Whether you just opened your first bar or nightclub or you’ve been in the industry for a while, you ought to know by now that beverage costs are one of the biggest expenses; and that you’ll need to deal with as an owner! On top of the basic expenses associated with serving the alcoholic beverages, there are many factors that come into play. These factors can make calculating your numbers extremely difficult. These include over-pouring of drinks, free drinks given out to gain extra tips, or even something as simple as a dropped liquor bottle. Luckily, there are some things you can do to get things under control. Here’s what you need to know.
Impacting Your Profits
According to a popular bar and nightclub inventory solution company, most bars see upwards of 25% of their potential profits vanish due to shrinkage. Of course, this is dependent on how big your market is and how many drinks your bar moves each night. However, this could easily be in the hundreds of thousands of dollars that are disappearing from your ledger! So, how are you supposed to keep good books? Additionally, can you make accurate profit margin projections with so many variables to consider? These things are enough to keep any business owner up at night.
The first step to controlling your beverage costs is to track your margins over long periods of time. This will help you adjust your inventory projections of your most popular spirits. Mainly, it’s because it will show you a solid average rather than fluctuate from an occasional busy night. Also, you may want to consider investing in the pour tops that keep track of how much liquor passes through them. This can give you valuable insight into how much of your liquor is being given away! Furthermore, it will show you which bartenders are the biggest offenders. Knowledge is your best friend when it comes to controlling beverage costs.
Calculating Your Margins
It is important to adjust the way that you are calculating your profit margins in accordance with how much you actually make off a given bottle of liquor. When a bottle is purchased, you can calculate the potential amount that bottle is worth based on the cost-per-ounce method. Then, you can compare that to the actual amount you collect. This is how you determine how much shrinkage you have for each bottle. So, if a bottle was potentially worth $50 but you only collected $45, you would have a shrinkage rate of 10%.
Pay Attention to Shrinkage
Once you know what your shrinkage rate is, you can begin to troubleshoot the problem. First, make sure your pricing structure is correct. Make sure you are actually getting the proper value for the liquor used when crafting each cocktail. Also, you can have bi-monthly training days with the staff to test their pours and train them to be more accurate. This training will make the drinks better that come from the bar. Better yet, it will also make your margins more predictable.
Remember Labor and Garnishes
Lastly, you can’t ignore that labor and incidentals like garnishes will play a role in your margins. Whether it’s a green olive or bottle sparklers to bring in a crowd, everything costs money. Make sure you factor these “wildcard” expense in when you decide on your pricing.
The key is learning how to properly predict your shrinkage and pinpoint the problem areas. If so, you can easily make your bar or nightclub much more profitable in a short amount of time. Try to keep close tabs on all of these numbers and to properly train your bartenders so each drink comes out tasting and costing the same. Trust me; your guests will appreciate it and so will your bottom line.