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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.

Your Bar Manager Sucks!

Many people may not know this about me, but I’m on a committee to pass a bill that requires bar managers to do “management ride-alongs” with other successful managers before they are allowed to get hired as a bar or restaurant manager.  Alright, I lied.  After all, committees are hard.

It wasn’t until I started my business five years ago that I really started paying attention and putting managers under a microscope, and since then the lack of leadership and accountability I have witnessed has started me down a rabbit hole of madness. I’m talking curl-into-a-fetal-position-and-suck-your-thumb kind of madness.  Forget postal workers. Apathetic bar managers incite me to be 21 times more likely to carve someone’s eyes out with a salad fork than a mailman.

I can only compare it to Chinese water torture (drip, drip, drip).  That single drop splashing on your forehead is nothing at first, but witnessing bar managers leaning indifferently on the end of the bar for an hour without moving adds up until the tension becomes so unbearable I want to take a cast iron frying pan to my face until sweet unconsciousness envelopes me.

Alright, perhaps that’s a bit melodramatic, but I’m done with this shit. I’m done with that manager who is as effective as a homeless tramp who has wandered in off the streets because all he does is hang out at the bar all night flirting with girls and pouring shots for them every few minutes, which he never rings up. Every time they have a shot, he joins them and then tells the bartender, “I got those,” even though he doesn’t “got them” at all because it’s the owner who has “got them” and who is paying for them. And whenever there’s a problem with a guest at a table, instead of walking over and actually engaging the guest in conversation, maybe making things right, he simply cranes his neck like a drunken giraffe in the direction of the upset table but never actually walks over. Instead he orders more shots for the girls at the bar and then creepily lowers his hand to the small of the closet girl’s back.

I’m telling you, I’m done with them. I’m done with owners and managers telling me, “Well, taking care of our regulars and giving away a few drinks is just the way our industry works.” Bullshit! That’s the way 85% of bars go our of business in our industry. THAT’S the way this industry works. I’m done with them, and so should you.

Now you believe me about that postal thing, don’t you? (Drip, drip, drip)

THE 5 NOT-SO-GOOD, THE BAD AND THE UGLY WAYS YOUR MANAGER IS WRECKING YOUR BAR

So what exactly are your managers doing to wreck your business? I have a hunch that deep down you already know, but you’ve been ignoring these issues because you have your own balls to juggle, and adding another ball into the mix by firing, hiring and training someone new is about attractive an idea to you as climbing naked through a field of razor wire and red army ants.

However, you can’t continue to ignore the giant elephant staring right at you, and whether you want to believe it or not, much of this neglect is going on when you’re not there. Many managers are masters of deception, like Eddie Haskell from Leave it to Beaver. Remember him? He’d be nauseatingly sweet to Wally and the Beav’s parents face-to-face and then when they left he’d turn into the most devious little shit you’ve ever met.

From my experience, there a number of ways bad management will cancer your bar/restaurant right out of business, but I’ve narrowed it down to the five most detrimental behaviors that are preventing you from being a happy and successful business owner.

1.  Your manager is too close with the staff.  Being friends with the people you’re supposed to be a boss to is a Kryptonite to a manager’s authoritative powers. Staying on top of unproductive or inappropriate tasks is a key responsibility in managing a business, and if the manager isn’t willing to have those difficult conversations, it’s a detriment to the operation of your business. Worse yet is when he/she starts sleeping with the staff. No industry has employees hook up more than the bar/restaurant industry, but my rule is: once you take on the job as manager, no dating/boinking within the ranks. If you don’t adopt this policy, you will regret it.

2.  They sit in their office on Facebook instead of making warm-fuzzies with the guests. Your manager’s job when you aren’t there is to be the face of the bar/restaurant. To interact with guests and keep employees on task. When you find him/her in the office every time you come in, that’s bad, even though they will convince you that they were “making the schedule” or “ordering liquor” or “doing payroll”. They’re up to no good when they spend too much time in the office. They need to be on the floor.

3.  They give away free drinks/drinks him/herself. You’ll need to straighten and brace yourself for this one. If it makes them look good, your manager will use his/her authority to give away whatever they want to guests. They especially know they can get away with this with no inventory management system in place. It’s bad enough to have to worry about your bartenders. You shouldn’t have to worry about your bar manager as well. And believe me, their doing it when you’re not there.

4.  They fail to enforce or support the standards and systems that have been put into place (basically leadership in general). First of all, if you don’t have specific standards and systems in place, your first order of business is to sit down and draft those out. Second of all, you’d better make sure your managers and entire staff understand that those rules and standards are law. It’s your job to enforce your standards to the enforcers or they will never do the same for you. It’s a tough question to answer, but if someone were to ask me the most important factor for succeeding in this industry (listen up here), it would be enforcing the standards of the bar/restaurant. Without accountability, businesses go to shit.

5.  The manager is your friend. This might difficult for you to hear, but similar to #1 on this list, if you are too close to your managers to be the boss, trouble is coming. You are trusting him/her and putting the business in their hands, so in your mind it’s inconceivable to you that they would do anything to hurt you. But the truth is, they don’t do it to hurt you. They do it because they are unmotivated and they have not been properly trained. Even if the manager is your friend, you need to have those conversations with him/her to make it clear that the standards that have been set are expected to be enforced. If you are not firm with your managers, they will take advantage by doing a very mediocre and uninspired job of running the business.

Your managers should be an extension of you. Take a minute to step back and make the decision to set high standards, not only for your bar/restaurant, but for your entire staff, and then have regular meetings with your management to review how well they’ve been enforcing those standards. Without monitoring and evaluation, there is no improvement, and without growth stagnation sets in. At that point, your on a path to doom, or at the very best mediocrity.

Best of luck to all.

Cheers, until next time.

The RB