Using tools like cost cards, targeted beverage cost percentages, and contribution margins, the author recently audited a bar’s beverage costing to come up with the best possible pricing. Here’s how it works.
By Brian J. Warrener
It’s a good time to be in this business. The market’s appetite for creativity and quality at the bar and the efforts of a new generation of supremely talented and dedicated bartenders has converged to create the cocktail renaissance. But it’s also a good time to remember that it is a business and success depends on operators refocusing on operational controls, especially key success measures that depend on accurate and systematic costing and pricing.
THE KEY FINANCIAL METRIC:
COST OF GOODS SOLD PERCENTAGE (CGSP)
Most operators understand the need to constantly monitor the financial results of their operations. One of the key metrics employed in the industry has traditionally involved measuring actual beverage cost percentage against a targeted or expected beverage cost percentage for a given period, say a week. An inventory is taken at the beginning and at the end of the week. Purchases during the week are added to the beginning inventory and the ending inventory is subtracted. The result is Cost of Goods Sold Percentage (CGSP) for the week. That number, divided by sales for the week, results in the cost of goods sold percentage or beverage cost percentage. If you were shooting for a cost of goods sold percentage for the week of say 22% and your actual cost calculated to something close to that, you had a good week. If not, you have a problem and need to find it.
CGSP is quite useful as an indicator of overall operational success, or even more importantly because it can alert operators to a host of operational shortcomings. A percentage that is off may indicate over- or under-pouring, spillage, leakage, theft or even problems with proper pricing relative to drink cost. Determining if one of the items above is the root cause of an unexpected CGSP requires effort and managerial acumen. But a percentage that is off is certainly a convenient red flag that something may be amiss.
