Surprisingly, many people that are in food and beverage management positions and even general management positions do not know how to calculate beverage costs, one of the most important costs in every hotel’s budget. Don’t worry, we won’t tell! We will help you keep that secret by showing you how beverage cost is calculated. It is really quite simple.
Here is the way that most actual costs are calculated. This is the cost that you usually try to get as low as possible in order to beat your budget.
First, you will need your bar’s total purchases (in dollars) for the period. Remember, these should be liquor purchases only. Second, you will need to know your change in liquor inventory (in dollars) for the period. You will then subtract the total change in inventory from the total purchases (if the total change in inventory is negative, keep it that way but still subtract it from total purchases). We must take into account the inventory change because if you do not, purchasing more liquor to stock up would drive your liquor cost up while lowering your inventory by purchasing less would lower your liquor cost. If the liquor inventory is not considered, your liquor usage will not be properly seen in your cost calculation. Lastly, you will need your bar’s total liquor revenues for the period. Divide the first (purchases – inventory) number by the revenues. That final number will be the cost percentage for the period. A formula for those of you that need to see it visually is below.
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