Photo credit: Fedor Kondratenko
By Jason Jelicich
It may seem unlikely, even impossible, in today’s competitive bar climate to find ways to increase liquor profits; I mean, there’s only so many ways to skin a lychee…right? Other than upping the prices of drinks or cramming another 50 people in – how can you extract more money out of your already busy bar?
The key is to turn your attention to the lifeblood of any business – the peak trading periods. A peak trade (or service) period may be defined as ‘a period of trading time when the staff resources are fully stretched to keep pace with demand’. Peak service periods do not typically last very long, often only a handful of hours over two or three nights, but it’s in these small windows that the promise of doubling your profits lies.
Now, we’ve all heard of the well-worn Pareto principle i.e. that 80% of the venues revenues often come from 20% of the total trading time. For example, if a venue had liquor revenues of $25,000k/ week and was open 40 hours, it’s likely that $20k (or 80%) of those revenues will be generated over just 8 (20%) of the operating hours.
We use this numbers to firstly work out the ‘revenue cap’ – or the average amount of takings the bar is able to generate per hour at it’s busiest. In the above example, if we divide $20k by 8hrs, we get a revenue cap of $2,500/hr. Now, for each additional dollar we generate over the ‘cap’ our net profit jumps from an average of 10% to around 60%. How? Because all of the major expenses are already being met.
Note that, when you increase your peak trade sales, the only cost to the business is your food or beverage costs – let’s average these around 35%. But because we might also see an increase in labour costs or utilities etc, we can round it up by another 5%, bringing it to 40%.
Here’s how the numbers work…
a) Sales revenue during peak selling periods – $20,000
b) Net profitability on initial $20,000 @ 10% = $2,000 (clear profit after all expenses accounted for)
c) 20% Increase from peak trade sales of $20,000 = $4,000
d) Net profitability on additional 20% sales increase @ 60% = $2,400 (clear profit after all expenses accounted for)
As you can see in (d), the net profits are more than double those in (b) – and they come with very little extra cost or effort. Now, that’s not to say there aren’t other ways of increasing profits (e.g. building up slow trade nights etc) but we have found that this is an often neglected area which yields results fast when done right.
How you can make this happen in your venue:
- Study your POS reads for peak trading times – Use 4 – 6 weeks data (and eliminate any variable like special events) and come up with an average $/hr figure to identify your revenue cap.
- Decide how much you want to increase it by, 10%? 20%…more?
- Communicate to your staff – get them on board and ask for the feedback on ways to help achieve the goal.
- Add support where required – an extra body behind the bar for an hour or two can have a big impact on revenue during these times.
- Put the right people in the right positions – identify your top performer/s using POS reads and customer feedback and let them lead the bar during these times. Support them with your up-and-comers.
- Make adjustments to bar layout and schematics – How? Ask your staff, they WILL tell you!
In my work with clients around the country, we have been able to achieve some incredible results using this very simple refocus and strategy. If you want to engage further around this topic please reach out to me using the contact details below.
Jason Jelicich
Jason@barmetrix.com
(0412) 380 475
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