September 14, 2018
Turning a profit in your bar is simple in theory. Having a nice atmosphere, creating tasty cocktails, attracting customers with great food, and catering to customers through fantastic service. But a little time spent calculating numbers and introducing new practices in your business can and will improve your profit margin. Your Point of Sale should be the starting point and will give you fantastic reports to achieve this.
How to Calculate Your Bar’s Profit Margin
Profit Margin is defined as the amount by which revenue from sales exceeds cost in a business. We calculate this by subtracting the COGS (Cost of Goods Sold) from your Revenue. The total of this calculation is your Gross Profit. We divide the Gross Profit by your Revenue and express the number as a percentage.
Let’s calculate the Profit Margin with numbers from our Point of Sale:
- Cost of Goods Sold: 300
- Revenue: 800
(Revenue) $800 – (COGS) $300 = (Gross Profit) $500
(Gross Profit) $500 / (Revenue) $800 = (Profit Margin * 100) 62.5%
Below are different ways to help you automate this equation and raise the Profit Margin.
Analyzing Report Data from your Point of Sale
A big portion of time can be saved by taking certain reports from your Point of Sale. A Menu Mix report can provide you with detailed item sales such as a count of items sold, % of total sales the item makes up, ingredients cost, and sort items by their popularity between a date range. Having this data will be important for reasons as the ability to eliminate items rarely sold to control stock and working with vendors to reduce costs on the ingredients of the most popular items.
Controlling Inventory and Calculating Pour Cost with Optimal Cost
A crucial, if not most important, factor in a bar’s profit is found in the pour cost. Pour cost is a common term to describe the Profit Margin of a bar’s goods. Once the pour cost is found, it’s highly recommended for an operator to compare their Cost Percentages to their Optimal Cost. An Optimal Cost is determined by the price the item is sold minus cost of ingredients. Listed below are the most common Optimal Costs for alcohol.
- Liquor ~ 15-18%
- Wine ~25-30%
- Draft Beer ~20%
- Bottled Beer ~25%