Is your Pour Cost Too High?March 1, 2011 By: Robert Plotkin
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 really?
Knowing what your bar’s cost percentages are is only part of what you need to know to make informed decisions. The direction your 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 cause for alarm if it was 16.3%.
However, this raises the earlier question: How can you tell if your pour cost percentages are too high? The answer depends on what you compare it to. 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, previous quarter or the year before is fine for budgetary purposes, but it has little practical value as a financial gauge.
“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, 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.”
Instead of evaluating your bar’s cost percentages to arbitrary figures, what’s pivotal is comparing the cost figures to what they ideally should have been, also known as “optimal pour cost.” Judging a bar’s actual performance to what it was financially capable of producing establishes an unimpeachable standard.
Optimal pour cost is derived by comparing product usage to sales. Assume for example that 100 ounces of a premium brand of vodka were depleted from inventory during the course of a week. However, the sales entered into the POS accounts for only 75 ounces. In this case, the item’s actual cost percentage and its potential cost percentage will differ markedly.
Let’s say that the vodka costs 74 cents per ounce and drinks containing a 1¼ portion retail 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, the brand’s actual pour cost was 22.4%, while optimally it should have been 16.8%, a variance of almost 34%.
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.