Managing a bar is complex. It requires the ability to manage your employees, understanding of the hospitality industry, expertise in creating products that your customers will enjoy and the skill to build an establishment that attracts new business.
On top of all that, bar owners and managers need to fully understand bar inventory management and how inventory processes can improve the profitability of their business.
With the right processes, solutions and staff training in place, bar owners and managers can use bar inventory management to improve operational decisions and drive new revenue growth.
With that in mind, Sculpture Hospitality has created a glossary of the top bar inventory management terms that all bar owners and managers need to know.
The most important bar inventory terms you need to know
Average days to sell
Average days to sell, or sometimes known as inventory turn days, is a metric that measures the number of days a product sits in your bar’s inventory before being sold.
Average inventory value
The average inventory value is simply the average value or number of inventory between the starting and ending inventory dates used to calculate cost of goods sold (COGS).
Bar inventory refers to all of the goods, products and raw material your bar has in stock at any given moment.
Bar inventory management
Bar inventory management, also known as bar inventory control, refers to the processes and practices your bar has in place to effectively manage your bar’s stock and improve your bar’s profitability.
Bar inventory management system
A bar inventory management system is a software platform that underpins your bar inventory management program. A bar inventory system will allow for better ordering, precise counts, performance reports, insightful analytics and many other benefits that improve the profitability of your business.
Bar inventory management spreadsheet
A bar inventory management spreadsheet is a way of managing your bar’s inventory using manual management techniques. You can read our blog, ‘Restaurant Inventory spreadsheet Vs. Restaurant Inventory Software’, for more information on why spreadsheets are ineffective when compared to bar inventory management systems.
A batched product refers to the combination of several products to make a large quantity of one drink to sell in your bar - think of menu items like sangria. It’s important to keep track of all these ingredients to fully understand how much profit you are making on the specific product.
Cost of good sold
Cost of goods sold (COGS) is the cost of all ingredients a bar uses during a specific time period. This includes all items in your inventory that you have either sold to customers, used to make drinks or used to garnish drinks.
Cost of good sold = beginning inventory + purchased inventory - final inventory.
Cost per ounce
Cost per ounce is the most common way to calculate liquor cost. This calculation is determined by:
Bottle purchase price / ounces in a bottle = cost per ounce.
The drop refers to the minimum order amount a supplier requires for any order. A supplier won’t sell you any inventory if it’s smaller than their drop number.
Bar inventory turnover is a measurement of how fast you are selling or replacing inventory. Inventory turnover is commonly calculated based on the cost of goods sold (COGS) calculation.
Inventory turnover = COGS / average inventory
The total time between ordering a product, having it delivered to your bar, and being able to use it.
A loss leader is a product that is sold below cost price in an attempt to stimulate more profitable sales as a result. This is typically done during a particular time or event, such as pricing alcohol low to encourage customers to spend more on food.
Periodic automatic replacement (PAR) level is the optimal level of each product that your bar should have on-hand at all times. PAR level helps your bar make better ordering decisions, so that you neither overstock or run out of inventory.
Periodic inventory is a system of inventory in which updates and inventory counts are made on a periodic basis, typically daily, weekly or monthly.
Also known as continuous inventory, perpetual inventory is a system of inventory where information on inventory quantity and availability is updated on a continuous basis as a function of your day-to-day bar operations.
A point-of-sale system (POS) is a software platform that allows your bar to accept payments from customers and track sales.
Pour cost represents the percentage of costs that your drinks make up compared to your resulting sales. Pour cost is a measurement of the gross margin of profit on your products and goods. For example, if your pour cost percentage for beet is 20 percent, then you made 80 percent in gross profit from beer.
Pour cost can be calculated by adding up the cost of the product used and dividing it by the cost of the product sold. Times that number by 100 to get your percentage.
Premium products, also known as “top shelf” brands, are your bar’s most expensive and highest quality bottles of liquor. These are typically used to promote a high-class image as opposed to increase profitability.
Service level, or safety stock level, is a measure of the minimum inventory that your bar needs of any product to avoid going out of stock. The service level of popular items is generally higher than it is for more specialized items.
Shrinkage, also known as product variance, is one of the leading reasons for lost profits in bars. Shrinkage is the difference between how much your bar spends on a product over a specific period of time, compared to the actual usage amount cost over that same time period.
Shrinkage, or variance, is calculated as the cost of the product sold divided by its usage. This metric gives your bar clear visibility into where you are losing product.
Sitting inventory refers to the amount of inventory that is sitting in your bar right now. This can be calculated in either monetary value or product amount.
Usage is the amount of product that has been used during any specific time period. Your bar can calculate usage to gain clear visibility into how one product performs in comparison to another.
Opening inventory + purchases received - closing inventory = inventory usage.
Variance is an alternative term for shrinkage. Please scroll up to our definition of shrinkage for the definition of variance.
These are less expensive liquors that are used the most frequently, typically when a customer asks for a drink but doesn’t specify which brand of alcohol they would like.
Do you have any questions about these terms and how they can be used to improve your bar inventory management processes? Contact Sculpture Hospitality today. Our team of bar inventory experts would love to help.