Bar inventory, also referred to as liquor inventory, is the act of taking a complete count of all your bar items. This includes counting your draft beer, bottled/canned beer, hard seltzers, liquor items and wine bottles. To get the most out of your bar inventory efforts, you should also be performing analysis of your data.

   In its most basic form, liquor inventory just provides you with the counting data. By integrating purchases, you can calculate your inventory on-hand. Most commonly, bars will incorporate the value of their purchases and the value of their sales to determine their liquor cost. With advanced systems, you can also integrate all the data to evaluate the performance of individual items.

The essential steps of bar inventory include:

• Counting– Measuring the amount of liquor remaining in partial bottles and counting full items.
• Calculating the value of inventory on hand – Combining your full and partial counts for each product and multiplying this figure by the wholesale cost for the product to know the dollar value of your inventory on hand for every product.
• Calculating how much inventory was used – Adding the current count to the previous count and subtracting purchases for each product to calculate the dollar value of what was used during the inventory period.
• Calculating liquor cost –Dividing the dollar value of product used by the total sales dollars to get a percentage cost (this is usually broken down by category – draft beer, bottled beer, liquor and wine – but advanced liquor inventory systems will also calculate the liquor cost of individual products).

There are essentially three different levels of bar inventory:

• Level1 (basic inventory) –Generate a list of what you counted and the value of the inventory on hand without performing any additional analysis.
• Level2 (calculate liquor cost) – Take the difference between the value of your previous count and the value of your current count, and add the value of purchases to determine how much money was spent during the inventory period and then divide this figure by sales to calculate liquor cost by category.
• Level 3 (evaluate the performance of each product individually) – Analyze the counts, purchases and sales of each individual product to determine how many servings were sold vs. poured for every product at your bar.

Counting inventory is normally very time consuming. The traditional method involves using a clipboard and a counting sheet with list of items you’re going to count, and recording the amount of inventory on hand for each item on the counting sheet. One of the reasons this process is so time consuming is that the order of products on each shelf behind the bar and in your storeroom rarely matches the order of the products on your counting sheet.

Shelf to sheet inventory, also called shelf to software inventory, addresses this issue by allowing you to create a virtual map/template containing different areas that represent each shelf behind the bar and in your storeroom. Then, you populate the list of items on each shelf in a way that ensures the order of products in your software mirrors the order of the products on the shelf.

By creating as many zones/counting areas in your software as you have shelves and organizing the order based on the order of products on the shelf, you’re able to count what’s on the shelf and record it directly into the software without having to manually search for that product on a list. This is one of the most effective steps you can take to reduce the time it takes to count inventory.

Liquor inventory is important for three reasons:

• It allows you to know what to order – Counting inventory tells you exactly how much of every product you need to order to ensure you have enough of each product without keeping too much inventory on hand.
• It can tell you how much money you’re making from the sale of each item – If you do a liquor cost calculation, it tells you what your margin is so you can manage this figure more effectively.
• It can help you make more money – When you perform bar inventory correctly and in high detail, it can help you increase your bar profits by as much as 30%. Since most bars pour more alcohol than they sell, doing detailed level 3 inventory can identify where you’re having shrinkage (situations where you’re using product that you’re not selling). If you measure this, it gives you the tools to fix that problem so that you can sell a larger percentage of each product poured and as a result, make more money off each product.

There are six different types of bar inventory management systems:

• In-house inventory systems
• Self-service apps
• Full-service apps
• Automated systems
• Accounting systems
• Hybrid systems

In-House Inventory Systems
‍In-house inventory systems use a tenthing system to count your inventory. This involves estimating how much is in each partial bottle in10% increments and then integrating the value of purchases and sales to calculate your liquor cost. These systems vary wildly in their sophistication and effectiveness. In general, if your bar is doing more than $20,000 in sales each month, we don’t recommend using an in-house inventory system because you’ll be missing out on a big opportunity to manage your costs and maximize your profits.

Self-Service Apps
‍Self-service apps are liquor inventory systems that allow you to create an account in some type of software system and then use the tools of that software system to perform your counts and possibly calculate liquor cost of products by category. As with in-house systems, these apps vary wildly– some use hardware such as barcode scanners and Bluetooth scales, while others have less sophisticated methods of counting your inventory.

Self-service apps are typically inexpensive, but the downside of using these systems is that they are typically more limited in the functions they allow you to perform. Most bars using self-service apps typically only perform level 1 or sometimes level 2 inventory, but they lose the ability to look at the individual performance of products necessary to make more money from your inventory efforts.

Full-Service Apps
‍Full-service apps provide a much more robust service. You pay a company to come to your bar to do your inventory counts and perform all data analysis for you. These systems are very effective and allow you to achieve the results necessary to improve your profitability. However, they are also the most expensive option since you’re having a third-party professional do all the work for you.

Automated Systems
‍Automated systems measure your product usage at the time when alcohol is being poured from an individual bottle of liquor or when beer is being dispensed from a draft beer line. While these systems provide highly accurate usage data, they require careful management by a knowledgeable person to ensure they work effectively.

For example, using an automated inventory system with your draft beer requires you to manage the system when the lines change and when the draft system is cleaned. In addition, these systems don’t allow you to track the usage of bottled beer and they rarely track wine usage, making them limited in their ability to provide a comprehensive picture of the performance of all your bar’s products.

Accounting Systems
‍Sometimes, inventory systems are baked into bigger software platforms. It’s common for robust accounting software systems to have an inventory module. The problem with these systems is that since inventory is only a small component of the functions the software manages, it will often lack the robust, high-end features that come with dedicated inventory software.

For example, these systems usually lack hardware integrations that improve the speed and accuracy of inventory counts, and you often don’t have the option of receiving assistance using the system from an inventory expert that is common with full-service and hybrid systems. Instead, you have to run every aspect of the inventory software on your own, which makes them essentially self-service systems with a little more functionality than is provided by a typical self-service app.

Hybrid Systems
‍Hybrid systems combine elements of self-service and full-service systems to provide you with the highest levels of functionality at a more affordable cost. Bar-i’s system is a great example of a hybrid bar inventory system. When you use our system, the actual data collection process(counting inventory, collecting invoices and running sales reports) is done by your team. Then, a dedicated Bar-i account manager will be responsible for:
·        System setup, support and training
·        Entering invoices and updating prices
·        Receiving counts
·        Resolving counting errors
·        Adding new products to the system
·        Managing integrations with your POS system
·        Providing follow-up reports and consulting services

Since the data collection is completed in-house by your team, the cost of hybrid systems is lower than with full-service systems. However, you still have the assistance of a dedicated independent inventory expert to deal with the more challenging aspects of the inventory process. This approach saves your team time while providing the expertise necessary to get the most out of your inventory efforts. Bar-i has several different hybrid options, allowing you to choose the amount of assistance you require from our staff.

Determining your return on investment (ROI) involves comparing the benefit of the service to the cost. The cost will vary based on the specific inventory system you use, but the general benefits achieved by barinventory systems are consistent regardless of the type of system you implement at your bar. These benefits are:

• Save time
• Improve your bar’s performance

Save Time
‍Just about all bar inventory systems will provide time savings benefits compared with performing inventory manually in-house. If you were previously spending five hours a week on the bar inventory process and you’re able to reduce that amount of time to two hours using a more sophisticated bar inventory system, you’ve saved three hours of your staff’s time each week. The value of this time savings may vary based on what your managers are using those additional three hours for each week, but this can free up a significant amount of time that can be used for other essential tasks associated with running your business.

Improve Your Bar’s Performance
‍The bigger benefit provided by sophisticated liquor inventory systems is the ability to improve your bar’s performance. If an inventory system allows you to decrease your liquor cost and increase your sales by having more of each product rung in every week, it’s typically going to equate to a significant amount of money over the course of a year.

At Bar-i, we typically see bars we work with decrease their spending and purchasing of inventory by 3%. In other words, for every $100 of sales, these bars capture an additional $3 as profits because they’re reducing the amount of alcohol they pour to generate those sales. Therefore, the ROI of Bar-i’s inventory service is 3% of your sales.

The harder part of the ROI calculation is measuring how much your sales increased. If your inventory data allows you to make changes to your processes that significantly reduce the number of drinks given away and ensure that all drinks are being rung in, you’ll generate more sales. It can be challenging to measure the exact increase in your sales, but we conservatively estimate this figure as a 6% reduction in cost to your bottom line.

The best way to measure the success of your bar inventory system is to evaluate the improvements you’re experiencing associated with the two primary benefits of using advanced liquor inventory software – saving time and making more money.

Measuring Time Savings Benefits
‍There are three ways you can experience time savings improvements from using an advanced bar inventory system:

• Spend less time counting – Advanced inventory systems have more efficient tools that will count your inventory faster and more accurately.
• Spend less time producing inventory on hand and liquor cost data – Advanced bar inventory systems allow you to automatically integrate the wholesale cost, the amount you spend purchasing products and your weekly sales in order to calculate your liquor cost.
• Spend less time ordering – Many advanced inventory systems provide functionality that makes ordering easier. With Bar-i’s system, the software generates dynamic pars based on your recent usage. Then, the software compares the par for what you need to have on hand against the current count and suggests the difference as the amount to order. Our system not only tells you how much you need to order, but it allows you to place those orders via email to save even more time.

Measuring Your Bar’s Ability to Make More Money
‍Similarly, there are several ways an advanced bar inventory system can help you make more money. Make sure to measure how effectively your system is performing the following functions:

• Precisely measure performance - If your system performs level 3 inventory and increases the precision of yourperformance data, this will allow you to make better informed decisions thatwill help increase profits.
• Product level detail – When your inventory system provides detailed information regarding the performance of each individual product, it unlocks a variety of benefits that will help you better understand how to reduce shrinkage, lower your liquor cost and make more money.
• Error resolution and feedback loop – If your inventory system has an error resolution system, it will significantly improve your results. Make sure that during the investigation of errors, there’s enough detail to see where an error was made, what type of error occurred and how to correct it. Not only will this make your inventory results more accurate, but the feedback/error investigation process informs how these errors were made in the past so that over time, you continuously reduce errors and increase the accuracy of your inventory process.

Using a basic bar inventory system causes several problems that significantly reduce the effectiveness of your inventory efforts:

• Slower counting process
• Inaccuracy
• Lack of invoice integration
• Lack of sales integration and programming
• Increased errors

Slower Counting Process
‍If you use a manual inventory system or have basic software that doesn’t offer hardware integrations such as barcode scanners to look up new items and scales to measure the amount of liquor remaining in partial bottles, the counting system will be much slower and take longer to complete.

Inaccuracy
‍Traditional inventory counting methods involve estimating how full an open bottle is to the nearest 10% (for example, if you have 30% of the bottle left, you’d estimate it at 0.3). Not only is this method very inaccurate and subjective, but it’s especially problematic for high end, low sales volume products. When a product is rarely used, it’s easy to estimate a bottle at 0.6 one week and then estimate it at 0.7 the next week, even if nothing was poured or only 1-2 drinks were poured that week. This gives you negative usage.

This method is also problematic with:  

• Kegs– Tenthing providesinaccurate measurements of draft beer usage.
• Opaque bottles –Products contained in opaque bottles, such as Bailey’s, prevent you from seeing inside so you won’t be able to estimate how much is left in the bottle.
• Irregularly shaped bottles – Bottles that have an unusual shape, such as Crown Royal, will make it harder to estimate how much is left inside the bottle than products that come in a traditionally shaped bottle.

Lack of Invoice Integration
‍Most basic inventory systems don’t accurately integrate invoices, match the value of purchases and divide them up based on what was spent on each category (bottled beer, draft beer, liquor and wine). Without this information, it’s hard to achieve the actionable data necessary to increase profits. When you use Bar-i’s inventory system, we perform this task for you either by entering the invoices for you or pulling the data from our integration partner Fintech (if you use their system).

Lack of Sales Integration and Programming
‍In order to calculate liquor cost or look at individual product performance, you need to pull the itemized sales data from you POS system. Many basic inventory systems don’t provide this functionality, making it much harder to get the performance data you need to maximize profits. Bar-i’s inventory system integrates with over 40 POS systems, making this process easy and seamless.

In addition, there are typically occasions where the programming of your POS system isn’t optimized. By reprogramming your POS, you can get a better record of sales and more accurate inventory data. This is a strength of Bar-i’s service, and we can help you do this to ensure your POS is always optimized to deliver the most accurate inventory data.

Increased Errors
‍By far, the biggest problem associated with using a traditional inventory system is an increased likelihood of errors. Traditional systems involve a lot of manual processes, and this introduces many opportunities for errors while limiting your ability to diagnose, fix and learn from those errors. These errors will reduce the accuracy of your results and prevent you from having confidence in your inventory data, making it harder to take the actions necessary to improve profitability.

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The setup process for Bar-i’s inventory system depends on the service option you choose. If you choose one of our lower tier self-service products, we’ll provide you with a one-hour complimentary training session. Then, you’ll be able to work through a series of self-service YouTube training videos to complete the setup.
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Our pro platform comes with our exclusive Simple Start Setup™ which provides much more robust assistance with setting up your inventory system. With Simple Start Setup™, you pay for significant training, setup and support by Bar-i account managers, but you’ll have peace of mind that the system is set up correctly and that your team will understand how to work the counting software.

Our Simple Start Setup™ includes a five-phase process:

• Discovery– During the discovery conversation, you’ll learn about our system and choose the appropriate option for your bar. Then, we’ll mail your equipment to you.
• Map Setup –During a Zoom meeting, our team will train you on how to map out your bar, create counting zones and fill in each zone by scanning the barcodes on the items on each shelf.
• Counting Training –Our team will train you on how to do your inventory counts so that you can complete them as quickly as possible. This involves teaching you how to use the counting software and providing you with counting hacks that will make your counts both faster and more accurate.
• Recipe Creation –Once we’ve performed an initial count, your dedicated Bar-i account manager will learn about your glassware, standard drink portion sizes and signature drink recipes so that we can set up your system in a way that delivers the most accurate results possible
• Audit Training – We teach you how to perform a detailed audit. You’ll learn the different steps in the process that your team needs to complete each week. This includes how to upload invoices; how to submit your counts; how to run and submit the correct sales reports from your POS system; how to provide our team information on new POS buttons; and how to investigate, diagnose and resolve errors.