Your Guide to Mastering Bar Inventory Management
A gifted mixologist wastes hours tapping on a computer in the back office.
A certified sommelier fritters away the evening in a dank cellar.
These scenes repeat themselves over and over again in bars everywhere. Talented, creative people spend tons of time on a necessary evil: wrestling with bar inventory management.
Taking your bar’s inventory is the process of repeatedly and accurately recording how many bottles of wine, kegs of beer, and bottles of liquor you have—and their levels.
It’s arguably the most crucial and daunting part of running a bar. It isn’t easy. It can be painful, time-consuming, and error-prone.
And it affects your whole bar business. If you do it poorly, you’re at a major disadvantage across the board.
But if you do it well, everything falls into place.
Bar Inventory Is Actually Your Friend
It’s even more than that. It’s a godsend. An optimized bar inventory management system contains all the information you need to increase your bar’s profit margin.
It allows you to purchase and order strategically—keeping popular drinks in stock and putting the most profitable ones front-and-center.
It also saves boatloads of time and energy. Those are things you’re likely familiar with wasting if you’ve ever struggled through manually taking bar inventory.
And the best part is, it’s low-hanging fruit. It seems like a monster task, but it can be made so much easier.
Simply put, improving your bar inventory management is one of the easiest ways to increase your chances of running a profitable business.
So let’s get to it.
Here’s your complete guide to how and when bar inventory is done and how to get better at it.
How to Do Bar Inventory
Some folks do liquor inventory control the old-fashioned way: sharpening up the ol’ number 2 and putting pencil to paper. In that case, a bar inventory spreadsheet will be a great help: just whip up your bar inventory list using a template and follow along.
Other folks prefer automating it with bar inventory management software, which has huge benefits that we’ll get into as we go.
Regardless, here are the steps to take to absolutely crush your bar inventory management.
Every. Single. Thing. We’ll come right out and say it: taking bar 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, and that can be a massive time suck.
But it doesn’t have to be! BinWise Pro exists to make it painless.
Either way, it’s important. Accurately counting your wine, beer, and liquor inventory is the basis for figuring out your:
- Inventory usage
- Variance levels
- Pour costs
- Par level inventory
At the end of a good inventory-taking sesh’, you should be in a place to calculate all these super useful numbers that will show you the path forward to a well-run, profitable bar.
And you’ll begin with inventory usage.
Calculate Inventory Usage
Inventory usage is straight-forward and mega-important. It’s the heart and soul of every bar inventory system, and it’s used to figure out all the other numbers in this guide.
Get it right and you’ll be making smart decisions and driving a solid strategy all the way to the bank.
There are four components to calculating inventory usage:
- A time frame
- The amount of product you start the time frame with
- Any of that product received during the time frame
- The amount of product you end the time frame with
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.
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.
Bar and liquor inventory usage is what all the other important metrics are based on, and—we’ll say it again—getting it right can make or break your bar inventory management system.
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 = $340
Once you’ve got a good grasp of the usage for every product you sell, you’ll be able to use that information to start tackling your bar’s profitability.
How Taking Bar Inventory Saves Money
Let’s talk about most peoples’ favorite subject, money, and the ways bar inventory management can make you a pile of it.
You can now put your usage levels to work for you to dig into what causes your variance, what drinks are losing and making you money, and what the most advantageous par levels are.
Using Bar Inventory to Identify Product Variance
Variance is the difference between the amount of product sold and the amount of product used. In a perfect world, those two amounts are the same, but this is not that world.
It’s also called shrinkage or loss, and it can happen in a bunch of different ways: over-pouring, mistakes, breakage, and theft are among the most common.
Here’s the formula for calculating your bar’s variance:
Variance ($) = Cost of Goods Sold ($) – Usage ($)
And to find the percentage:
Variance (%) = Variance ($) / Usage ($)
Calculating variance for every product will give you a precise picture of where to turn the screws on your operations to plug any leaks that are screwing up your inventory numbers, and potentially affecting your bottom line.
If a product’s variance is 20%, it means 20% of that product is being lost, not sold.
Taken collectively, the variance of all your products will give you a good look into how tight your inventory management is, and how money is slipping through the cracks.
Using Bar Inventory to Calculate Pour Costs
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 figure out pour cost, take that product’s inventory usage (in dollars) and divide by its total sales.
Pour Cost (%) = Inventory Usage ($) / Total Sales ($)
What products are most profitable, i.e., have the lowest pour cost, informs a whole host of other decisions, from ordering and purchasing to designing the perfect drink menu.
Most bars shoot for a 20% pour cost, with target liquor pour costs dipping even lower, to around 15%.
Setting Par Level Inventory
The next step is setting your bar’s par levels.
A product’s par level inventory is the minimum amount needed to keep it in stock at all times—to make sure nothing gets 86’d, and to cut down on excess sitting inventory.
This is where consistently calculating inventory usage comes in handy, because par level is set on your past inventory usage trends.
This is also something a bar inventory software like BinWise Pro can do way better than a human. Please, let the robots help.
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
That’s an average usage of 16 bottles per month over a 3-month time frame, and that’s the safest minimum number of Barolo bottles to keep in your cellar per month to ensure you’re meeting demand but not sitting on too much unused product.
That’s your monthly Barolo par level inventory.
Cutting Down on Sitting Bar Inventory
Reducing the inventory on your shelves makes your bar more profitable. Why? Because sitting inventory is product on your shelf that you’re not selling … yet. It’s taking up valuable space from other products you could be selling, and it’s tying up money you could use for more staff, repairs, renovations, or to stuff into your pocket as profit.
Here’s some tips 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’re going to be using the most of the product before your next order.
The benefits of reducing your bar’s sitting inventory are many. You’ll:
- 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
Mastering the Art of Bar Inventory Management
You know how to take your bar’s inventory, and you know that it can lower costs, increase profit, save time, and generally make everyone’s lives easier.
So here are some best practices to make sure you’re getting it right:
Whenever you decide to take your inventory, weekly, bi-weekly, or monthly, consistently do it on the same day.
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, and the more effective your choices based on those numbers will be.
Train Your Staff
Your staff is the last touchpoint between your inventory and its fate: loss or profit. Training staff on the tried-and-true rule of tenths, how to identify shrinkage, and the beverage inventory management system as a whole will help in a big way.
First, train your staff to 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.
If your staff routinely does this, they’ll be counting the inventory for you, and 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 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 responsibilities factor into the overall health of the bar, they quicker they’ll notice where improvements can be made.
Experiment with Your Process
Picture Thomas Edison. You’re likely thinking of a man in a laboratory, surrounded by trinkets and inventions, toiling away.
That’s because Thomas Edison was one of the most productive, successful people who ever lived. And a lot of that boiled down to him trying things again and again until they worked.
The same goes with what process works for you and your staff.
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 inventory, note what worked and what didn’t. Constantly update your process until it’s working just right.
It’ll take a while, but everything worthwhile does.
A 6-Step Example of Doing Bar Inventory
Here’s another example of how all these pieces fit together using 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 at BinWise Saloon 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.
Inventory Received = 10 Bottles of $200
Step 2: Calculate Inventory Usage Rate
These numbers are all based on when inventory was taken, so they’re weekly. We’ll use the same formula that we used earlier:
Usage = Starting Inventory + Inventory Received – Ending Inventory
Usage = 18.5 Bottles (or $370) + 10 Bottles (or $200) – 9 Bottles (or $180)
Usage = 19.5 bottles (or $390)
Step 3: Calculate Variance (Using Usage Rate)
How much Old Boondoggle is dripping through the cracks every week?
To figure that out, 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, which is 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 its product 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. As mentioned above, 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. 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, and some ways they can use this information to improve their liquor inventory control and their profit margin:
- Variance is high at 23%. Train your barkeep on standard pours, the comp policy, and your inventory management process.
- Pour cost is high at 26%. Increase the price of Old Boondoggle by $1 per shot and pour cost will go down to 20%. Alternately, look for a cheaper whiskey from your distributor or negotiate the price of Old Boondoggle down.
- Your par level inventory is 19 bottles per week. You need at least 19 bottles of Old Boondoggle on your shelf at the start of every week to minimize the amount of money tied up in sitting inventory—unused product. That money can go straight into your pocket, toward hiring more or better staff, or any number of tweaks to make the drankin’ experience (better stools, a new spittoon, etc.) more enjoyable for customers.
Wine and Beer Inventory
These general rules will get you well along the road to improving your beverage inventory management system, but there are some special considerations to make based on product type.
Every time a great bottle of wine swirls down the drain, a sommelier, somewhere, sheds a tear.
Wine cellar inventory management is difficult, and can be so involved it feels like a separate process entirely.
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.
Lots of bars use kegs, and taking keg inventory is a different animal. Here are 3 ways to go about it:
- 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, but 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 think about using a separate beer inventory management spreadsheet, which, like wine, 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.
How Bar Inventory Software Can Help
Doing all this manually is a huge task. Doing all this manually and accurately is almost impossible. Bar inventory management software can make it way easier and save you tons of time and money. How? Like so:
Automated Bar Inventory
Bar inventory software like BinWise Pro 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 inventory numbers, and say goodbye to wasting hours upon hours causing those errors by taking inventory manually.
A good beverage inventory software will even track all the revenue centers where the inventory is sold: from the dining room to the patio to the bar and beyond. This can help you isolate exactly what products sell well where.
Speed Up Counting
To speed up the counting process, BinWise Pro has a barcode scanner that 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.
And with multi-user inventory, team members can collaborate on taking inventory using multiple devices at the same time, and it gets even quicker.
Seamless Reporting and Analysis
Any beverage inventory management software worth its salt will pull reports based on your inventory counts.
With BinWise Pro, it’s 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. You can then easily export the data to your accounting system.
Do Yourself a Favor: Use Bar Inventory Management Software
There’s a theme here: the calculations associated with bar inventory aren’t too hard. What’s hard is doing it repeatedly, for every product, accurately, again and again, and recording that data so you can make decisions with it.
That’s what BinWise Pro does. It speeds up counting, automatically adjusts your inventory levels in real time, and keeps a running stream of historical data to help 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 sommelier charm the dining room and sell some wine.
Stop the horror show.