BAR INVENTORY SIMPLIFIED
If you’ve come here in order to learn how to count stuff properly (especially bar inventory), you’re in the right place. In this article I’m going to give you the simple 6-step process you need in order to count and master your weekly and monthly bar inventory like a pro, including how to easily figure your pour cost percentage at any time.
Now, I know counting your liquor inventory is probably not at the top of your bucket list. Or even your thimble list. It can be tedious and boring, but it’s mega-integral for running a successful business. The truth is, most people consider the bar and restaurant industry a service and hospitality industry, and it is, but first and foremost, it’s an inventory business. We buy and sell products just like the retail industry, and if we don’t track those products, we have no way to measure how successful we are at reaching our profit margin goals.
How important is it? Let’s take a look.
Yep, the pretty illustration doesn’t lie. The retail industry, which has diligent inventory tracking systems in place, only loses about 1 – 2% of their inventory due to theft, which translates to huge profits. The bar industry, on the other hand, loses nearly 1/4 of their profits for the exact same reason, and yet there are still knuckle-heads out there unwilling to count their bar inventory.
You get the point. Es muy importante. With that said, let’s jump into the 6 steps for mastering your bar inventory.
THE PRE-INVENTORY STEPS
You’ll be happy to know that the actual bar inventory is only 4 steps, so these first two steps you’ll only need to do the first time. These are what I call the pre-inventory steps, and the purpose of these first two steps are to 1) determine the health of your inventory right now, and 2) help you set up your ordering to make it easier and so you don’t overstock or run out of inventory.
STEP 1: DETERMINE HOW MUCH INVENTORY YOU HAVE ON-HAND
For this step, you’ll need to take a full inventory stock, and what we want to do here is figure how much inventory we have on-hand in wholesale $ amount. And the reason we want to do this first is to determine if you have too much stock on hand, and if you do, how far away are you from where you want to be.
In order to do this, I created an awesome metric (if I do say so myself) called the 15% rule. The 15% rule, by definition, is your sitting inventory in ratio to your monthly sales. The closer to 15% you are the better. Let’s try an example:
Let’s say that your total bar inventory on-hand in wholesale $ amount = $12,959. Your monthly bar sales are $50,000. Now just do the math.
$12,959 ÷ $50,000 = 25.92%
This means you have nearly 11% too much inventory on-hand and need to cut back.
Another way to determine how overstocked you are, and to figure out how much capital you have tied up in inventory is to multiply your monthly sales by 15%. So using the same example, $50,000 x 0.15 = $7,500. That’s how much you should have in sitting bar inventory in wholesale $ amount, which in turn means that you have an extra $5,459 tied up in inventory ($12,959 – $7,500) that you could be using for other things, like marketing or promotions.
STEP 2: SET YOUR PARS
Now that you know where you’re at with your sitting inventory, it’s time to set your liquor, beer and wine pars so that you can whittle your inventory down to that 15%. Pars ensure that you don’t over-order, but they also ensure that you have enough stock on-hand that you don’t run out. For that, we have a simple formula for setting your pars:
Weekly Usage x 2
That’s it. But just to make sure you got it, let’s do a quick example:
Let’s say that you check your usage report for the past 28 days and you see that you went through 20.8 bottles of Grey Goose. If you divide that by 4 weeks you know that on average you go through 5.2 bottles of Grey Goose per week. To get your Grey Goose par, simply multiply 5.2 x 2 = 10.4. Round down to 10.
Grey Goose par = 10
You need to do this for each of your beer, liquor and wine products, and then when it comes time to order for the week, you’ll be able to see how much you need to order to keep the par levels. If you count and have 4.1 bottles of Grey Goose, you know you need to order 6 bottles to get back to par.
Having a quality inventory management system like Bar Patrol makes this process a piece of cake. Not only will it tell you exactly what to order, but with a single push of a button, it will email your order off to your vendors, and when the order comes in, it will create an automatic invoice for you so you don’t have to manually enter what came in. This saves you hours of time and makes managing your inventory like walking on clouds. Don’t look at me like that. It’s true.
THE RECURRING INVENTORY PROCESS
Once you have taken care of steps 1 and 2, you won’t have to worry about them anymore except to check in once in awhile on the 15% rule to see how lean your sitting inventory is, as well as your pars to make adjustments when certain products become hot or cold movers. Steps 3 – 6 will be your ongoing inventory process. Your meat and potatoes, if you will.
STEP 3: COUNT YOUR INVENTORY
This is the step that most owners and managers despise the most: the actual counting. Depending how big your bar is and how many products you carry, your inventory count could take as little as 20 minutes or as long as a few hours. You’ll want to make sure to count all of your liquor, beer and wine in every location of your bar. A full stock take on your inventory.
Again, investing in a bar inventory app is well-worth it considering the speed and accuracy during the counting process. If you are still counting with bar inventory spreadsheets and tally marks, your business is going to be way behind in efficiency and accuracy when it comes to counting and tracking bartender pours.
In addition, using old-school inventory spreadsheets also means that you will most likely be point-counting your open or partial bottles, which is cause for a 10 – 15% margin of error, because your 0.4 is different from my 0.4. The most accurate method of counting partial bottles is to weigh them. For more on the difference between point counting vs. weighing your bottles check out Bar Inventory: Should You Weigh or Point Count Your Bottles?
You can also check out the bluetooth scale here that we use at Bar Patrol.
STEP 4: ENTER YOUR INVOICES
During the week, you need to make sure you enter your invoices into whatever inventory system you are using in order to account for the products coming in. This is not something to fall behind on, so you’ll want to sit down for 10 – 15 minutes and make sure everything is entered, as well as adjusting prices on a weekly basis. With a good inventory management system, these invoices will automatically be accounted for, which is a big relief every time you see a delivery start rolling in the door.
If you fail to account for the invoices and products coming through your doors, then your usage and variance reports are going to be way off because you will have a surplus of inventory on-hand that has not been accounted for. Make it a habit to enter your invoices the day your bar products are delivered.
STEP 5: COUNT YOUR 2ND INVENTORY
No complex head-scratcher here. Start counting, just like you did the first time. This is the recurring inventory process. Now, a question I get a lot is, “How often should I count my liquor inventory?” That’s a personal preference, but my suggestion is take a full inventory once per week, as well as at the 1st of the month, and then do spot-checks during the week to see how accurately your bartenders are pouring. For more on how to spot check, you can check out this video How to Spot Check Your Bartenders in 10 Minutes Flat.
Once your second inventory has been counted, you now have two inventory counts which means you can determine your usage, which you need in order to figure your pour cost percentage and variance, which leads us into step 6:
STEP 6: PLUG IN THE NUMBERS
All the hard work is done, unless of course you love manual labor and hate using the old noodle. But I’m going to break it down and make it easy for you. The first question we need to ask is, “What numbers do we need exactly to calculate pour cost percentage?” Well, here’s the formula:
Beginning (1st) Inventory + Purchases (Invoices) – Ending (2nd) Inventory ÷ Total Sales
The simpler version is Usage ÷ Total Sales because Beginning + Purchases – Ending is the same as Usage.
Now, not to insult your intelligence, but just to cover all bases so nobody emails me in all caps for not explaining it all, Beginning Inventory Count, Purchases and Ending Inventory Count are all expressed in wholesale $ amounts. Once we know that, we can start plugging in the numbers. Let’s do another example. Let’s say you take inventory on April 1st and again on April 30th after you close down that night to cover the entire month of April. Here are the numbers you came up with:
- Beginning Inventory (April 1st) = $11,564
- Purchases (April 1 – 30) = $10,640
- Ending Inventory (End of Day April 30) = $11,238
- Total Bar Sales for April = $49,259
Now just plug in your numbers according to the formula above:
$11,564 + $10,640 – $11,238 ÷ $49,259 = 22.26%
You have now determined that your overall pour cost percentage for the bar is 22.26%. However, I highly recommend that you break down your bar by category so you can see how each area is performing and then measure it against the industry standards. The category breakdown should be liquor, bottled beer, draft beer and wine. Each of these perform at different cost percentage levels, so it’s important to separate them to see how each of them is doing instead of lumping all together.
To learn more about each of these categories and what the industry cost percentage averages are, read Bar & Restaurant Industry Standards: Find Out Where You Stand.
There you go. I know that seemed like a lot, but really the recurring inventory process is only 4 steps once you work out the first two:
- Count your 1st inventory
- Enter invoices
- Count your 2nd inventory
- Do the math
It’s really that simple, and take it from a guy who has counted more than 5,000 inventories in his lifetime, invest in a bar inventory app or some sort of modern system so you can track your bar and liquor inventory efficiently and accurately. Not only will it help you count faster, but it will automatically calculate, not only your pour cost percentage numbers, but your variance as well. Trust me, it will be the happiest decision you ever made since switching from a flip phone to a smart phone.
Cheers, until next time,