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Bar-i Liquor Inventory Blog

What Type of ROI can You Expect from Bar-i’s Liquor Inventory System?

Maximizing Bar Profits - Bar-i Bar InventoryWhen speaking with potential clients, we frequently hear the following comment: “I do my own inventory in-house, calculate my liquor cost and see that it consistently stays in line. So why do I need your service?” The simple answer (and really the most important answer) is money.

Utilizing Bar-i’s liquor inventory services will certainly save you time and make your life easier, but these aren’t the reasons you should consider investing in the service. By carefully comparing what was rung vs. what was poured at your bar, we can help you reduce shrinkage and improve accountability. As a result, the money you are spending on a more sophisticated inventory system will help you generate significantly larger profits.

If you’re thinking about upgrading your bar’s liquor inventory system, you should always be cognizant of the return on investment (ROI) you’ll receive. This is ultimately the key factor that should determine whether it is worth your while to make the upgrade.

Figuring out Your Potential ROI

Return on Investment (ROI) for Bar-i's Liquor Inventory SystemTo illustrate your potential ROI from working with Bar-i, we’d like to provide you with a few real life examples of what can be achieved when you have the granular data necessary to compare what was rung vs. what was poured. This example will use actual numbers to evaluate the ROI achieved at two different types of bars:

  • Bar 1 is a small neighborhood bar that does approximately $30,000 per month in bar sales (not including food) and currently has a 26% liquor cost

  • Bar 2 is a large urban bar in a prime location that does approximately $300,000 per month in bar sales and currently has a 20% liquor cost

We chose these examples because they illustrate the two ends of the spectrum. As you’ll see from this example, your ROI when using Bar-i’s system can be anywhere between 4-7 times your expenditure for the service. If you run a mid-size bar that falls somewhere in the middle of this spectrum, you can expect an ROI somewhere between these extremes.

How did We Arrive at the Amount of Money Each Bar Saved by Using our Inventory System?

Consider the following numbers for our 2 bars:

 

Bar 1

Bar 2

Monthly Sales

$30,000

$300,000

Liquor Cost

26%

20%

Shrinkage

15%

15%

Monthly Purchases

$7,800

$60,000

Monthly Shrinkage (wholesale loss)

$1,170

$9,000

Improvement

$780

$6,000

Improvement Based on Actual Loss (2x Wholesale Loss)

$1,560

$12,000

Cost of Service (per month)

$300

$1,400

Monthly Gain

$1,260

$10,600

ROI (including Retail)

4.2

7.6

Yearly Profit Boost

$15,120

$127,200

 

As we discussed earlier, our 2 real life examples illustrated the results from a small bar generating $30,000 in monthly sales with a 26% liquor cost and a large bar generating $300,000 in monthly sales with a 20% liquor cost. Now let’s breakdown the other figures in this table to illustrate how we arrived at a range of 4x-7x ROI.

We assumed that the level of shrinkage these bars experienced before working with us was approximately 15%. This is a conservative estimate based on our experience performing thousands of bar audits. We’ve found that the vast majority of bars who don’t use a sophisticated liquor inventory system experience about 15% shrinkage.

To arrive at the monthly purchase values, we simply multiplied the monthly sales total by the liquor cost:

  • Bar 1 – $30,000 x .26 = $7,800 spent on alcohol each month
  • Bar 2 – $300,000 x .20 = $60,000 spent on alcohol each month

To figure out the dollar value of missing products for each bar (the monthly shrinkage), we multiplied the dollar value of monthly purchases by the shrinkage percentage:

  • Bar 1 – $7,800 x .15 = $1,170 lost due to missing products every month
  • Bar 2 – $60,000 x .15 = $9,000 lost due to missing products every month

Bar Accountability - Liquor Inventory Systems - Bar-iThe data you receive from your regular Bar-i inventory reports will help you identify precisely which products are underperforming. You can then make the necessary adjustments to ensure these products are being rung in more consistently. By doing this, Bar-i can help you consistently achieve 95% accountability or better. This level of accountability equates to 5% shrinkage or lower, a significant improvement over the current level of 15% shrinkage.

Our best bars achieve 98% accountability (2% shrinkage), but to keep our numbers more conservative, we will start with an initial goal of 95% accountability (5% shrinkage) for this case study. At this level of accountability, these bars will reduce their monthly shrinkage by two thirds of the current levels they are experiencing.

When 95% accountability is achieved (and this is a very realistic goal), these bars will experience the following financial improvement:

  • Bar 1 – saves $780 per month
  • Bar 2 – saves $6,000 per month

Keep in mind that the figures listed above reflect the savings in purchase costs of buying products wholesale. However, this doesn’t tell the entire story. To determine the total amount of savings you actually achieve, you must also factor in the cost of this lost product to your business. The initial figure listed above ($780/$6,000) only reflects your savings in cost to the bar, but your bar makes money through retail sales. The actual cost of these missing products to your bottom line can be anywhere between 1x and 5x the wholesale loss:

  • If your bartenders are just spilling drinks on the bar and forgetting to ring these in, correcting the issue will save just the wholesale loss (your actual cost for the drink that is missing) – this equates to a 1:1 ratio with your wholesale loss

  • In situations where bartenders forget to ring in a drink that is served to a customer, you are actually losing as much as 5x the amount of your wholesale loss – if the drink being given away has a wholesale cost of $1 and you sell it for $5, you go from making $4 on the drink to losing $1 on it, a $5 swing on your bottom line (5x more than the wholesale loss)

The actual cost of missing products at your bar will fall somewhere in between the 1x figure in scenario #1 described above and the 5x figure in scenario #2. For any particular bar, the true cost will depend on the split between these scenarios: if many more drinks are being spilled than given away, your actual cost will be closer to 1x; if more drinks are given away than spilled, it will be closer to 5x. To be conservative, we will estimate the actual loss at 2x the wholesale loss.

When we factor in a 2x actual loss, the savings become even greater:

  • Bar 1 saved $1,560 per month
  • Bar 2 saved $12,000 per month

Calculating Each Bar’s ROI: How did We Arrive at the 4x-7x Range?

In order to determine your ROI, you will also need to factor in the cost of our inventory service:

  • For a small bar doing $30,000/month in sales (Bar 1), we recommend doing Self-Count audits every two weeks – this option costs $300/month

  • For a larger bar doing roughly $300,000/month in sales (Bar 2), we recommend doing full service weekly audits – this option costs $350/week ($1,400/month)

To calculate your ROI, you need to take the additional money you net from our inventory services (savings minus cost) and divide this total by the cost of the service:

  • Bar 1 made $1,260 extra per month for a 4.2x ROI ($1,260/$300)
  • Bar 2 made $10,600 extra per month for a 7.6x ROI ($10,600/$1,400)

To figure out how much extra money you will make over the course of a year, just multiply these figures by 12:

  • Bar 1 would make an additional $15,120/year by using Bar-i’s inventory service
  • Bar 2 would make an additional $127,200/year by using Bar-i’s inventory service

In both of these situations, the bars are achieving a significant ROI and saving a considerable amount of money by improving the accountability of their alcohol sales. The larger the sales volume for your bar, the larger the ROI you will achieve. As you can see from the results achieved by Bar 2, a yearly gain of $127,200 is quite significant to your bottom line.

If you would like to learn more about how Bar-i’s liquor inventory system can help you streamline your operations and maximize profits, please contact us today to schedule a free consultation. We serve bars nationwide from our offices in Denver, Colorado.

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Topics: Liquor Inventory System ROI

  
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