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Bar-i Liquor Inventory Blog

Myth Busting: Self-Service Bar Inventory Saves You Money

bartender counting inventory with a DIY bar inventory systemOne of the most common comments we hear when talking to potential new clients is that they don’t think full-service bar inventory services are worth the money. These bar owners often push back at the need to pay a monthly service fee in addition to the software fees. After all, they can just use a self-service bar inventory system that doesn’t charge a monthly service fee, saving them money while providing them with the same capabilities.

While this logic may make sense at first glance, the reality is quite different. In most situations in life, you get what you pay for, and bar inventory services are a great example of this truism. When you use a highly sophisticated bar inventory system that also provides live support and data entry services every time you count, the improvement in your bar’s performance will equate to much more money in profits than the cost of these services.

Let’s debunk the myth that self-service bar inventory services will save you money and illustrate the ways in which paying for a system that provides the support you need to set your bar up for success is well worth the investment.

Your Bar Inventory Goals Will Determine the Type of Service You Need

The first question you need to ask yourself is what are your goals for your bar inventory efforts? Are you simply performing inventory to check off a task that all bars must complete, or are you using your efforts to drive profits by more effectively managing your liquor cost?

Many bars look at the bar inventory process as a tool that lets you know what to order and helps you calculate your liquor cost. While these are important functions of the inventory process, you’re failing to maximize the value of your efforts if you’re simply performing bar inventory for these purposes. Instead, you should approach the bar inventory process as a tool to drive profits. For a small amount of extra work, your inventory efforts can provide significantly greater value when you use them as a profitability tool.

Bar Inventory Can Improve Your Liquor Cost Management and Increase Profits

Aside from your sales volume, your liquor cost is one of the most important factors impacting your profitability. Your liquor cost essentially shows your gross margin – if your liquor cost is 20%, it means you’re spending $0.20 for every dollar you make on sales. If you can lower that liquor cost by even 3% down to 17%, it will make a significant difference in your profits.

Your bar inventory efforts provide one of the most effective tools at your disposal to manage your liquor cost, but this is only possible when you calculate your inventory down to the serving. When you break down your liquor cost in enough detail to determine exactly how many servings of each product are missing each week, you can identify the different factors that are impacting your overall liquor cost and optimize them to reduce shrinkage and improve profitability.

However, if you only use your inventory efforts to measure an aggregate liquor cost for all the products you serve, you won’t have the level of detail necessary to know what needs to be done to improve performance. While many self-service inventory systems are very effective at helping you measure this aggregate liquor cost, the lack of support and assistance you receive with these systems makes it extremely challenging to achieve the level of detail necessary to leverage your inventory efforts to optimize performance and drive profits.

Evaluate Value Instead of Price When Choosing an Inventory System

It’s important to remember that value is more important than price when choosing a bar inventory system. When evaluating any software platform to use with your business, you always want to focus on the ROI you’ll receive rather than the price you’re paying. If you’re just looking at the cost of the service, you’re not seeing the entire picture, and this can potentially cost you money in the long run. When you focus on ROI, it allows you to assess the extent to which this service will improve your business.

Experience and Expertise Are Worth Paying for When You’re Solving a High Value Problem

In many instances, a service that comes at a higher cost will provide greater value to your business and ultimately help you make more money than a lower cost service. This is especially true when you’re trying to solve a problem that requires a significant level of expertise.

hiring third party professionals to manage bar operation servicesTo illustrate this point, let’s look at an example involving a service that is extremely important to your business – your tax accountant. Many people will do their personal taxes on their own, especially if their taxes are relatively simple and there aren’t many deductions to claim. However, this approach could be devastating for a business.

It’s very rare that business owners will do their taxes on their own. Even if they have an in-house bookkeeper, most businesses will typically hire a tax accountant to finalize their annual tax filings to make sure they maximize the value of the deductions and tax strategies available to them. Working with an accountant also provides peace of mind that no mistakes will be made when filing your taxes. This is critical because even a small misstep in your tax filing could cost your business hundreds or even thousands of dollars.

Therefore, the cost of hiring an accountant is well worth the investment because you’ll usually save a lot more money from these services than is possible when you do your taxes on your own. This makes the ROI worth the additional cost of the service.

The same idea holds true with bar inventory. This is a very technical and specialized process that requires experience and expertise to get the most out of your efforts. When you use an inventory system that provides you with help and support from a dedicated expert, it will often significantly improve your ability to reduce shrinkage, lower your liquor cost and increase your profits. In most instances, this optimized performance and increased profitability will justify the additional cost of the service.

Most Bars Are Leaving a Lot of Money on the Table without Effective Inventory

Let’s look at an example to highlight how much money many bars are losing each month. Our example will highlight an average performing bar that generates $100,000 in monthly sales. If this bar has a 20% liquor cost, which is about industry average, it means they will spend $20,000 in product to generate that $100,000 in sales.

Based on industry average for shrinkage, 15% of the product this bar poured in that month will have been missing. In other words, the product was poured, but not sold. Since 15% of that $20,000 cost equates to $3,000, it means that a typical bar generating $100,000 in sales each month is also losing $3,000 at wholesale cost (the actual cost to the bar is much higher than this).

Self-Service Inventory Falls Short When Seeking to Reduce Lost Profits from Shrinkage

If your goal is to reduce lost profits from shrinkage and optimize the performance of your bar (and this should ALWAYS be your goal), then self-service inventory will usually fail to provide the results you need. There are several reasons why you typically leave a lot of money on the table when you use a self-service bar inventory system:

  • You don’t use the full capabilities of the software
  • Calculations aren’t down to the serving
  • There’s a delay in the completion of your results
  • There’s no dedicated error resolution process
  • You don’t have someone guide you and provide recommendations
  • POS issues go unresolved
  • Lack of accountability

Not Using the Full Capabilities of the Software

When you purchase self-service bar inventory software, you’ll typically experience some time savings benefits. While these benefits are significant, they only scratch the surface of what most sophisticated inventory software is capable of doing. When you don’t have the assistance of a dedicated inventory expert, you’re much more likely to be happy with the time savings benefits and the ease of calculating your aggregate liquor cost without looking for additional ways to leverage the software.

In this situation, the robust reporting and analytical features that can help you drive profits are being ignored since you’re viewing the software primarily as a time saving tool. This significantly reduces the ROI you get from your inventory efforts and limits the value provided by the software you’re using.

Calculations Aren’t Down to the Serving

limitations of DIY bar inventory softwareIf you don’t drill down to get the detailed performance data that comes with level 3 inventory that calculates usage down to the serving for every product you sell, you’re not able to accurately evaluate your bar’s performance. When you look at overall liquor costs by category (beer, wine, liquor) rather than comparing servings poured vs. sold for every product you sell, you’re unable to identify the specific products that are underperforming. As a result, you won’t have the knowledge necessary to make the adjustments to your process that will improve the performance of products experiencing high levels of shrinkage.

Delay in Completion of Results

You’re also likely to experience a delay in getting your results each week without guidance or assistance from an experienced bar inventory professional. Normally, it’s very difficult to get your results the same day as your count without professional guidance and as a result, it’s a lot more difficult to find errors.

When it takes several days to get your results, you’ll likely have integrated additional purchases and sales, and items may have been moved around behind the bar. These factors make it virtually impossible to retrace your steps and identify the source of your errors.

No Dedicated Error Resolution Process

Errors are an unavoidable part of the bar inventory process. Between counting errors, missing invoices, different bartenders using their own process on each shift and the inevitable consumption of alcohol by staff, there are many opportunities for errors to creep into the process. For this reason, it’s critical to have an inventory process that takes a first look at results to identify where potential errors may exist, investigate these errors in detail and make updates to correct these errors before finalizing your results. Without this approach, you’re missing out on a critical part of the process.

Self-service inventory software requires you to develop your own error resolution process. Without extensive experience performing inventory audits, you’re most likely not going to know how to create this process and your weekly results will typically be riddled with errors, making them unreliable. When you have the guidance of an inventory professional who can implement a proven error resolution process, you’ll have greater confidence in your results and the associated actions that are required to improve performance.

Lack of Guidance and Recommendations

With self-service inventory software, there’s no one to provide you with guidance if you get stuck at any stage of the process. Instead of having a dedicated expert who can answer your questions, you have to work through the problem yourself. If you’re unable to figure out the solution quickly, it’s likely you’ll get distracted by other issues demanding your attention and never return to troubleshooting the problem.

Similarly, you don’t have anyone to explain your results and provide you with recommendations on how to improve your bar’s performance. Without these recommendations, it’s hard to know what the next steps to take are. That knowledge comes with the experience associated with performing inventory audits many times, which is why you benefit from the guidance of a dedicated expert.

POS Issues Go Unresolved

Most bars have buttons that are getting pressed for products they don’t have. This occurs because most bars don’t regularly update their POS and as a result, new buttons aren’t added to the system when new products enter your rotation. When these POS updates aren’t made and incorrect buttons are being pressed when certain products are sold, it’s impossible to gain accurate insights into the performance of every product you serve.

One of the responsibilities of a dedicated inventory expert is to make sure these POS updates are made on a regular basis so that you don’t experience these issues.

Lack of Accountability

All of the issues discussed above lead to this final issue which is the most serious problem you experience when you use a self-service inventory system – a lack of accountability. By accountability, we’re referring to the ability to precisely compare what was sold vs. poured so that you can reduce shrinkage and capture a larger percentage of the sales dollars to which you’re entitled.

Without this accountability, you’re likely to continue muddling along with higher levels of shrinkage (and the associated lost profits) than you should have. The average bar experiences approximately 15% inventory shrinkage, which equates to a lot of lost profits. This lack of accountability is extremely costly to your bar.

Hybrid or Full-Service Inventory Is Critical to Reduce Shrinkage and Maximize Profits

bar-inventory (2)If your goal is to leverage your inventory efforts as a profitability tool, you’re much more likely to get a better ROI by using a hybrid or full-service bar inventory system. The amount of money you’ll make by limiting your losses from shrinkage will be significantly more than the cost of the service.

At Bar-i, we use a hybrid approach that has you do the inventory counts, and then we provide you with a dedicated inventory professional to guide you through the rest of the process. This guidance helps you achieve results that are down to the serving, allowing you to precisely compare what was poured vs. sold for every product you serve. Your dedicated inventory expert will explain your results in detail and recommend the necessary actions to take in order to reduce shrinkage, lower your liquor cost and maximize your profits from every drink poured.

We also offer a full-service option if you prefer to have the entire process handled by our inventory experts. However, most of our clients prefer the hybrid approach since it provides greater value for the cost of the service.

How the Bar-i Hybrid Inventory Process Works

Our hybrid inventory process creates the structure and provides the guidance necessary to set you up for long-term success. As a result, you’re much more likely to experience a significant boost in your profits from your bar inventory efforts.

Setting Up Your New Bar Inventory System

You’ll have a dedicated inventory expert who manages the entire setup process:

  • They’ll schedule a series of four meetings to walk you through the process, and they’ll have a set agenda for each meeting to ensure each task is handled in the right order.

  • They know how to perform all the tasks associated with setting up your inventory system and they’ll provide you with small homework assignments to ensure you’re learning the important information necessary to run the system once it’s set up. After you’ve completed these assignments, your coach will confirm it was done correctly and ask you a series of follow-up questions to make sure you understand the process.

  • Your coach will confirm that each step was completed properly before moving on so that everything is done in the correct order. Any problems that arise will be resolved immediately, ensuring you can hit the ground running with an inventory system that was set up properly.

Just as importantly, this coaching will expedite your familiarity with the system, allowing you to jump right in and get started performing your inventory counts.

Your Dedicated Inventory Expert Keeps Your Team Accountable

Your dedicated inventory expert is accountable for completing each task on time, both during the setup and while performing regular inventory audits. If your team doesn’t perform your weekly count on time, they’re going to receive an email reminding them that the next count is due. Similarly, if your team doesn’t doublecheck potential errors in a timely manner, your dedicated inventory expert will check in to make sure this important part of the process gets completed right away.

All Time-Consuming and Technical Tasks Are Completed for You

bar inventory professional explaining inventory results to bar ownerYour team will be responsible for performing the inventory counts and doublechecking any potential errors we flag during the initial data analysis. Your dedicated Bar-i inventory expert will handle everything else for you. This ensures the entire process is completed much quicker and with better execution that delivers more detailed and reliable results.

Some of the technical aspects of the process that we’ll complete for you include:

  • Writing new recipes for the drinks you serve according to the standards you set for each drink
  • Making sure all invoices are accounted for each week
  • Resolving all errors that are identified during the process
  • Analyzing the data and presenting you with a detailed report in a format that is easy to understand

This not only ensures these technical tasks are handled properly, but it also frees up your manager’s time to take care of the many other important responsibilities associated with running the bar.

You Receive Detailed Feedback

We provide video reports that act as a feedback loop. These video reports give you a detailed understanding of the results, teach you how to use the software, and set a goal/to-do list after each count.

This feedback loop is a critical component to the process and a big reason why you experience a much greater ROI. When an error is made, it’s identified right away and explained in detail during the video report. This process shows you exactly when and where these errors were made, which helps you figure out where you went wrong in order to avoid the same error occurring again in the future.

Without having this detailed feedback loop for several months, it’s much harder to get to the point where you fully understand the source of your errors, and this makes it much harder to fix them.

We Provide Expert Consulting to Help You Dial in the Process and Improve Performance

It’s common for issues to occur the first few weeks you’re using a new system. Some of the most common issues we see with new clients are:

  • Counts aren’t completed on time
  • Counts are incomplete
  • Invoices are missing
  • New products weren’t scanned into the system properly
  • POS updates aren’t made in a timely manner

Your dedicated Bar-i inventory expert will help you identify these issues as they occur and show you how to fix them. After several inventory audits, these problems will be resolved and the process will run smoothly.

But we also provide you with the consulting and recommendations necessary to act on the data contained in your inventory audits. Compiling a lot of detailed data is worthless if you don’t know what to do with it, and if you’re not an experienced inventory expert, this data can easily become overwhelming.

Our inventory experts have extensive experience performing inventory audits for bars of all sizes, and they understand how to identify the patterns in your data that show where performance is lagging. They’ll not only point out these patterns, but also provide you with detailed recommendations on the steps you need to take to correct the performance issues you’re experiencing.

This is where the real value of our hybrid service is experienced. You’ll be armed with the knowledge necessary to improve your performance and maximize your profits.

Flexible Transition to Self-Service Inventory

transitioning to Bar-i's self service inventory systemOnce your inventory process is running smoothly, you truly understand how every aspect works and you’ve achieved your desired performance improvements, you have the option to transition to a self-service inventory process.

We call this a “flexible transition” because it is different with every bar. For some bars, the transition may happen very quickly. For others, they may need ongoing assistance for an extended period of time before they feel comfortable transitioning to self-service inventory. Some bars also decide that the extra guidance and consulting we provide makes their lives easier and keeps the process running more smoothly, so they choose to continue receiving these consulting services indefinitely.

Ultimately, you get to choose when you want to reduce or remove the assistance we provide. Our main recommendation is that this transition is dictated by the results you’re achieving, your team’s ability to execute the process at a high level on their own, and your team having the knowledge necessary to use the inventory system as a tool to get better insights into your bar’s performance so that you can make more money.

When the decision to transition to self-service inventory is made for these reasons, you’ll be able to continue receiving a very high ROI. However, if you simply choose to transition to self-service inventory out of a desire to spend less money on inventory, you’re most likely going to find that your team lacks the knowledge to leverage the inventory process to its full potential as a profitability tool.

Contact us today to schedule a free demo. Bar-i serves clients nationwide from our offices in Denver, Colorado.

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Topics: Accountability, Bar Inventory, Liquor Inventory Systems, Bar Technology, Profitability

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