Guest Post by Chuck Deibel, Senior Partner at BEVINCO

Is looking at just the change in your Pour Cost percentage enough to determine how much more profitable it is to reduce your lost sales and missing inventory?

Look at the following simple example.  Whether it's bottles of beer, shots of liquor, glasses of wine or pints of draft beer, the use of the analysis method and interpretation on profit is the same.

Bottles of domestic beer are used at a cost of 65 cents each.  They are to be sold for $3.00 each.  The ideal cost percentage is .65/3.00 = 21.67%

WEEK ONE

10 bottles of beer are used, which results in costs of $6.50.
8 bottles of beer are sold, which results in sales of $24.00.
The actual cost percentage is 27.1%
The ideal cost percentage is 21.67%
The efficiency rating is 80%
The loss at cost is $1.30
The loss of revenue is $6.00.  Profit is $17.50

WEEK TWO

One of 3 different scenarios could occur when the losses are reduced to nothing and the efficiency rating is 100%.

10 bottles of beer are used, which results in costs used of $6.50
10 bottles of beer are sold, which results in sales of $30.00.
The actual cost percentage is 21.67%
The ideal cost percentage is 21.67%
The increase in profit is $6.00.  $30-$6.50= $23.50. Because you sold two more beers.

OR

8 bottles of beer are used, which results in a cost used of $5.20.
8 bottles of beer are sold, which results in sales of $24.00
The actual cost percentage is 21.67%
The ideal cost percentage is 21.67%
The increase in profit is $1.30.  $24-$5.20= $18.80. Because you used two less beers.

OR

9 bottles of beer are used, which results in a cost used of $5.85.
9 bottles of beer are sold, which results in sales of $27.00
The actual cost percentage is 21.67%
The ideal cost percentage is 21.67%
The increase in profit is $3.65.  $27-$5.85= $21.15. Because you used one less beer and sold one more beer.

(Note: In the above three examples, the pour cost % goes to the same number.  Yet, the change in profit is different in all three situations.)

Chuck Deibel is a Senior Partner for BEVINCO based in Columbus, OH. He helps Bars, Restaurants & Clubs achieve higher profitability through strategic inventory analysis and reporting. He can be contacted at deibel@bevinco.com or at 614-488-8218