COGS

What COGS actually means

COGS is the dollar value of all the product you used to generate your sales in a given period. In a bar, that is the liquor, beer, wine, and NA drinks that left your shelves. It does not include labor, rent, utilities, or anything else. It is just what the stuff in the glass cost.

COGS is line two on your P&L. Revenue is line one. COGS is the first thing that comes out before you have any gross margin to work with.

The formula

COGS = Beginning Inventory + Purchases - Ending Inventory

Example: on May 1 you had $20,000 in beverage inventory on-hand. During May you bought $15,000 more. On May 31 you counted and had $18,000 in inventory. COGS for May was $20,000 + $15,000 - $18,000 = $17,000.

That $17,000 is what you used up to generate May’s beverage sales. If May sales were $80,000, your beverage cost is $17,000 / $80,000 = 21.25 percent.

Industry benchmarks

Typical beverage COGS as a percentage of beverage revenue:

• High-volume sports bars and nightclubs: 18 to 22 percent
• Neighborhood bars: 20 to 24 percent
• Craft cocktail bars: 20 to 25 percent
• Fine dining (heavier wine): 28 to 35 percent

COGS in dollars only tells you volume. COGS as a percentage of revenue tells you efficiency.

How it is used on the floor

Managers look at COGS weekly to catch drift. A full monthly P&L review happens with the owner or accountant. The big question every month: did COGS land where we budgeted, and if not, why.

COGS is a lagging number. It tells you what already happened, not what is happening. That is why smart operators also track theoretical COGS (what it should be based on recipes and sales mix) and compare it to actual COGS (what the count says). The gap is variance.

What COGS does not include

Labor is not in COGS (that is a separate line, usually “Labor Cost” or “Payroll”). Rent is not in COGS. Utilities, insurance, marketing, and accounting fees are not in COGS. They all come out of gross margin later.

Some restaurants roll labor into “Prime Cost” which combines COGS and labor, but that is a separate metric, not COGS itself.

How PourIQ handles it

PourIQ calculates COGS in real time using the starting count, purchases, and ending count. Every count feeds the number automatically. You see COGS as both dollars and percent, broken out by category (liquor, beer, wine, NA), so you can spot which bucket moved when the monthly number drifts.