Bar inventory can sometimes feel like the boogeyman waiting at the end of the month. Most bartenders and managers tasked with inventory dread it. But Backbar is here to help make liquor inventory manageable.
This step-by-step guide is a checklist on how to take bar inventory quickly and efficiently. The right inventory practices can help your restaurant or bar reach higher profits and sustain success.
Here's what you'll find in this post:
Inventory is a valuable process that helps you understand key components of your beverage program. Read on to find out everything you need to know for taking bar inventory.
Taking inventory is like a physical exam that checks up on your bar's financial health. Understanding where and how much money is tied up in your inventory is the first step to achieving goals like lowering your pour costs and driving profits from your beverage profit.
To understand your bar program's finances, you'll need to be familiar with a few bar inventory terms and formulas.
Liquor costs, or pour costs are the ratio between the cost of products purchased and the revenue from products sold.
Product Costs / Product Sales = Liquor Cost
Your pour cost is important because if it is too high, then you will generate lower profits overall from beverage sales. Liquor costs have an inverse relationship to margin. Another way to state margin, is that for every extra dollar in sales you make, the margin is the incremental gross profit (profit before other expenses such as fixed costs, labor, utilities, etc...). Your margin percentage is calculated as:
(Sales - Costs) / Sales = Margin
Looking at industry costs is a good guideline, but depending on your business, you will want to determine the ideal pour costs and margins for you. A business in a major metropolitan city with high rents and labor costs will need lower pour costs and higher margins than one that isn't.
Here are industry averages for pour costs:
Draft Beer: 20%
Bottled Beer: 25%
Wine: 30% - 40%
Average Total: 18% - 24%
Cost of Goods Sold (COGS) is the direct costs required to serve your drinks and make sales. This includes the cost of everything going into and necessary for creating the drinks along with the direct labor costs used to produce the drinks.
For example, this includes supplies such as the liquor, garnishes, juices, mixers, soda, and napkins, and labor such as the bartender, barback, server and dishwasher, who all may be required for you to sell a drink to a customer. For individual drinks you may wish to just use the liquor cost as an approximation of the COGS, but for your entire bar financial picture all other direct costs should be included.
Variance, or shrinkage, is inventory product that is gone but not accounted for by sales. The missing inventory could be a product of over pouring drinks, unaccounted breakage, or even something as concerning as theft.
It's not possible to fully eliminate variance, but it is possible to reduce variance which will increase profits.
Here is the basic inventory variance formula:
Ending Inventory Count - Initial Inventory Count + Purchases - Sales = Variance
You can think of the above formula another way: your actual inventory count minus expected inventory count. In the formula above, you expect your count to be what you initially had plus the quantity you bought minus the quantity you sold.
Another critical metric to measure is inventory turnover. Inventory turnover is important to know because it tells how well you are using your cash, how often you need to order items and what your item par levels should be.
Inventory turnover is a ratio showing how many times you have sold and replaced inventory during a period. You can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. The higher the turnover the better (you are using cash more efficiently to generate sales).
The formula for inventory turnover is:
Cost of Goods Sold [or liquor cost] / Average Inventory= Inventory Turnover
To calculate average inventory for the formula above, use:
(Beginning Inventory + Ending Inventory) / 2 = Average Inventory
And then to determine the days it takes to sell inventory, use the formula:
Days [between beginning and ending inventory] / Inventory Turnover = Average Inventory
At the beginning of month 1 you count $50,000 in inventory. At the end of month 3 you count $90,000 in inventory. Your average monthly inventory is ($50,000 + $90,000) / 2 = $70,000. If your cost of goods sold during that period is $140,000, your inventory turnover is 2. If you divide the number of days in the period (90) by your turnover (2), you'll find out that you sell through your inventory every 45 days.
Inventory usage is the pace at which inventory is depleted. It is an alternative look at sales by measuring the quantity of items sold instead of the revenue itself.
Here is the inventory usage formula to calculate your usage rate.
Opening Inventory + Purchases Received - Closing Inventory = Inventory Usage
Establishing par levels will give you a guideline for the minimum amount of a product that you should have on hand at all times. Setting par levels will help you put together liquor orders with your distributors. It accomplishes two important things: (1) not tying up excessive cash in inventory, and (2) making sure you don't run out of products.
We can use the formulas from the previous section to determine par values. Calculate the inventory turnover ratio for each item, then calculate the number of days to sell the inventory. Most liquor orders are placed weekly, so you should at least plan on having enough product for 7 days. You should also add a safety factor to account for sales fluctuations, or if there's difficulty sourcing the product consistently. We recommend a safety factor between 1.5x - 3x depending on the product and supplier.
Monthly Inventory Turnover = 10
Days to sell inventory = 3
Number of products sold per week = 2.33
Occasionally the distributor is out of stock of this item, so we'll add a safety factor of 2.5
Par Value = 2.33 x 2 = 5.8
Organization is essential for an efficient inventory system that adds value (dollars) to your business. Staying organized will also save you significant time and reduce the frustrations of performing inventory.
Whether you use a spreadsheet or an inventory solution like Backbar you should set up separate locations or areas for your items. Locations are the physical places that inventory is stored in your restaurant or bar.
Front Bar | Back Bar| Beer Cooler | Liquor Storage | Wine Room
This will help you maintain accurate counts and keep things streamlined when you're taking inventory. It also allows you to divide up the work of counting inventory at the end of the month more easily by having different staff counting in different areas at the same time. You can total the counts for each item in each location when you've completed counts for all locations.
Once you've established your inventory locations, it's time to add and organize the products listed in each section. The best way to do so is not necessarily alphabetically, but by matching the order of your inventory list to the order in which they are physically organized behind the bar and in storage. This allows you to quickly go down your list as come across the actual bottles to record counts.
In order to calculate important information like Pour Costs, Variance, and Margins, you need to know the cost of each product you've purchased.
To record your costs, you will have to copy pricing information from your invoices into a spreadsheet. If you're using Backbar, you can upload your invoices to our system to have your costs recorded for you automatically.
The most important information is the cost per bottle. So if you order cases, divide the case price (including discounts and taxes if possible) by the number of bottles in the case to find the bottle cost. It's best to keep as much information centralized as possible. So if you use a spreadsheet for inventory, you should add a separate column for item cost.
Your pour sizes and pricing for products like wine and spirits will be influenced by your costs.
A general guideline for pricing is to sell items at a 20% liquor cost. That is, if an item costs you $1, you would sell it for $5. So, 1/5 =.2 or 20%.
Standard wine pours are typically 5 oz. or 6 oz. per glass
Standard pours for spirits are 1 - 2 oz. for neat pours, or 1.5 to 2 oz. for mixed drinks
20% isn't always possible with premium items like a rare whiskey or an expensive bottle of wine because you may price out your customers by charging too much to hit a 20% pour cost. It's important to know your client base when setting pricing. In general, the lower the cost of an item, the higher the pour cost should be; and the more expensive the cost of an item, the lower the pour cost should be.
Your cheapest wines by the glass may have a pour cost of 25%, while your most expensive wines by the bottle may have a pour cost of 60%. Despite a much higher pour cost, you'd prefer to sell a $200 bottle of wine with a 60% pour cost ($80 of gross profit) compared to a $50 bottle of wine with a 30% pour cost ($35 of gross profit).
Establishing the liquor cost percentage is easy once you know the cost per bottle. For spirits, wine, beer and other liquors sold by the ounce (as opposed to selling by the bottle), you will need to calculate the cost per ounce. Record your sale price for each item in a column next to your cost column.
To calculate cost per ounce, divide the bottle cost by the number of ounces.
Identifying the cost per ounce will also help you decide on your pour sizes by determining the margin you want per bottle for items sold by the ounce.
For wine, where a standard bottle is 750ml or 25.3 ounces, industry standard is 5 oz. pours (yields 5 glasses per bottle) or 6 oz. (4 glasses per bottle).
One of the points we've hammered on in this inventory guide is that inventory is about much more than just counting bottles. The information you capture from a mature inventory system can be the difference between failure and success for your business. And although we've thrown at you a lot of complex formulas and calculations, running an efficient and profitable inventory system is not as difficult as it seems, it just requires some upfront planning.
When putting together your liquor inventory spreadsheet you will want to decide what type of information you want to have available for analyzing your bar program.
For example, if you want to know how much money you have tied up in wines vs. beer, then you will need to add a spreadsheet column to notate the type of beverage it is. Uncorkd and other inventory programs are so useful because that information is already associated with the items you enter into the system.
Here are some categories you may want to capture information on for inventory analysis:
Wine, Beer, Spirits, etc.
Red wine, White wine, IPAs, Lagers, Tequila, Vodka, Whiskey, etc.
The distributors you purchase from alcohol and beverages from.
Determines pour costs, pour sizes, price point
Varietal or Style
Chardonnay, Merlot, Single Malt Scotch, Blended Scotch, Blanco Tequila, Anejo Tequila
Why this information is useful
Capturing data by additional categories like those listed above will help you determine which areas of your business are most profitable. It will also help ensure you don't have too much money tied up in inventory of any specific type of product. For example, if Cabernet Sauvignon accounts for 15% of your wine sales, it would be useful to know if your on-hand inventory value of Cabernet deviated drastically from 15%.
We noted above that different types of alcohol have different average pour costs. By capturing more data to analyze your beverage program you can approach your inventory data from different perspectives to determine how you can become most successful.
We mentioned that it's best practice to organize whatever you use to record inventory counts (spreadsheet, paper, software like Backbar) in the way that you've ordered your bar and storage areas. It's also important to organize the physical spaces in an efficient way.
Ways to Organize
Much of your organization will depend on what type of bar or restaurant you are. If you sell a lot of tequila, you will want to put an emphasis on making tequila accessible in storage and in a prominent location at the bar.
The products you sell most should be the most accessible
Organize like-items with one another. Rum with rum.
Well liquors will sell faster than premium, keep them accessible.
Organize large wine programs by bin number. More below.
Using Bin Numbers
Bin numbers designate a location for where a specific bottle is kept. If you have a large wine program, then you will want to organize your selection by assigning bin locations to each wine.
This will help maintain order for wines and will also help your staff provide timely service because they will know exactly where to find a wine when it is ordered by guests.
Pro Tip: If you have a large wine selection and use bin numbers, consider putting the bin number at the beginning of the name of the item in your POS system. It will make it easy for staff to find and easy for management to compare sales from POS reports to inventory from spreadsheets for measuring variance.
When you take inventory is important. And it's one of the reasons that inventory is dreaded by so many people. It's often done late at night or early in the morning, when the restaurant isn't open for service.In order to be accurate with your inventory counts, you cannot take inventory during service hours. This will give you altered counts that will make it difficult to generate accurate data.
There are two types of inventory methods, perpetual and physical.
Perpetual inventory is counting down your inventory as it sells (and adding to it when you buy) so that you always know your current inventory on-hand. Keeping a perpetual inventory makes placing weekly liquor orders much easier, and can also assist in 86'ing items from your menu so a customer doesn't order something you're out of.
However, perpetual inventory is a theoretical value and is highly dependent on the accuracy of input to your POS system and other variance.
Physical inventory is the act of actually counting each of your items. It is certainly more accurate than perpetual inventory, but requires a lot of labor and is not performed frequently, making it unreliable for placing weekly orders.
The most effective means of inventory management is using the combination of perpetual inventory and physical inventory.
If perpetual inventory is your theoretical expected value, and your physical inventory is your actual value at a given point in time, then your variance is the difference between the two. And when you perform your physical inventory, you reconcile the perpetual inventory count so that the number resets to the actual number counted.
Manually tracking inventory variance is more difficult and cumbersome. You will need a spreadsheet to track the starting and ending inventories, all items purchased, the costs and sales of each item. Unless you prefer to spend hours each day doing data entry into spreadsheets instead of being on the floor, for many bars and restaurants it is not feasible to do accurately without software.
The restaurant industry standard is to take inventory on the last day of each month.
This means that your inventory periods and data will be in monthly segments.
It's important to stay consistent with when you take inventory because it will standardize the period of information you use to calculate your beverage program's performance.
When calculating things like Inventory Usage Rate, you have three factors:
If you are taking your inventory counts for the month of February, and you conducted January inventory on the 31st, then you can use the January closing inventory as your opening inventory for February.
Throughout the month, record your weekly purchases in a separate column or spreadsheet tab so you can identify your new purchases from the previous standing inventory.
Finally, take your closing inventory on the last day of February.
From there, you can use those three data points to calculate important things like usage rate and identify sales trends.
Time of Day
Take inventory while your restaurant or bar is closed. This may require you to come in earlier if you're business doesn't serve breakfast or lunch hours. It may also mean staying late after a shift. Or, if your venue isn't open 7-days a week, then coming in on the off day will provide you plenty of time (and peace) to record inventory.
Each week you will be placing purchase orders with your vendors. It's important to track inventory closely so you don't order and spend too much. Keeping a perpetual inventory, where possible, helps tremendously with more quickly determining weekly orders.
Over-ordering will cause your pour costs to bloat and will suck up profits by having too much money tied up in standing inventory. Under-ordering will cause you to disappoint customers by running out of items and will also put stress on your staff.
Identifying par levels for your popular items will help you know when to order.
Spot Check Inventory
When putting together your orders, you should create an order form that allows you to mark down the items you need to order under the distributor that carries the item.
If you don't have perpetual inventory, walk through your bar and storage areas to identify which items are low compared to the par level and place orders accordingly.
Some bars will record daily inventory updates to keep a keen eye on their product usage. For things like bottles of beer and wine, this is easily done by generating a sales report from the POS system.
For things like spirits or wine by-the-glass, you can manually record when a bottle is finished, called "bottle kills," or if your service and bar space allows, physically save the bottles to count at the end of the night and create a "kill list" from these bottles.
The perpetual inventory provided by Uncorkd's inventory integration for POS systems will record daily count updates.
It's best practice to start in your bar or service areas as opposed to starting in storage areas. This makes sure you get an accurate count for bottles that will be sold first. We mentioned previously that it's important to finish bar inventory between service so your numbers are most accurate.
This is why starting in service is helpful. If you can't finish inventory between service, then make sure to be vigilant about marking bottles that move from storage area to bar or from bar to bar.
Train Yourself and Staff
Consistency is key for taking inventory counts. Especially when it comes to open, or partial bottles. If you're taking inventory counts by eye, then you will need to make sure you are consistent and to also train your staff to assess bottle volume with accuracy and consistency. The difference between considering a bottle to be .75 full and .8 full is negligible, but it's important to call a .8 a .8 each time you see it.
Tips for Taking Wine Inventory
Wine inventory is very similar to spirit inventory when it comes to counting bottles. But there is an important difference: Open wine goes bad.
Throwing out bad wine can cost restaurants significant amounts of money. And it will drive up your pour costs for wine. For managing your wine inventory make sure to date open bottles. At the end of service, make sure staff records the date that the bottle was opened. This way, you know when the wine is no longer fit to sell, and you can take steps to sell that wine before it goes bad.
Pro Tip: You can also utilize old wine for cooking by giving it to the kitchen if it has been opened to long.
Tips for Taking Beer Keg Inventory
Beer kegs can be difficult to track depletion for. To start, they're super heavy. Secondly, unless your Superman and have x-ray vision, you can't see through a keg. Here are two tips for taking more accurate beer keg inventory:
Keg Scale: There are also keg scales available for weighing kegs. You can weigh the keg at the start and then weigh it again when taking inventory. This can be labor intensive and require multiple people to lift kegs. But if total accuracy is your main goal, then this is the best method for you.
There are many different systems and methods for taking your inventory. The best systems provide the most value to your business at a competitive cost.
That value is determined by a handful of factors:
Pen and Paper
If you own a bar on a beach, and the bar is just a hut with a roof thatched from dried grass, and the beach is on a volcanic island that dots the Pacific Ocean, then taking inventory with a pen and paper is probably fine. If you're not that exact bar then you need a better way to take inventory.
Pen and paper inventory is the least valuable form of beverage inventory. It's disorganized, labor intensive, and does not provide any valuable data or insights into your business.
Spreadsheets for Inventory (Excel)
This is the most common method for recording and taking inventory because if you have a computer then you have access to a spreadsheet tool. But spreadsheets are cumbersome and take a lot f time and expertise to manage.
Inventory App or Software
A quick google search will reveal that there are many inventory software services available for restaurants and bars. These platforms are generally focused on providing a simple interface for taking inventory counts and providing reports and and inventory analysis.
Here's a sample overview of Backbar one of the top bar inventory solutions available.
Barcode Scanners for Inventory
Another system for taking inventory is a barcode scanner. The scanner is used to identify the items in front of you to enter in the relevant inventory information.
Measuring bottles by weight can offer very accurate inventory counts. But a small weight difference isn't the most important aspect of taking inventory. And splitting hairs on liquid volume doesn't provide the insights into inventory necessary to increase profits.
Data to use
Variance, inventory summary, slowest movers, sales trends
Will help you lower your pour costs by generating more dollars for the volume sold. By identifying where the largest instances of variance are, you can take steps to control it at those points.
Will give you the total inventory counts for the physical number of items as well as your dollar totals for inventory. Using these two metrics, bottle counts and dollar totals, you can asses the best ways to reduce pour costs.
Can be reduced by putting items on special, utilizing ingredients in cocktails or for cooking, or ramping up the hand selling of items by your staff.
Is really useful because you can identify the areas of your inventory that are taking the biggest hits on your cost of goods. You can also re-adjust your price points for items if its worth it to sell more items at smaller profit.
Is a concept to consider when determining your pricing. A loss leader is an item that is sold under market price in order to capture customer attention and generate more sales from related items.
A good idea for a loss leader is a low cost cocktail that comes at a discount if ordered with certain food items. Or if you don't serve food, selling a wine, beer, or spirit flight (sampler), where you can charge less per individual serving but generate a higher sale total from the sampler. Intelligently designed strategies like loss leaders can help lower pour costs by influencing what customers purchase.
Is designing your menus to promote high profit items so to influence customers to purchase them. You can analyze your highest performing items through inventory usage rates, profit margins, and sales trends.
Data to Use: Inventory Usage Rate
Setting item pars
Is crucial to keep your orders under control and your inventory volume reasonable. By looking at your usage rate you can determine how much product you need on hand at a given time based on the pace that you pour through those items.
Pars will help you stick to ordering budgets and will also inform you of reasonable ways to reduce your costs like bulk purchases to that lower per bottle cost.
Data to use: Inventory summary and margin
It's useful to determine your sales potential by taking the inventory on hand and calculating your potential profits. This sales forecasting can help you make decisions about how to spend your money today by determining what you expect to earn in the near future.
Ordering and inventory are two sides of the same coin. And that coin is literally in your pocket (or bank account!). How you order liquor, wine, and beer has a big impact on your bar program's bottom line.
Data to Use: Inventory Usage Rate, Inventory Financial Summary
It's important to have a purchasing budget in addition to setting item pars for your bar. Budgets will keep you from spending too much on inventory so you can make sure your stock is manageable.
The best type of budget to construct is called a Depreciating Budget. A depreciating budget begins with setting a limit on your spending. Because inventory counts are generally based on monthly periods, you can set a monthly purchasing budget.
In addition to taking inventory and recording individual purchases, you will also want to set up a separate liquor purchasing spreadsheet or tabs in the same bar inventory spreadsheet to record your purchases.
Information to Track
Your first budget amount can be based on the total inventory dollars you have and your sales numbers for a given period. You can find your pour cost this way.
You can then determine your expected sales for a month, and then make sure your purchases + current inventory on hand don't account for more than 18-24% of that expected sales amount.
If you’re projecting $24,000 in liquor sales per week, and you keep your weekly purchases around $2,070 per week, then you should cap your spending at around $8,280 per month.
So $8,280 is your budget.
To make the depreciating budget work you will take the $8,280 budget number and subtract your liquor purchases each week from this number. As you move through the month, you will have a guideline to restrain from making unnecessary purchases. A goal should be to reduce your standing inventory to give you more spending power to purchase products you know will move across the bar.
Data to Use: Inventory Usage Rate, Par Levels, Budget
Using these 3 data sets you can determine how often you should be ordering products. This may change depending on season, holidays, or special events.
Ordering Liquor by the Case or Bottle
Distributors and alcohol vendors have a complicated pricing system where the price of an item can change due to a host of different variables.
Case Break Fee
One of the most common ways that restaurants hurt their bottom line is by "breaking cases" to order individual bottles. Breaking cases will often come with an added case break fee.
For example, if a case of vodka comes with 12 bottles per case, then it's more expensive to order 3 bottles per week, than to purchase the case up front and receive a month's supply of that vodka.
Once you know how often you pour items and your budget, then you can determine which items to purchase by the case or bottle.
Restaurants and bars do have a level of control over their purchasing costs. Talk with your distributors to find which items offer the best case discounts. This is especially important for well liquors and other items with a high sales volume.
To illustrate this:
If your bar sells a lot of Old Fashioned cocktails, or you have a Friday night special on whiskey and ginger, then it would be beneficial to find a whiskey that distributors offer aggressive pricing on.
The best way to get significant price breaks on items is with the discounts you can leverage through volume purchases. You might be able to drop the price per bottle by $5 or more if you purchase 3 cases of a whiskey at one time, instead of ordering a case every other week.
And if you know you will sell through those 3 cases in a month or 2, then you won't be worried about over ordering and your profits per drink sold will be higher for that whiskey.
You can also come to your distributors to set up deal specials if you are consistently bringing them good business.
Take a look at your spend with each distributor to see who you purchase the most from. Then determine which items you purchase most often. Talk to your distributors to get better deals for the items you buy and sell the most.
The larger the distributors and brands you order from, the more room you have to negotiate discounts. Small or boutique distributors often have less room to negotiate deals.
It's important to make sure that you are vigilant when it comes to receiving orders. Here's a checklist for what information you should record when orders are delivered.
Too many bars and restaurants don't take inventory seriously. This leaves owners and operators in the dark in terms of how their bar program is performing, and how they can improve operations.
Some restaurants don't even conduct inventory, or only do it several times a year. That is the biggest mistake a venue can make. It's important to understand the health of your inventory in order to establish a successful beverage program.
Businesses get in trouble when they aren't disciplined with their purchasing. They end up with an ever-growing array of different products, often times sitting in storage and never even making it to the bar.
It may be they wanted to offer the newest flavored whiskey, or someone personally liked a new wine so they decided to buy it, and these types of purchasing habits cascade over time, until you have far more inventory than necessary.
As illustrated in this guide, inventory is about much more than counting bottles. It's necessary to measure and analyze beverage data to make informed decisions. The most successful restaurateurs in the world are very data-driven to maximize profits in an industry with slim margins
Let's recap what we've discussed above.
We know that taking inventory is crucial for successful restaurants and bars. And that the data you track and record will help you run a more efficient business, and give you the information needed to make confident decisions. Let's recap what we've discussed above.
What to monitor and look for
Track the total value you have in inventory and work to reduce that number
Inventory Usage Rate
Identify how often you are pouring through products to determine order frequency and sales behavior
Determine Liquor Costs
Work to lower your pour costs to generate higher profits
Track perpetual inventory and variance to reduce lost profits
Understand Sales Trends
Understand your business and what your customers are likely to purchase at your venue
Track seasonal habits, the impact that events have on sales, and overall industry trends that you can capitalize on
Maintain a consistent inventory system
Generate important data, record purchases, track sales
Sell down overstock inventory
Put items on special, utilize product in cocktails and the kitchen, engineer your menu, establish loss leaders
Set item pars
Determine how much of each item you need in stock to satisfy customer demand
Construct and adhere to a purchasing budget
Build a budget with a goal to reduce your inventory totals and leverage distributors for better pricing