Operations Tip: Comparing Ideal, Actual and Purchased Costs to Sales

Guest Post by Chuck Deibel, Senior Partner at BEVINCO 


Often Bar operators will calculate what their costs should be by dividing their purchases by their sales. This is a flawed method. This paper provides the actual numbers for purchases, sales and costs used for 3 weeks to show how this doesn’t provide accurate information.

As you might recall the calculation for each is as follows”

Actual Pour Cost percentage (APC) is arrived at by dividing the cost of the inventory used by the sales. The cost of the inventory used is arrived at by adding the purchases to the previous inventory and then subtracting the ending inventory from that sum. So it’s Beginning Inventory, plus purchases subtract ending inventory.

Ideal Pour Cost percentage (IPC) is arrived at by dividing the cost of the inventory sold by the sales. The cost of the inventory sold is arrived at by adding the cost of the inventory sold, plus the cost of any comps or spills.

Purchased Pour Cost percentage (PPC) is arrived at by dividing the cost of the purchases by the sales. The cost of the purchases used can be either for the week of the sales or for the week after the week of the sales; since some people would believe this week’s purchases are being done to replace the inventory used from the prior week as they “order to par”. (NWPPC)


Here are the actual results for two different bars for three weeks in a row.

Week 1                  Bar A                                    Bar B

IPC                   3504/15001 = 23.4%         6672/24699 = 27.0%
APC                  3518/15001 = 23.5%         7133/24699 = 28.9%
PPC                  3481/15001 = 23.2%         8832/24699 = 35.7%
NWPPC           1954/15001 = 13.0%         12954/24699 = 52.4%

Week 2

IPC                   2587/11014 = 23.5%         12095/45162 = 26.8%
APC                  2703/11014 = 24.5%         12782/45162 = 28.3%
PPC                  1954/11014 = 17.7%         12953/45162 = 28.7%
NWPPC           3276/11014 = 29.7%         5965/45162 = 13.2%

Week 3

IPC                   3442/14737 = 23.4%         7231/25601 = 28.2%
APC                  3450/14737 = 23.4%         7569/25601 = 29.6%
PPC                  3276/14737 = 22.2%         5965/25601 = 23.3%

As you can see, none of the numbers are really the same, so using or replacing the use of the actual or ideal cost percentage with the Purchased cost percentage or the Next Weeks Purchased Cost percentage is and will be misleading, if you are trying to gauge how profitable your operations are being managed.

There is simply no reasonable replacement for calculating both your actual percentage as accurately as possible and comparing that to the calculation of the ideal percentage for the same time period, in your effort to determine your efficiency in profitability. The ratio of that calculation is the Bevinco Rating.

Bar A Is achieving at or above a 99% Bevinco rating as the ideal and actual percentages are about the same.

By making a judgment based solely on the Purchased Pour Cost Percentage, you will likely not be reacting when you should be or reacting when you shouldn’t be reacting with the staff and management team.



Views: 61

Comment

You need to be a member of FohBoh to add comments!

Join FohBoh

Advertisments

 

DEPARTMENTS

Social Wine Club for Craft Wineries

Smartbrief

Restaurants may feel the pinch of pricier coffee later this year

Prices for arabica coffee futures hit a 26-month high amid a drought in Brazil, which produces a third of the world's coffee  -More

McDonald's rules out all-day breakfast in push to simplify

McDonald's breakfast menu accounts for 25% of the chain's U.S.  -More

Easy ways to use 5 uncommon spring greens

As light, crisp greens arrive at farmers markets and grocery stores, chefs are finding creative ways to add them to spring me -More

JOBS & CAREERS

Posting a job or finding a job starts here at FohBoh. Call us about special $25 posting packages to syndicate across all major jobs boards.

National News

National Restaurant Association Offers Training DVDs on Harassment Prevention, Social Media Use, and Customer Service

The National Restaurant Association has released three new DVDs that offer best practices in dealing with harassment and discrimination, customer service training, and the first of its kind video guide on the use of social media.

Yum! Brands Reports First-Quarter EPS Growth of 24% Excluding Special Items

China Division System Sales Increased 17% with Operating Profit Growth of 80%; Yum! Reaffirms Full-Year Guidance of at Lea

Souplantation & Sweet Tomatoes Certified As Nation's Largest 'Green' Restaurant Chain

National Group Salutes Country's Only Large Restaurant Group to be 'Certified Green Restaurants®'

National Restaurant Association and EatStreet Release Online Ordering Guide

The National Restaurant Association and EatStreet have released a free educational guide focusing on online ordering and emerging restaurant technology trends.

Boyd's Coffee Launches Single-Cup Coffees For Retail And Foodservice

The coffees come in a variety of roast levels and include organic and Rainforest Alliance Certified™ options: French No. 6®, Red Wagon® Organic Coffee, Good Morning™, Hi-Rev® (delivers more caffeine), and Lost Lake™ Decaf Organic Coffee.

CROWD FUNDING

If you are looking for capital to start or grow your restaurant, create the next 501c3, develop and launch the next app for the restaurant industry,or want to help your peers in some meaningful way, we want to know about it.

TED TALKS VIDEO

TED: Hamish Jolly: A shark-deterrent wetsuit (and it's not what you think) - Hamish Jolly (2013)

Hamish Jolly, an ocean swimmer in Australia, wanted a wetsuit that would deter a curious shark from mistaking him for a potential source of nourishment. (Which, statistically, is rare, but certainly a fate worth avoiding.) Working with a team of scientists, he and his friends came up with a fresh approach — not a shark cage, not a suit of chain-mail, but a sleek suit that taps our growing understanding of shark vision.

TED: Michel Laberge: How synchronized hammer strikes could generate nuclear fusion - Michel Laberge (2014)

Our energy future depends on nuclear fusion, says Michel Laberge. The plasma physicist runs a small company with a big idea for a new type of nuclear reactor that could produce clean, cheap energy. His secret recipe? High speeds, scorching temperatures and crushing pressure. In this hopeful talk, he explains how nuclear fusion might be just around the corner.

TED: Sarah Lewis: Embrace the near win - Sarah Lewis (2014)

At her first museum job, art historian Sarah Lewis noticed something important about an artist she was studying: Not every artwork was a total masterpiece. She asks us to consider the role of the almost-failure, the near win, in our own lives. In our pursuit of success and mastery, is it actually our near wins that push us forward?

TED: Matthew Carter: My life in typefaces - Matthew Carter (2014)

Pick up a book, magazine or screen, and more than likely you'll come across some typography designed by Matthew Carter. In this charming talk, the man behind typefaces such as Verdana, Georgia and Bell Centennial (designed just for phone books -- remember them?), takes us on a spin through a career focused on the very last pixel of each letter of a font.

© 2014   Created by FohBoh.

Badges  |  Report an Issue  |  Terms of Service