Guide to Bar Management →
Successful bar managers will tell you that efficient inventory management is the key to maintaining a profitable bar. To do this, a simple, yet critical calculation to understand is inventory usage, which tells a manager exactly how much of each product a bar has used over a defined period of time.
If your bar management software or inventory spreadsheets are set up correctly—we’ve got a template for you if they’re not—you should be able to quickly access an inventory usage report. That may sound simple enough, but this report is the critical first step in almost every measurement of a bar’s performance: helping you calculate profit margins, detect over-pouring or theft, calculate pars, and determine which products are performing poorly.
Let’s start with the inventory usage formula:
Inventory Usage =
+ Received Inventory
– Ending Inventory
Take a ‘Beginning-of-Period’ Inventory
The first step for calculating inventory usage is recording your starting inventory for every item at the bar.
For example, if there are 4 bottles of Absolut Vodka in the liquor room, 1 bottle in the storage closet, and 1.3 bottles at the main bar, the total starting inventory for Absolut Vodka is 6.3 bottles.
Take an ‘End-of-Period’ Inventory
Based on a predetermined time period for your calculation (usually weekly or monthly), the next step is to record an ending inventory for every item at the bar.
Let’s look at the example in step one and assume that we ended with 3 bottles of Absolut Vodka.
Factor in Received Product During the Time Period
Finally, we add in any received inventory.
If 5 bottles of Absolut Vodka were ordered and received from your distributor in the time between your starting and ending inventory, then this would represent your received inventory.
So, Inventory Usage =
6.3 bottles (Starting Inv.)
+ 5 bottles (received inventory)
– 3 bottles (Ending Inv.)
= 8.3 bottles
This can also be expressed in dollars. If Absolut Vodka costs the bar $15/bottle, then inventory usage in dollars equals ($15 x 6.3) + ($15 x 5) – ($15 x 3) = $124.50.
In this basic example, it seems very straightforward, but factor in the big picture of inventory usage and you’re looking at much more than just Absolut. Inventory usage will need to be broken down by category (spirits, wine, and beer), item type (vodka, whiskey, rum, etc.), and brand/supplier in order to get the best look at your bar’s performance.
That’s a lot of different calculations to be making on a regular basis!
And no matter how long you’ve been doing it and how much you understand the formula, without software automation, calculating inventory usage will always be a time-consuming and redundant task. Counting each bottle, recording it on paper, entering it into Excel, tracking and entering your received product from dozens of paper invoices and distributors, and keeping track of all of this on a weekly, monthly, quarterly basis…it’s never-ending!
Luckily, it doesn’t have to be so hard. [Shameless plug] BevSpot will automatically calculate your item-level usages over any time period for you—simply place your alcohol orders across all of your product through our application, and complete your inventories in half the time directly on your phone or tablet.
Now for the real question…what will you do with all that extra time on your hands?