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What Should Your Pour Cost Percentage Be?

pour cost percentage

I hear the same thing from owners and managers everywhere I go: “My pour cost percentage is fine. Why would I need your system?”

Simple, sir (or madam)…because you are blind to what is going on behind your bar.

First of all, most owners have no idea if their pour cost percentage is fine or not because they don’t know what’s causing it to go up and down. Many feel that if they are at 22%, then they are doing just fine, but in reality they have no idea.

Second of all, I find that many owners don’t want to know what’s going on behind their bar. It’s absolutely insane to me that you wouldn’t want to know what’s going on in your business, but I see it time and time again.

POUR COST % VARIES GREATLY ON MANY FACTORS, INCLUDING:

  1. What you price your drinks at
  2. Bartender theft
  3. The accuracy of the inventory count
  4. The amount of happy hour or discount specials you sell
  5. Which product the guests order to drink

And it’s the last one that owners and managers rarely take into account. Since you cannot control what your guests order, you cannot possibly determine the financial stability of your bar based on pour cost % because it is going to bounce around simply based on your sales mix.

For example, well liquor typically runs at 5 – 10%, while premium products can be 18%, 20%, 25%, 30% or higher. Wine runs 30 – 35%, beer at 20 – 25%. Every bar is losing money on martinis. How in the hell are you supposed to determine if your bartenders are over-pouring when the products you pour run from 5% – 35%? Did your guests order a lot of wine last month, or mostly draft beer? Did they order 30 shots of Don Julio 1942 at $25 per shot and a 27% pour cost, or did they order 200 shots well tequila at 6%?

The point? You can’t possibly monitor what’s going on in the trenches behind your bar using pour cost % because pour cost % involves so many more factors than you can keep track of.

IS YOUR POUR COST TOO HIGH?

YES! That’s the answer. There is no maybe about it. If you only use pour cost % to monitor the financial health of your bar, you are missing out on tens-of-thousands of dollars—possibly hundreds-of-thousands of dollars—of profit per year, depending on the sales volume of your bar.

The reason: 95% of bartenders steal! That might sound harsh and over exaggerated, but stealing is not simply skimming money from the register. Stealing includes anything the violates the standards that are set in a bar, including giving away free drinks, drinking on the job for free, over-pouring, and pouring premium products but ringing in a lower priced product in order to make a better tip. Whatever your pour cost % is, it should be at least 4 percentage points lower. I guarantee it. Owners are missing out on so much profit it’s sickening.

THE TRUTH ABOUT UPSELLING

Is upselling to a premium product good for a bar? Most owners would say yes. And they’d be right, because premium products bring in a higher profit, but if you solely use pour cost % to determine if your bartenders are over-pouring, there is no way they will ever upsell to a premium product ever again because the sale of premium products raises your pour cost %. Take a look.

WELL VODKA

Ideal PC % = 5.33%

Wholesale cost of bottle = $6

Retail cost per shot = $5

Retail sales per bottle = $112.50

Profit per bottle = $106.50

 GREY GOOSE

Ideal PC % = 17.78%

Wholesale cost of bottle = $36

Retail cost per shot = $9

Retail sales per bottle = $202.50

Profit per bottle = $166.50

But why would your bar and serving staff ever want to upsell if they are being questioned about the pour cost %?

 VARIANCE PERCENTAGE: IT’S THE ONLY WAY

When it comes to monitoring profit and loss in a bar, I am very religious about using variance % to determine if the bartenders are following the prescribed standards (assuming any exist) set by the owner and managers.

What is variance %? Variance % measures the difference between what is poured by the bartenders to what is rang into the POS system. In other words, if a bar’s shot portion is 1.5 oz. and 10 shots of Jameson are rang into the POS system, then ideally, the amount poured by the bartenders (expected usage) should be 15 oz. (1.5 x 10 = 15). But if 25 oz. are poured instead (actual usage), the bar is missing 10 oz. (usage difference) or 6.67 shots of Jameson, and if Jameson is $7 per shot, the bar just lost $46.69 in retail liquor.

HOW DO I FIGURE VARIANCE %?

Variance % = Usage Difference ÷ Expected Usage x 100

So in the above example, the variance % would be 10 oz. (difference) ÷ 15 (expected) x 100 = 66.67%. And in case you didn’t know, 67% variance is bad!

WHAT SHOULD MY VARIANCE % BE?

My goal is to get my clients down to 5% – 7% variance, but if we can get the variance into single digits, the bar will save thousands, and that’s because the average beginning variance % of the bars I work with is 34%. That means the gap between what is being poured to what is being rung into the POS—or what is missing—is one-third.

WHY YOUR POUR COST IS DIFFERENT EACH MONTH?

My client realized that their bartenders had been routinely over-pouring and not ringing up drink sales, for months, years, probably decades. His focus on keeping the pour cost in the 19% to 21% range was counter-productive. It had actually prevented them from discovering the high losses – and from making a lot more money.

HOW MUCH MONEY ARE YOU MISSING?

As I’ve mentioned, the losses are staggering, and nearly every owner I work with nearly falls over in his/her chair when I show them how much money they are losing in a one week period. They have no idea.

Over-pouring is by far the biggest problem in every establishment. Just eliminating the over-pouring saves the bar a substantial amount of money. In fact, the average client of Bar Patrol loses more than $2,200 per week…$8,800 per month…$114,400 per year. That’s a lot of money to be turning your head the other way and hoping that your pour cost % is low enough.

HOW CAN YOU REDUCE YOUR POUR COST %?

Raising prices lowers your percentage, but it also lowers the number of guests coming into your bar. You could sell the hell out of well liquor. That will certainly reduce your pour cost %, but as mentioned above, you will earn less profit which is a ridiculous financial strategy because we all know that you put money in the bank, not percentages.

The best way to reduce your pour cost is to focus on eliminating the over-pouring and lost sales that plague virtually every bar in the world.

The most important step is to find out exactly how much alcohol you are missing, and the only way to do that is to have a system with proper software in place that can account for it. Only with the correct information, can you be sure your pour cost is as low as it should be and that you are saving the most money. Any other way, and you are a fool who will soon part from his aforementioned money.

THE HARD TRUTH

The truth is, if you don’t carefully track your inventory, you can’t measure it, and if you can’t measure it you can’t monitor it, and if you can’t monitor it you have no idea where the leaks are occurring, and if you don’t know where the leaks are occurring how are you supposed to run a successful business? For owners who run a bar like this, failure is imminent, and if not failure, then certainly mediocrity.

As I always say, don’t be a bar owner, be a business owner.

What is Pour Cost Percentage and How to Calculate it

bar management

For those of you new to this whole bar managing thing, or if you’re a bartender who keeps hearing, “Goddammit, the pour cost percentage is too high,” and you find yourself nodding and pretending to know what that means, I’m here to help. In fact, we’re not only going to go over how to figure your overall pour cost percentage, but how to figure it for individual products so you can price them properly. So let’s go ahead and find out exactly what this pour cost percentage crap is all about.

WHAT THE HELL IS POUR COST % EXACTLY?

Pour cost % measures the gross margin of profit on your products and goods. “And what the hell does that mean?”

That means if your pour cost % for your beer, liquor and wine is 21%, that the bar made 79% in gross profit from those products.

In five-year-old terms: At 21% pour cost, for every $1 you sell, the bar gets $0.79.

Got it? I hope so, or you should stop managing bars, or be allowed to participate in society as a citizen in general anymore.

HOW TO FIGURE MONTHLY  POUR COST %

Chances are many of you at least have a notion of what pour cost % is and what it measures. Calculating it can be a bit more tricky if you have never done it before, so let’s dive right in.

HOW TO FIGURE POUR COST % FOR INDIVIDUAL PRODUCTS

Being able to figure the pour cost % for individual products is extremely valuable in helping you set your pricing. The good thing is once you have figured out the pour cost % for one product, it will apply to many of your other products as well, so you won’t have to do math for every single brand you carry.

In other words, all 1 liter bottles that sell for $8 per shot will have the same pour cost, so you only need to figure the cost for one bottle with that price point.

Once you have your individual products  figured out, you can determine if you need to raise or lower the price to meet your goal pour cost %.

With that said, let’s get to calculating.

The formula for figuring pour cost percentage for a single product is simple:

Wholesale Price / Retail Price x 100 = Pour Cost %

In order to figure the  pour cost %, we must know the wholesale cost and retail price of a product, which is easy, but you must make sure to use the same quantity for both. In other words, figure the cost and price for an entire bottle or figure the cost and price for an oz. of that product, but be consistent.

I find doing the entire container is easier, so this is the way I will teach you.

Figuring the wholesale price is the easy part: simply retrieve that information from your invoices.

Figuring the retail price of the product takes a little more effort, which I’m sure you’ll be happy to put forth because you are such an awesome, hard-working manager, so let’s go ahead and discuss what we need to figure the retail price of a single product.

 

To figure the retail price we must know:

  1. The size of the container in oz.
  2. The portion size of the product being served
  3. The retail price of that portion

That’s it. So here are some common containers and how many oz are in each:

1 Liter Bottle = 33.81 oz.

750 ml Bottle = 25.36 oz.

15.5 Gallon Keg = 1984 oz.

7.5 Gallon Keg = 960 oz.

5.16 Gallon Keg = 660 oz.

Now let’s go over an example of how to figure the pour cost percentage of the following:

1 Liter Bottle of Grey Goose

750 ml Bottle of BV Cabernet

½ Barrel Keg (15.5 Gallon) of Coors Light

Grey Goose → Wholesale Price = $38

Now for the 3 things we need to know

Bottle Size = 1 Liter

Portion (Shot) Size = 1.5 oz.

Retail Price = $9 per shot

 

Figuring Retail Price of Bottle

33.81 oz. / 1.5 oz. = 22.5 shots per bottle

$9 x 22.5 = $202.50

Pour Cost % = WS ($38) / RT ($202.50) x 100 = 18.77%

 

BV Cabernet → Wholesale Price = $9

Bottle Size = 750 ml

Portion Size = 6 oz.

Retail Price = $8 per glass

 

Figuring Retail Price of Bottle

25.36 / 6 = 4.23 glasses per bottle

$8 x 4.23 = $33.84

Pour Cost % = WS ($9) / RT ($33.84) x 100 = 26.60%

Coors Light Draft → WS Cost = $129

Keg Size = 1984 oz.

Portion size = 16 oz

Retail Price = $5

 

Figuring Retail Price of Keg

1984 / 16 = 124 pints per keg

$5 x 124 = $620

Pour Cost % = WS ($129) / RT ($620) = 20.81%

Make sense? Good. Let’s move on to figuring pour cost percentage for your entire bar using your inventory process.

HOW TO FIGURE OVERALL POUR COST %

The formula for figuring overall pour cost % via your monthly inventory is:

 

Beginning Inventory + Purchases – Ending Inventory

                                                                _________________________________________     x 100

                                                                                                    Monthly Bar Sales

 

Remember, anytime you are doing pour cost %, whether individually or overall, it is wholesale value / retail value or sales.

Let’s give a quick example:

June 1st – You take a full inventory of beer, wine and liquor and the wholesale value = $12,743

During the month of June, $11,500 worth of products are delivered

July 1st – You take another full inventory and your wholesale value = $12,158

Monthly Sales for June = $50,649

So let’s do the math:

                                                   Beg. Inventory ($12,743) + Purchases ($11,500) – End Inventory ($12,158)

                                            ________________________________________________________   x 100

                                                                                            Total Sales ($50,649)

                                                                                                      =23.86%

That’s all, folks. If you don’t know what your pour cost % is for each of your products, as well as your monthly percentage, you aren’t managing and running your business like a professional.

If you would like to read deeper into how pour cost percentage works, read What Should Your Pour Cost % Be?

Cheers, until next time,

Dave