isn’t aware pour cost is the standard measure of profitability behind the bar. Even staff who aren’t sure what it is know their managers always think pour cost is too darn high. But is it? The answer depends on what you compare it to.
First a quick review. Pour cost is calculated by dividing the cost of depleted inventory by the gross sales it generated over a given period of time. A liquor pour cost of 18.3%, for example, means the business spent more than 18 cents to generate a dollar in sales. It also means that the bar’s gross profit is 81.7%—or just under 82 cents per dollar of sales. Every percentage point pour cost increases or decreases will have an equal and opposite affect on gross profit
Knowing your bar’s cost percentages, however, is only part of what you need to know to make informed decisions. The direction pour cost is heading is equally important. For example, a pour cost of 18.3% might be cause for elation if the previous period’s figure was 20.3% or alarm if it was 16.3%.
However, this raises the earlier question of how can you tell if your pour cost percentages are too high? The above illustration is an example of relying on historical data as a benchmark for evaluating profitability. Comparing your operation’s performance to the previous month, quarter or the year before is a fine idea, unless you rely on the information for anything other than budgetary purposes.
The same is true using published industry norms as a basis of comparison. Even if the figures are broken down on state by state and categorize cost information based on type of operation, they have little practical value as a measuring stick.
Good Compared to What?
Generally speaking, restaurateurs are satisfied if their cost percentages at the bar are around 20% and food costs fall in the 30% range. Although widely accepted as normative, the fact remains that these figures are arbitrary and accepting them as benchmarks could cost you thousands of dollars on an ongoing basis.
“I’ve worked with scores of clients who thought their pour costs of 18% or 19% were outstanding,” says Ian Foster, regional vice president of Bevinco (Bevinco.com), an international beverage auditing service. “But several audits later we uncovered substantial losses from over-pouring and bartender theft. After helping the clients identify and eliminate these problems, their cost percentages dropped at least 2%, which represented a considerable amount of lost profits.”
The money these operators recouped were previously going down the drain, being given away in the form of free drinks or out the back door in someone else’s pockets.
Back to the question of how do you know if your bar’s cost
percentages are in-line? Instead of evaluating them in relationship to arbitrary figures, what’s pivotal is comparing the cost figures to what they optimally should have been— something referred to as “ideal pour cost.” Judging the bar’s performance to what it potentially was capable of establishes an unimpeachable standard.
An optimum pour cost is derived by comparing product usage to sales. For example, if 100 ounces of Absolut Vodka were poured during the course of an inventory period, but sales accounting for only 75 ounces were entered into the point of sale system, the item’s actual cost percentage and its potential cost percentage would differ markedly. Presuming a liter of Absolut costs $.74 per ounce and drinks containing a 1 1/4 portion sell for $5.50, the depleted 100 ounces should have generated $440 in sales. However, only 60 sales worth $330 were entered into the system, resulting in a shortfall of $110 in revenue. As a result, Absolut’s actual pour cost was 22.4%, while optimally it should have been 16.8%, a variance of almost 34%.
The above process reveals much more about what has transpired behind the bar than is capable using standard techniques and is one of the benchmarks of Bevinco’s auditing services. The Bevinco Bar Variance Report details any overages or shortages of inventory, pour costs for all categories, revenue per ounce for all depleted inventory and the revenue potential of the lost inventory.
Like a CAT scan, the process looks beneath the surface and reveals a computer-enhanced view of what’s transpiring behind your bar. Imagine the impact this information would have on your achieving sustained profitability.
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