The COVID-19 pandemic has wreaked havoc on the bar and restaurant industry, resulting in a significant reduction in sales for most establishments. In these situations, reducing your costs can be an effective way to undo some of the negative impact this lower sales volume is having on your business. Upgrading your bar inventory system provides a unique opportunity to lower your liquor cost in order to mitigate the loss in profits experienced from the pandemic.
When evaluating potential inventory systems to implement, it’s critical that you identify the option that will be most beneficial to your bar and help you save the most money to offset the negative impact of this reduced sales volume. This process involves assessing the extent to which each bar inventory solution will generate a positive ROI for your business.
The bar inventory system you choose must maximize the benefits to you while providing a sensible cost. To provide the positive ROI you desire, your new inventory system should ideally improve your bottom line by at least two to three times what you spend on the service.
When Evaluating Bar Inventory Systems, Prioritize Value Over Cost
In general, most sophisticated bar inventory systems fall into one of two categories:
- Self-service software products (SaaS model)
- Systems that include support services from an inventory professional
The software as a service (SaaS) model involves selling the software to your bar and then setting you loose to use the product on your own. In this model, the software takes the place of the services that would typically be provided by a company. In general, self-service software options cost less for the inventory company to deliver, and this cost savings is passed along to the user.
Many bar inventory systems that run on a SaaS model provide good features, but extremely limited support to ensure effective execution. Without the support and execution guidance of a team that knows all the ins and outs of the software, it’s often challenging to leverage the software for maximum results. Therefore, while SaaS inventory systems provide you with a lower cost option, they often deliver less value than a solution that provides support services.
Bar Inventory Systems Providing Support Services Make it Easier to Maximize Your ROI
You’ll receive many benefits when a service component is added to the bar inventory system. Simply put, it becomes much easier to navigate the software and ensure it’s being used in the most effective way possible. Important services provided often include:
- Help setting up the system properly
- Assistance to get the most out of the system while you use it
- Expert consultants who can identify challenges that may arise when using the software in association with your bar’s unique operations
In some instances, such as with Bar-i’s service, you’ll also receive comprehensive recommendations that will allow you to use your inventory data to reduce shrinkage, lower your liquor cost and improve profitability. This personal touch comes at an expense to the inventory company and as a result, it increases the costs associated with providing the service.
Is the Increased Cost of Receiving these Service Improving Your ROI?
When choosing between a SaaS inventory system and a full service model, you need to evaluate whether the increased cost associated with receiving these services is providing a significant enough boost in performance to justify the expense.
If you have the technical knowledge and ability to maximize the benefits of the software without assistance, then there’s no need to spend extra money for the service component. However, that tends to be the exception, not the norm. If you’re looking to use a system that drives value for you – which you absolutely should – you’ll most often find that the marginal extra cost associated with these personal services is more than worth the investment due to the exponential improvement in performance.
For most bars, a little support from an inventory professional will enable you to leverage the full benefits associated with the software in ways that usually aren’t possible when you have to run the system yourself. When you maximize the benefits of your bar inventory system, the boost in profitability you experience will usually more than cover the increased cost of the service being provided.
Illustrating the Difference in ROI between SaaS and Full Service Models
In general, SaaS bar inventory systems cost approximately $150/month. Bar-i’s concierge inventory system with a dedicated inventory expert managing your audits and results down to the serving costs $320/month for a mid-sized bar.
Let’s look at the cost differential of these services for a bar generating $50,000 in monthly sales:
- The difference in cost to use the system is $170/month
- This cost difference equates to 0.34% of your total monthly sales ($170/$50,000 x 100 = 0.34)
- Therefore, you’ll be able to pay for the cost of these additional support services if you’re able to reduce your liquor cost by 0.34%, and any reduction in liquor cost greater than 0.34% would be generating extra profits for your bar
The 5:1 rule states that a 5% change in accountability (the percentage of product poured that was actually sold) typically produces a 1% change in liquor cost. If you need to reduce your liquor cost 0.34% to break even, this means you only need to sell an extra 2% of the product actually poured to pay for these additional support services. In other words, if you’re currently ringing in 85% of the product being poured, you’ll break even if you’re able to increase this figure to 87% of the product being sold. Any additional increase in the amount of product being sold will turn into extra profits for your bar.
Typically, our clients see accountability improvements in the 10-15% range, which equates to a 2-3% reduction in liquor cost. When you’re able to go from ringing in 85% of the product poured to 95% of the product poured, it will add up to a significant increase in your profits.
Think About What You’re Receiving for the Money You Pay
When evaluating liquor inventory systems, it’s a good idea to think about what you’re actually receiving for your money. Are you paying for software that you must navigate on your own without any help, or are you paying for special attention and a more customized process that will help you tailor the system to the unique needs of your business? For most bars, this extra level of service provides a significant opportunity to improve profitability.
If you’d like to learn more about how Bar-i can help you get the most value out of your inventory system, please contact us today to schedule a free consultation. We serve bars and restaurants nationwide from our offices in Denver, Colorado.