2-Minute Tuesdays: Calculating Your Pour Costs
Some of the most important calculations in running any successful bar program are your pour costs…
In our most recent edition of 2-Minute Tuesdays, Sr. Manager of Customer Education Trevor Bernatchez, talks about calculating your bar’s pour costs, and how to interpret what they are telling you about your bar program. Read on to learn more, or watch the whole video (~2 mins) above.
To calculate your pour cost, just take your inventory usage or cost of goods sold, and divide it by your total sales. While calculating your costs might be simple, knowing what to do with this info is a slightly different story.
Pour costs are an essential barometer for bar profitability, and since running a bar can be costly, controlling pour costs, can account for the difference between a wildly successful bar and a failing one.
Consider the following scenario: Bar A and Bar B are located next door to one another. Both sell around $1M at the bar each year, but Bar A runs a 20% Pour Cost and Bar B runs a 30% Pour Cost. Bar A, on the exact same sales with roughly the same client base, will make $100,000 more in profits each year! So, why is Bar A making so much more money per year with the same products, location, and client base?
To figure this out, we not only need to be able to calculate pour costs, but we need to interpret that calculation. Interpreting pour costs is one of the most misunderstood aspects in managing a bar—it seems difficult, confusing, and time consuming. But it doesn’t have to be when equipped with the proper tools.
A simplified breakdown can help in understanding the effects of pour costs, which are really only influenced by three factors: drink costs, drink prices, and product loss.
1) Drink Costs:
How much you pay for your product directly influences your pour costs. By taking advantage of distributor discounts and deals on products, you can help keep your pour costs down, but of course, let’s not forget about the risks of too much sitting inventory that can come along with ordering in bulk.
2) Drink Prices:
What you charge for a drink is decided by a few different factors. Your bar’s location, client base and preferences will all ultimately influence the amount that you charge for a drink. Being thoughtful about effectively pricing your drinks will help maximize your potential profits.
3) Product Loss:
The final influence of pour costs has to do with what you actually sold versus what you should have sold based on the amount of inventory used. In a perfect world, these numbers would line up almost exactly. In actuality, loss is an unavoidable obstacle that you need to account for. Over-pouring, broken bottles, and theft are all common reasons that your sales don’t match up perfectly with your inventory.
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