How to Easily Calculate your Product Variance
In the bar and restaurant industry, product variance greatly affects a beverage program’s profitability.
Also known as loss or shrinkage, variance reflects the difference between the number of products sold over a period of time and the number of product used over that same period.
Simply put, it allows you to identify which inventory items were lost or overpoured.
As a manager, it’s vital to understand and calculate product variance, because it’s the key to a successful beverage program.
How do you calculate product variance?
There are two formulas for calculating product variance. You can use whichever you prefer.
$Variance = ($Cost of Product Sold) – ($Usage)
Or
%Variance = ($Variance) / ($Usage)
Here’s a step-by-step guide to calculating variance
Step 1: Calculate your inventory usage
Your inventory usage represents the total amount of product used during a specific period of time. It’s equal to your starting inventory + received product orders – your ending inventory.
Step 2: Calculate the cost of the sold product
Now that you know your usage, you can now compare it to your sales data. This will help you find out the amount of product sold over the same specific period.To get the cost of product sold, you have to calculate your pour cost.
Say your bar sells 20 pours of Bevsight Tequila over the usage period. To get the cost of product sold, multiply it by your pour cost.
$1.80 x 20 pours = $36.00
Step 3: Calculate your variance
Assume that over a one-week period, your bar’s usage was $10,000 and the total cost of product sold was $8,000. Now let’s use the formula we gave earlier.$8,000 – $10,000 = $2,000 variance Or – $2000/$10,000 = -20% variance. These calculations show that the bar lost 20% of its product before selling the beverage, reducing the bar’s profits. Pretty easy, isn’t it? But keep in mind that you have to do this for every product you have. Even if you know the formula by heart, calculating your variance is a time-consuming and redundant task.Luckily, there are software and tools that can do the math for you, like Bevsight.Wanna know how Bevsight can make your tasks easier? Visit our website now!
