It's better business to switch your focus

from the obvious.

Would you rather invest $10 to make $100, or invest $20 to make $150?

Most managers would choose the first option, focusing on the best profit margins. A savvy owner would pick the latter, realizing that banking $130 is better than only $90.

The paradox is that driving sales revenues and profits can often hurt pour cost percentages and profit margins.

“Up-selling” is a good example of this. Assume a bartender up-sells a $4 screwdriver from well vodka to Absolut vodka for $5.50. If your focus is on making money, you should commend the bartender for making you an extra 83¢ on the transaction.

But that up-sell also hurt your pour costs: the well vodka runs at 7% while the Absolut was 17%. If your managers are bonused on hitting a pour cost target, as most are, then the manager’s best interest is to dis- courage up-selling

If the question were simply, “would you rather have a 7% pour cost or a 17% pour cost?” one would think that it would be an easy answer. But we are in business to make the highest profit, not to run the lowest possible pour cost.

In fact, by focusing on pour cost rather than profit, many managers will end up reducing your profitability. We saw that first-hand at a chain account that decided to use Bevinco. They were reluctant to employ us at one of their locations because the pour costs there were stellar. We quickly found that the bar manager was a little too focused on pour costs. He had instructed his bartenders to substitute well liquor whenever the customer ordered calls or premiums in a mixed drink – reasoning that the customer would never be able to tell and he would be praised for low pour costs! He also actively discouraged the bartenders from up-selling.

The restaurant was a lot less profitable than it should have been but the bar manager made his bonus every period.

The only way to manage margins effectively is to know what the margins SHOULD BE. The proper target is pour cost?

or profit?

“...by focusing on pour cost rather than profit, many managers will end up reducing your profitability.”

the optimal pour cost, or ideal pour cost, which tells you what pour cost you should be hitting if you are able to eliminate over-pouring, mis-ringing and theft. Since you don’t mark up all of the drinks you sell by the same percentage, and you have no way of controlling what your customers are going to order, that optimal pour cost will vary from day-to-day and month- to-month. So why would you use the same target percentage to measure the efficiency of all of the sales?

A 17% pour cost sounds great but should only be acceptable if the optimal pour cost is at least 16.5%. I remember a “gentlemen’s club” that was pretty proud of their 12% PC – until a Bevinco audit showed them that their optimal pour cost was only 10%. Their “shrinkage” problems of theft and over-pouring were effectively “hidden” by their focus on pour costs.

A Bevinco audit uncovers shrinkage that often goes undiscovered using management by pour cost. We do so by comparing the actual product used to what was sold in every drink. That way the focus is on Making More Money, not just Managing Margins.