Why Your Bar Revenue Looks Good But Your Margins Tell A Different Story

When you look at your revenue, that tells you how much came in, but your PMIX is going to tell you where it comes from. And if you've listened to this podcast for any length of time, you know, I love to say, hey, pull your PMIX and take a look. But today we're going to dive into what does that actually mean? How do we take a look? And what can I learn from IPMIX in the shortest amount of time possible? Welcome to the Bar Business Podcast. I'm your host, Chris Schneider, the bar business coach. And if you're tired of figuring out every bar problem alone, well, join Bar Business Nation, our free Facebook group for bar owners who want better ideas and real conversations. The link's in the show Notes. Today on the Bar Business Podcast, we are breaking down what PMIX is and what it actually measures. How to pull it from your pos, the five cuts that reveal the most, and what decisions each one drives. Feel like most bar owners, you're managing based upon revenue and gut instinct. Sales this week were great. Sales were down. What happened? There's all sorts of questions that we ask depending on the direction of our sales. But unless you understand your pmix, the numbers behind your revenue, you're flying blind. So today we're going to talk about what it is, how to deal with it, and things you can do, rather than me just saying pmix, PMIX P Mix like I do almost every episode. So what actually is your pmix? Well, it's a breakdown of your sales by category, by item, by time, by server, by any filter your POS allows. And it really answers the question, what is the composition of what we sold? Right? You sell a lot of things, but if you tell me, hey, I had $2,500 in revenue on Tuesday, I'm going to go, hey, sounds like a good Tuesday, depending on where you are and your cost structure. But that doesn't tell me, did you sell $2,200 worth of food and $300 worth of booze, or $300 worth of food and $2,200 worth of booze? Or was it $2,500 of just cocktails without understanding what you're actually selling, who's selling it, what part of your store it's coming from? It's really hard to manage your business. Now, this is not the same as menu engineering. What we're going to talk about today. Menu engineering is a decision framework built on PMIX data. Today we're just talking about the PMIX itself. So this is even easier from an analytical standpoint than a lot of times when we've talked about menu engineering. Now why does this matter your pmx? Well, if we look at two separate bars doing fifteen hundred thousand dollars a week, they can have completely different profitability. Let's say they're right next to each other on the same street. Let's say they sell the same type of food, the same type of beverages. Let's say their cost structures are identical because each one is selling different things because that PMIX looks different, their margins are different, their story is different, what they need to do to improve their bar is different. Now a lot of POS systems, it might not say pmix, might say product mix, it might say sales mix, it might say item sales report. Those are all the same thing. But what we're talking about here, when I say pmix, it's the report that pulls your item name your quantity sold, your revenue, your percentage of total sales. Maybe you can put in date ranges, day parts, server filters, and that's when it's going to become really valuable, when we understand not just what sold, but who sold what when to whom. So what is a category mix? Well, your category mix is going to be the big percentages. Now this is one of the reasons why when I'm working with clients a lot of times I say, hey, is your POS set up properly? Because depending upon the POS system you use, and some of them are a lot more simple to set up than others, the granularity of the data you have access to could be different. So that means that it's going to be easier or harder to get the data you need to make the right choices based on your POS system. But that does not mean that a POS system is going to fail you ever. You just have to make sure it's set up properly. So what should your big categories be in your pos? Well, they should be the same as the big categories on your P and L. So think liquor, beer, wine, non alcoholic food, you can break it down further than that, but you need at least those five major categories. Retail is another one that should be in there. Your cost targets are going to differ dramatically by category. This is one of the reasons why on a good P and L we want to break up food cost from liquor cost, food sales from liquor sales, because we're looking at liquor right around 20, give or take a couple points, unless you're in a major Metro and then we're probably talking closer to 14 to 16%. Beer, we're looking mid-20s wine, we're looking mid to high 20s. But the thing that you also have to understand here is percentage of sales. Your beer cost doesn't matter much if only 5% of your sales are beer. Your beer cost matters a lot if 70% of your sales are beer. So it's not just about cost percentages, folks. It's about what percentage of your sales does that make up. Is it a meaningful value that I have to actually care about as the owner? Now, here's the mismatch that we need to look for when we're looking at our category mix. If we have something that's high volume and low margin, it's going to drag down our overall numbers. If you have really cheap domestic beer and most of what you sell is domestic beer, guess what? Your percentages are going to suck. That's just reality. So category mix shows us what is actual where. And it breaks down for us what we can do to improve our margins by looking at each of those major categories. So if you shift, say, 10% of beer sales to cocktails, what does that do to your margin? Because not only can we advertise to folks and say, hey, I want to sell you everything I have, we can also try to turn our beer drinkers into cocktail drinkers. We can try to turn our domestic beer drinkers into craft beer drinkers. And I know a lot of you guys are going, that's impossible. Nobody. Yeah, no, I've done it. It's not that hard. So you can change what people drink by pushing them in directions to increase your margin. The other thing to look at specifically with liquor is your well versus call versus premium. You know, most bars are selling majority well pours. That's just the nature of the business. But if you can move some of that well to premium, are you getting a better margin? And most people would instinctively say, well, yeah, of course, I'm making more money with premium than I am with well. That's better for me. It's not always the case. You know, for my bars, I was running a well well vodka was essentially free for me. It was the thing I went through the most. And if I bought other wells, I got cases of vodka for free. But even if it wasn't free, my single highest margin item in my bar was well vodka. I would rather sell a well vodka than a Tito's. Why? Because I made more money. So it is absolutely worth considering. Not just well versus call versus premium and trying to push people to higher revenue items, but we need to push them to higher margin items. Now, the other Thing you should look at when you're examining your PMIX is day parts. So when you pull your PMIX and you filter by day part, you know, happy hour, evening, late night, lunch, we're going to see different compositions in each of those windows, right? If you have lunch, you're probably majority food during lunch. Because a lot of people are not drinking during lunch if they're off of some place. Happy hour might be really heavy on beer. Late night may be really heavy on cocktails and spirits. So different windows of time produce different margin profiles, different staff requirements, and different programming opportunities. For example, running a cocktail special at lunch is probably not going to do you that well. Running a beer special at happy hour may be the best thing for you. But we have to understand not just what sells when so that we can push it, we also have to understand where is our better margin? Or am I getting better margin at happy hour than I am late night? Am I getting a better margin for dinner than I am for lunch? Because if we know where we're getting a better margin, we now have the ability to market that time period, that day part and bring guests in at our highest margin opportunity. Now, for most bars, that is going to be late night, right? That's already our peak time. But it's always worth looking at where am I earning my margin, what time of the day. And frequently when I'm looking at things lowest revenue day parts and lowest margin day parts do not align. Now, I will say if you're during lunch and you're selling a lot of food during lunch, that's probably your lowest margin day part. But it may not be. But sometimes a quiet Tuesday happy hour is going to outperform a loud Friday night with huge volume when you're packed on your margin. So we know if we bring in a guest on Friday night, it's worth less than if we bring in a guest on Tuesday happy hour. Now, day of the week is going to matter too, right? If we're looking at day part, we also want to look at day of the week because Wednesday is not Tuesday. Less people go out to drink on Monday than on Thursday, right? So we need day part and day of the week because that's really going to give us the data we need to understand where the best opportunity is to grow our business. Now, the fourth or third one of those two report I would pull is a server and bartender mix because this becomes a coaching tool. What are your servers and bartenders selling? Do you have high volume bartenders that are selling more cocktails? And high volume bartenders that are selling more beer, what does that margin look like? Right, if I have one bartender that sells 40 drinks an hour and one bartender that sells 30 drinks an hour, but the 40 drink average bartender is selling an $8 drink and the 30 drink bartender is selling a $13, where am I making more money? Because overall revenue with those two sets of numbers basically the same, but that margin profile is going to be totally different. And what creates that difference? Well, it's recommendation behavior, it's premium spirit suggestion, it's upsell habits, it's product knowledge, it's your bartender understanding where you need them to sell to make margin and doing that for you, doing what they need to do. Now obviously, anytime we're going to look at what employees are selling, how they are doing their sales, we want to make sure that we're not using this as punishment, but as a coaching tool. Right? When you find that bartender that has that higher check average or that bartender that has that higher margin in what they're selling overall, ask them questions about what they're doing. Then train your other folks on the team to do the same stuff. Also, always look at modifier and upgrade rates, right? Whether that's upgrading to a premium spirit, again, that may or may not help your margin overall, that's a separate conversation. But look at upsells, look at modifiers. Those bartenders, those servers that are constantly getting another two, three, four dollars out of a guest through upselling are way more valuable to you on the floor. They're giving you better margin. So make sure you're looking at that as well. Now another piece I want you to look at when it comes to your product mix is item velocity and slow movers. So when you pull your item level, PMIX, sort it by units and look at that bottom 20. These are your slowest moving items by volume. Now, every slow moving item, we've talked about this before, it's carrying a cost, it's tied up inventory, it's shelf space. Now, it's not a big deal. If you have some premium bourbons on your menu and you sell maybe one a week or you know, three or four a month, that's fine as long as you have one bottle behind the bar. If you have a case in the back and you're selling one or two a month, you have a serious issue. So we want to look at carrying cost and we want to say, okay, do I need to carry this item? If I do want to carry this item because it's part of my shtick because it's part of my branding. Because I do do high end bourbon and I need to continue to have these high end bourbons around. Great. But how many of them do you have? How tight is your inventory? Now, one of the things that can be very true here is if you have these slow items, especially if you look at these bottom 20% and you say, you know, I have, let's just say a hundred items or 20 items in the bottom 20%, 100 items total. And of those 20, 10 of them I can get rid of. Then maybe we want to drop the price on those just to get them out the door and that way we get that money back in our pocket and off of the shelf. Another thing we can look at is, is the pricing correct on these items? Is there a reason they're not selling right? Generally speaking, slow movers are going to fall into two buckets. Items that should be cut and those that should be repositioned. Whether that's pricing changes, specials changes, usage changes, asking your team to recommend it on a regular basis, however you're going to do that, either needs to go away or get repositioned so that it can actually move. Now, the difference we always want to keep in mind again is margin. A slow mover with a strong margin is worth sell is worth figuring out. It's worth finding a way to make that item work. A slow mover with a weak margin, that's just not good for you. So you want to get rid of those. Inventory turnover is huge in this piece. And if you guys know or have listened to this podcast for a long time, you've heard me talk about inventory turnover before. There are old episodes about them. You can go check those out. But inventory turnover should be ideally two weeks, three weeks max. So we want to make sure everything in that P mix has some velocity, that it's moving. Now a final note that I want to throw out at you guys, Pour size and glassware. It's not quite P Mix, but if you look at your P Mix and your cocktail composition, what you're selling tells you that you're not selling many second rounds or third rounds. Then maybe you need to pour less or make your glass size smaller. You know, when I work with clients, I see this a lot where people are doing three, three and a half ounces in a cocktail. Generally speaking, it's not really required. And when we have a cocktail that, if we just look at the pure alcohol content, is worth two standard drinks, three standard drinks, guess what? You're selling one drink, you're not selling two or three, that's hurting your revenue by putting too much booze in the glass. So look at your spirit for it. Cocktails, build them into this mix. Try to be two, two and a half ounces total on anything that you're doing, right? As far as the alcohol content, three plus is going to decrease your sales, decrease those repeat orders. Now if you're saying, well, I don't want to go down to two, two and a half ounces because then guess what, people are not going to like the way it looks in the glass. The glass is going to buy smaller glasses, right? Two ounces in a seven ounce glass looks like a lot. Two ounces in a 12 ounce glass looks tiny. So if your drinks are too small because you're trying to get people to order a second round because you don't want to get them too drunk up front, buy a smaller glass. So if your cocktail category is high volume, but your average covers or your average drinks per guest is low, look at your pour sizes. That's often where that second round is not happening or where that third round is not happening. So just to wrap us up for today, every answer to why my margins are what they are is basically in your pmix. You should be able to pull this from your pos. You should be able to get all these breakdowns that we've talked about. And the bottom line here is it's not that hard. Pull the reports. Look at the reports. I mean, literally, if you just print them out and stare at them, you will see things. Because understanding your numbers, understanding your product mix is what is going to get you results, improve your bottom line, and make sure your guests are happier. That about wraps it up for today. If you're tired of sorting through bar problems by yourself, come join us inside Bar Business Nation. It's our free Facebook group for bar owners and operators talking about what's working, what's not, and how to make the business easier to run. Search Bar Business Nation on Facebook and I'll talk to you next time.