Ok so, I hear a lot about liquor cost / pour cost (PC) and what it is and where it should be. There are some right answers and there are other "right for your business" answers.
To start calculating the Pour Cost is an easy formula, so no need to over complicate here:
Pour Cost = (Beginning Inventory - Ending Inventory) + Purchases / Sales
That handles the what; next is the where. 20% seems to be the "industry standard" I have worked in many different restaurant / bar genres and have seen many different theories on where this number should be. I believe if you are running any standard bar, restaurant, club 20% is a good number. I believe as a rule if your pour cost is over 23-25% you are being stolen from, if your pour cost is under 17% you are stealing from your guests. I am a big believer in 2 things: 1- pour a stiff cocktail and you will have lots of repeat business 2- a complementary cocktail goes a long way and is worth 100x's its weight in advertising dollars. But whatever your "where" is know it. Know where your business likes to hum, if bartenders, cocktailers or purveyors feel you do not watch and know, they will certainly take advantage.
So for me personally I like to run at 18-21% and really don't get too worked up over it, as long as it is with-in that window, remember, you don't deposit percentages, you deposit whole numbers. At many venues I’ve run we made these "bar name Shots" and gave two, one liter bottles full of these pre-made shots to each bartender to give away. Each bottle ran about 30% alcohol and could be poured for any guest at any time with no questions, I also give them each a comp tab valued at 5% of their sales (if they sell $2k then their comp tab could be $100, if $5k, then, $250) and I also instructed my bar staff to pour a 1.75-2 oz. pour for a single. If we were known for having a stiff cocktail and "hooked people up" with free shots then that was that much less work I had to do marketing and advertising. Now on the flip side I am a monster when it comes to alcohol purveyor negotiation and so because I gave away so much "free" booze I needed to make it up somewhere so I liked to run lots of promotions with my alcohol reps. These programs are out there for every bar and restaurant you just have to push on them to get it and often time it is nothing more than free money for buying a product you already carry and pushing a product you already sell.
Next I am always close with my purveyors and so when they need to hit certain quotas or sell # cases of a product I would "help" them out. eg. NYE I worked out a deal with a nameless top 3 premium vodka company for a few things- I made them the exclusive premium vodka for bottle service for that night & also I purchased 10 cases at the end of the month to help my rep win a sales contest to Hawaii (normally bought 2 a week) but now because I bought in bulk, I demanded a deep discounted price. In return I made them pay for my advertising $2k for that night and decorations $500, I also made them come in and buy three bottles of their product at full menu price. (psst- I also got a nice sized check for "promotion"...but you didn't hear that from me) So you see the point here is even though I was giving away alcohol thus raising my pour cost, my negotiated deals and deep discounts worked to lower the pour cost back down, not to mention the revenue I picked up for other areas and how much busier this all made us.
Think about this, if you are doing 55K in weekly sales at a 18% pour coast but are spending $1,500 a week in marketing & advertising you are spending more than if you were doing the same 55k in sales running 20% pour cost, spending $0 on marketing and advertising and building a strong viral marketing based on a quality product. When I pour a stiff drink or buy a glass of wine I am directing my money on my exact target demo and really enacting a very strong viral marketing and potently turning that guest into a mini sub-promoter by buying a $7 drink costing me a $1.50! or I can waist money on blanketed advertising which has no real impact or long term affect on my business (not talking about brand maintenance here; that will be for another blog)
There is a motto I live by and run my business by "Don't chase money! Let the money chase you; simply do what's best for your business, because it is best for your business" trust me the rest will fall in line. So many people are caught up with margins and percentages they loose sight of the big picture. It's the $$$ you put in your bank at the end of the week that's what really counts. lets make this simple, would you rather make 60K a week with a 10% profit margin or 45K a week with a 12% margin? I'll take the 60K for 2 reasons - 1- I am making $600 real dollars more a week, 2- my bar/restaurant is busy and I know people go where people are, so whereas I can ride at 60K and will stay packed because I am packed, or at 45K I am fighting for every dollar, cutting costs and banging my head into a wall trying to figure out how I can maintain my margin and still bring in more people. So don't be greedy, be smart. Think big picture, long term. Did you know Saddle Ranch, a strong international restaurant brand spends $0 a year on marketing and advertising. Instead they have a policy that every guest must have something bought for them "on the house" and If you run like this and you are worried or caught up with your %'s then take all that comped food or drink, that's being given for promotion, not guest service or mistakes and transfer it into your marketing budget. Problem soled, now your PC is not effected and you are recording it as a marketing expense.
There are many more sub genres to attack here as well. The biggest is...I think my bar is stealing from me. How do I know? How do I prove it? And, how do I stop it? These are actually very easy answers and I will cover them in a future blogs. The one thing I will say in conclusion is that I have a tip system where the tip pool for the bartenders is based off: 40% hours worked & 60% total sales. As you can imagine if you remove the incentive to steal and tie their sales to their tips you actually cause your bartender to lose money buy stealing from you.