When is the last time you examined the relationship between production cost and recipe deviation rates or calculated cocktail profitability? It’s probably been a long time, if ever. Everyone is quick to tell you what they think about cocktail profitability but reluctant to disclose why. Reluctant disclosure is pure speculation influenced by opinion. Unfortunately, speculation is the foundation for failure in the bar business.
Two things are certain. Money is the byproduct of success, and accidentally succeeding in the bar business does not occur.
High volume nightclub operators, restaurant tycoons, and the best bar owners all have one thing in common. They embrace bar math because it empirically proves cocktail profitability. I constantly tell clients, “Don’t tell me what you think. Show me the numbers because numbers don’t lie.” Regardless of your role in hospitality, seniority level or executive title, abandon what you think it costs to create a cocktail and do the math.
Bar math begins with calculating the cost per ounce and portion cost. Cost per ounce (CPO) determines how much an ounce of liquor costs. Calculating requires dividing the wholesale liquor bottle cost by its total ounces. Portion cost (PC) examines the relationship between cost and serving size. Calculating portion cost requires establishing the cost per ounce (CPO) then multiplying by serving size (SS).
Portion cost (PC) examines the relationship between cost and serving size. Calculating portion cost requires establishing the cost per ounce (CPO) then multiplying by serving size (SS).
These calculations are phenomenal barometers for gauging cocktail profitability. However, gauging profitability and achieving it are radically different Achieving profitability requires an application. Cocktail production is the most powerful application in the bar business, but systematic cocktail production per recipe is the most profitable.
A great cocktail is always profitable because it does not fluctuate. Taste and cost to manufacture remain constant. Systematic production ensures consistency. The most profitable way to make a cocktail is right the first time. By right, I mean per recipe based on beverage cost. For example, a seven ingredient Adios costs $0.89 to manufacture.
Recipe deviation rates destroy cocktail profitability. A bartender’s unwillingness to prepare cocktails per recipe is financially debilitating. Witness the profit destruction incurred by ingredient substitution and over pouring. The $0.89 production cost inflates to $2.40.
Recipe deviation rates cause production cost inflation. Rising cost equal profit loss. Over pouring and ingredient substitution yield a -$1.51 loss. Losing -$1.51, per Adios, compounds faster than polished steel. Selling 1,060 Adios annually, with a 20% recipe deviation rate, yields -$320 loss.
Cocktail Deviation Rates Destroy Profitability
At first glance, a -$320 annual loss seems inconsequential, but appearances are deceiving. This loss only reflects one cocktail with a 20% deviation rate. Reality sets in when you realize your product mix reflects 90 cocktails. How many cocktails are crossing your bar for a loss? The million dollar question is how do you fix it?” Hiring a bar consultant is the million dollar answer. Contact Cocktail Currency to speak with Preston Rideout for more information about cocktail profitability and bar consulting.
About the Author - Preston Rideout
My name is Preston Rideout. I am President of Cocktail Currency Bar Consulting located in Memphis, Tennessee. I have twenty-two years experience opening, operating and owning bars across the United States. I specialize in operations, and cocktail profitability. As a bar consultant, I build long term sustainable solutions by writing bar manuals, creating standard operating procedures and conducting bartender training. I thrive in high volume nightlife and operational chaos. Please contact me now to discuss hiring a bar consultant and becoming a client.