Your Guide to Mastering Bar Inventory Management
A gifted mixologist wasted hours staring at liquor bottles … taking bar inventory.
A certified 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, time-consuming, and error-prone. If you do it poorly, your profits will evaporate, and if you do it well, your profit margin will soar.
But it’s low-hanging fruit. It seems like a monster task, but it can be made so much easier. This guide is going to help you get there.
Here’s how to take your inventory, how it will save you money, how you can master it, and how inventory management software can help.
How to Do Bar Inventory
At its most basic, taking liquor inventory is the process of counting everything you have (twice!). Then, you figure out how much of it you used, which is known as calculating inventory usage. Here’s how to do both.
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.
If you’re not using any software (the benefits of which we’ll get into later), you’ll need two things to begin:
- A bar inventory spreadsheet template
- A time frame
Thankfully, those are both free. Once you’ve downloaded your spreadsheet, you can take your inventory using these steps:
- Start at your front bar, note how many bottles of every kind of liquor you have and their levels.
- 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. Take your bar’s inventory every two weeks is a good idea, 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, wait, then count your stuff again. Accurately counting your wine, beer, and liquor inventory is the basis for calculating your inventory usage.
Calculate Inventory Usage
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 = $340
Once you’ve got a good grasp of the usage for every product you sell, you can start drawing conclusions based on usage rates. Those conclusions will save your bar money.
How Taking Bar Inventory Saves Money
Let’s talk about most peoples’ favorite subject, money, and the ways inventory management can make you a pile of it.
You can now put your inventory usage levels to work for you. Here are three factors using inventory usage that affect bar profitability: variance, pour costs, and par levels.
Identify Product Variance
Variance—also called shrinkage or loss—is the difference between the amount of product sold and the amount of product used. In a perfect world, those two amounts are the same, but this is not that world.
Here’s the formula for calculating your bar’s variance:
Variance ($) = Cost of Goods Sold ($) – Usage ($)
Variance (%) = Variance ($) / Usage ($)
If a product’s variance is 20%, it means that, of all the product used, 20% is lost and not sold.
The cause of high variance is often some combination of over-pouring, mistakes, breakage, and theft. 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 figure out pour 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 a 20% pour cost, with target liquor pour costs dipping even lower, to around 15%.
Whatever products have the lowest pour cost are most profitable. Knowing your profitable products helps you make informed decisions, from ordering and purchasing to designing the perfect drink menu.
But there’s still one more important way to use your inventory usage rates to save money and boost profit.
Setting Par Level Inventory
Finally, you set your bar’s 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 excess 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’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. 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
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 inventory usage rates and use those numbers to determine variance, pour cost, and par levels 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, train your staff properly, and experiment with your process.
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. 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.
If your staff routinely does this, 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 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
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 for what inventory management process works for your bar. Ask yourself and your staff these questions:
- 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.
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. 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. 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.
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?
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. 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 = -$90
Variance (%) = Variance ($) / 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. 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. 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. Let’s look at some ways 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 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.
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 liquor inventory numbers. Say goodbye to wasting hours upon hours causing those errors by taking inventory manually.
A good bar inventory software will track all the places in your bar or restaurant were inventory is sold and used. This can help you isolate exactly what products sell, or are wasted, where.
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.
Seamless Reporting and Analysis
Any beverage inventory management software worth its salt will pull reports based on your inventory counts.
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.
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 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. 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 sommelier charm the dining room and sell some wine.
Stop the horror show.