knows its variance, its par levels, its pour costs, its inventory usage.
And when you know those things, you can start turning the screw on each of them and improving things. It’s not just using a smart technology within your bar, it’s making your entire bar a smart operation.
What About a Liquor Inventory or Bar Inventory App?
Most bar inventory software will come with an app version or be able to be used on mobile devices. If you're ready to commit to a bar inventory platform, make sure you ask about mobile usage. BinWise Pro, for example, can be used on mobile devices and syncs with BinScan2.0, our mobile scanning app.
Do Yourself a Favor: Use Bar Inventory Management Software
There’s a theme here: the calculations associated with liquor inventory aren’t too hard. What’s hard is doing it repeatedly. For every product. Accurately again and again, and then recording that data so you can make decisions with it.
That’s what BinWise Pro does. As an automated bar inventory system, it speeds up liquor inventory counting, automatically adjusts your inventory levels in real time, and keeps a running stream of historical data. All of that helps you make the most impactful decisions possible.
Let your mixologist get back behind the bar and blow everyone's minds with incredible cocktails.
Let your highly-trained sommelier charm the dining room and sell some wine.
Stop the horror show.