This is also the reason our industry loses over $11 Billion in profits each year.
Where do we get our pour cost from? Do you have one pour cost % that you chase each week? Have you ever asked yourself "Why" that number is your goal? How much time is spent truly analyzing profitability?
The hospitality industry relies on a very old and extremely inaccurate system for judging a bar's profitability. The standard equation is (Total sales for the month/ Purchases ) = Pour Cost. This formula hides the $11 billion dollars in losses and waste per year in US restaurants.
This formula above can ONLY be accurate if:
every single drink is poured correctly
every single drink is rung in correctly
no free drinks were given out
nothing was spilled or wasted
the bar only sells one item
Since every single beer and liquor bottle in your bar has a different cost, the formula also ONLY works if your bar only sells one type of drink like a well screwdriver, nothing else.
Well drinks might have a 9% pour cost while some wines could be at a 30% pour cost. You might sell more margaritas and vodka tonics in the summer and then sell red wine and Baileys drinks in the winter. Costs vary greatly based on time of year and certainly ranges due to employee behavior.
Worldwide, the average bar loses 20-30% of its revenues each week due to over-pouring, mis-ringing, 'free drinks', waste, and carelessness. How can gross sales figures in this formula be relied on to give an accurate percentage when almost every bar on the planet is losing at least 20% of revenues?
It's impossible to pick just one number to shoot for each week to gauge profitability.
Calculating costs this way uses a "perfect world" sales number and I'm sure you know we work in a very imperfect industry. Chasing the same "pour cost" percentage is the equivalent to chasing the same sales in dollars from the week before. We want to increase our cash flow and sales each week but keep the same costs? It makes no sense.
Many owners chase a number that has been historically repetitive. If an owner sees roughly a 23% cost every week for years then they feel their goal must be 23%. Others bought a restaurant and the old owner showed his historical costs. Even more just go by what their neighboring bars are doing for percentages. Some don't even bother calculating anything at all.
There are no other industries that operate this way.
Shoot for the highest pour cost possible!
If you sell a pasta dish on your menu for $10 a plate and the spaghetti costs you $1 then you have a 10% food cost. Great, right!? If you sell steak for $20 and the meat costs you $5, you have a 25% cost. A 10% food cost instead of 25% cost sounds great but would you rather make $9 profit or $15 profit on a steak for each patron walking through the door?
Selling items with higher costs means you get higher profits. This ONLY applies if things are portioned correctly and paid for correctly. You cannot manage what you don't measure. High pour cost is fantastic but only if it's managed correctly.
The Pour Cost formula rewards laziness and theft!
Joe Bartender slings well drinks and domestic drafts all day and your pour costs are around 17%. Susie Bartender upsells customers to top-shelf liquor, imported beers, and higher end wines....your costs just went up to 26% but your profits also jumped! Susie, who is a harder worker and makes you more money, will likely get reprimanded if not fired if you follow the Pour Cost equation. Heck, Joe might become the bar manager some day because he keeps your costs down!
This also translates to bartenders who over-pour or give 'free drinks' to regulars or if they just pocket the cash. If bartenders have the same behavior for years, the bar's cost numbers will stay consistent yet it hides losses. People are creatures of habit.
I have another client who owns 5 Italian restaurants. His pour costs were always around 32% as they sell a good amount of wine. Each store manager was offered a cash bonus if pour costs went below 27%. Nobody ever hit that bonus money because the bar's costs were supposed to be around 30%! His managers were fantastic and they made the owner loads of profit but they were repeatedly punished due to an imaginary number that the owner was chasing. To hit 27%, the bar would have to sell less profitable items. The managers gave up even trying to hit the bonus which in hindsight was a very good thing for the owner!
Locally, my clients were losing an average of 28% of their liquor each week, mainly to overpouring and 'free drinks.' Every client I have initially told me their liquor costs were 'fine'.... yet none of them knew if that statement was actually true.
Off the top of my head, I could not tell you the pour costs of any of my clients....but I can recall exactly how much profit each one is making.
Bottom line- Focus on your profits, NOT YOUR COSTS!!! You pay your bills with profits, not percentages.