There is a lot of work to do as a bar owner to keep your customers engaged and consistently returning to your establishment, and as with any relationship there needs to be some give and take. You must be sure your customers are always satisfied, yet you also need to ensure that your bar operations are optimized and efficient and this is making as much profit as possible. In this article, we are going to talk about five tips on how to boost your bar’s profit margin.
Before getting started, let’s run through how to calculate your bar’s profit margin.
The formula is as follows: Net income divided by revenue equals bar profit margin
Using this basic formula for determining your profit margin, we can now explore methods to increase the profit margin of your bar.
1. Decrease Pour Costs
High pour costs cut into your profit margins. This deceptively simple sentence bears repeating: HIGH POUR COSTS CUT INTO YOUR PROFIT MARGIN.This is generally the single biggest factor that will decrease the amount of profit you are able to attain for your establishment. Yet you also need to understand that there are ways to lower pour costs without diluting the customer’s experience. Start here:
Know your numbers – “If you can’t measure it, you can’t manage it.” This famous business quote is highly applicable when it comes to pour costs. How can you possibly improve your numbers if you do not know what goes into the numbers you are counting? You should study all the components of each drink, not only the cost of each ingredient and the volume used for every cocktail, but also the harder to track components like the human cost of time and labor utilized to create your drinks as well as any loss to spills, over pour, and free drinks. Thanks to bar technology automation, robotic bartenders are able to deliver the perfect pour month after month. When you run reports in your POS system you should always look at your product mix report, menu item report and your daily sales report. The more information that you have, the better you will be able to understand the overall picture of your establishment and how it is operating.
Optimize pricing – If there are popular drinks on your menu with ingredients that cost you a fortune, you must rethink your pricing. If you are not getting a high profit margin for each drink served, you need to consider raising the price or finding ways to lower your operating or ingredient costs. There is a delicate balance, as there is always the fear of losing customers with increased pricing, but people are generally willing to pay for a consistently high-quality drink at an establishment they have come to know and enjoy.
Monitor & Manage shrinkage – Despite what George Costanza may tell you, shrinkage is the difference between the amount of product sold and the amount of product used over the same time period. Ideally, this number would be the same, but often they are not. Shrinkage can come from a variety of sources; not just outright theft. Discrepancies are also often caused by by over-pouring, comped or free drinks, broken bottles or poor accounting and inventory management. Proper management and technology-based solutions can dramatically reduce shrinkage when properly employed.
2. Provide Unique & Substantial Value
When you provide a unique and substantial value to your patrons, you will quickly find that they will return time and time again. People love to be rewarded and shown that they are appreciated. You can provide massive value by providing discounts to regular customers and having rewards systems in place, as well as simply recognizing return customers personally upon repeat visits.
3. Prepare for Profits
The more premium your ingredients, the more you can justifiably charge for your mixed drinks. Yet it can be challenging to create constantly superior drinks that warrant the high ticket price. So time must be invested in preparing and ensuring that you are positioned for success.
One of the ways that you can prepare for profits is to hold a boot camp for your staff where they learn about the new drinks that are coming to the bar, as well as their mixology and origin. Ensure that everyone grasps why each drink (and their premium ingredients) are special so as to make it a fun experience for everyone involved, which will result in a better experience for you patrons and ultimately more orders of premium drinks and cocktails.
4. Details Matters
Why do some say “the devil is in the details”? It is because something that appears simple at first almost always becomes more complicated and important once you dig in. Do not make the mistake of allowing little things to slip, because it is the sum of these little things that will be the difference between a profit and a loss. Always count and keep track of everything happening at your establishment. Regardless if a lemon is thrown away because it was not up to standards or because you let a friend have a free drink, you need to understand the source of all leakage in your business.
Moreover, checks and balances must be in place in order to minimize dishonesty. One of the hardest positions to manage is your bartender, as she or he has access to the entire drink service flow and thus can be determinative as to your profits. The bartender often takes the order, services the customer, provides the bill total, handles the money and takes inventory. Without checks and balances, there is no way to ensure that things are being done professionally, thoroughly and honestly.
5. Make Smart Deals
Creating strong relationships and negotiating great deals with vendors is critical. Instead of buying from multiple vendors, explore volume discounts from a single vendor to lower your component costs. The less you pay, the higher your profit margins. Large vendors also often offer packaged POS programs that integrate with inventory management and order placement. As long as you have a good deal with your vendor, this can be a win-win arrangement..
When you are deciding between a large vendor and a smaller operation, you have to weigh the benefits of monetary savings and the culture created in the bar when you use a craft (often unrepresented) label. By purchasing from a smaller brand, you may be able to both lower you cost for their product, and often create a more unique end-product that you can still sell for as much (or more) as compared to the more recognizable national brand that costs you more money.
Measuring, understanding and paying close attention to your numbers and other details, making smart deals and reducing pour costs can make a major difference on the profit margins for your bar. Bringing in repeat customers is an equally important part of running a successful business. While both new business and repeat business is critical to foster, keeping a customer always costs less than bringing in a new customer. And loyal patrons will bring friends and family to your establishment as well.
Focusing on the above factors to increase your profit margins will result in measurable differences as you continue to refine and optimize each area. Investing time to putting each of these tips into practice can mean thousands of dollars to your bank account each and every month.