Generally speaking, restaurant groups that tie their manager bonuses directly to "inventory variance" do not have inventory or revenue losses from their bar. Conversely, many bars that do not track inventory variances and include management in the accountability of shrinkage lose 15-30% of their inventory and sales. In this article, I will show you exactly how structuring a restaurant bonus plan effectively will eliminate bar losses and provide you with a bar manager bonus plan template to get you started.
Properly executed Bar Manager Bonus Plans (MBP) keep your management teams laser-focused on the most valuable, controllable and profit-enhancing elements of your business. Inventory variance fits in this category nicely as one of a few numbers that can have the biggest impact on a restaurant's bottom line. With the right balance, you can structure an MBP to pay a portion of salary according to performance, giving you the flexibility to recoup losses when they occur.
Implementing an MBP places you in a competitive position so that you can tap into a prospective employee’s entrepreneurial spirit. It will help you attract and retain the best talent available, because top performers welcome the opportunity to control salary, and thrive on the motivation to earn more by reaching objectives.
The lion’s share of your restaurant bonus plan should aim at limiting losses and controllable expenses. These will directly impact profitability and, more importantly, is something a manager can directly influence, given the right tools and motivation.
Avoid Using Fixed Cost-of-Goods-Sold Targets (Pour Cost %)
You should not include fixed Cost of Goods Sold or Pour Cost % (PC%) in your MBP unless you make the calculation based on your moving Ideal PC% - a variable rather than a fixed target. This is critical.
I have seen several examples of popular restaurant chains that lose 15% or more of their inventory and sales because their reward system is based on hitting a fixed pour cost. For example, during our discovery audit process we might find large losses but the GM's do not take action to resolve the issues because they are already hitting their PC% target.
Rewarding fixed pour cost targets will hurt your business in several ways:
Rather than use COGS, use loss-variance targets, such as Revenue Variance, Efficiency Ratings, and Unit Variances.
The bottom line is this: Operations that use "variance targets" as a substantial portion of their bonus plans have managers that are motivated to ensure there are no variances.
Revenue Variance is the retail value of losses as a percentage of sales. By conducting precise weekly inventories with proper bar control software, and comparing units used against units sold, according to your establishment’s unique recipes, you will be able to include this valuable measurement in your MBP.
One of the benefits of using Revenue Variance as a measure is that it creates a culture of accountability, whereby the lost product is valued at retail rather than cost.
The Sculpture Efficiency Rating
Sculpture's inventory service provides a liquor inventory control system that can either be operated independently or used in house with the Sculpture bar inventory app. One of the features of the Sculpture reporting is the Sculpture Efficiency Rating.
The Sculpture rating is another good way to measure and control losses because it compares "Actual PC%" to the ever-changing "Ideal PC%," illustrating how much of the used product was sold. A perfect Sculpture rating score is 100%, and a frequent bonus target for many bars is 97% or higher.
Unit variance is represented by how many portions, shots, ounces, bottles are short/over. In the example above, the unit variance on Fireball is -14.62 ounces.
By including Unit Variance in your MBP, in addition to Revenue Variance and The Bevinco Efficiency Rating, you can discourage under-portioning, as well as reward or penalize performance in specific categories: liquor, wine, bottled beer, draft beer, and food.
For example, if your bonus range for liquor pours is +/- 2%, you can deduct from the bonus if liquor is “over” from short pouring. By separating portion variance from other bonus metrics, you can also reward or penalize based on performance in each class.
Common Unit Variance bonus targets are: Liquor <1.5 - 3%, Wine <1.5 - 3%, Bottled Beer <1%, Draft Beer <2-4%.
Including Guest Comps, Spills, and Void Percentages in your MBP prevents the padding of losses through overuse of the comp and spill tabs. Spills are inevitable, but keep them under control by including them in your MBP.
Common targets for these categories: Guest Comps <2.5% of net sales, Spills <0.4% of net sales, Voids <3%.
Every MBP should have a mechanism in place that motivates managers to take actions to increase sales.
Including revenue targets in an MBP keeps a focus on driving sales, and provides a payroll cushion in the event of a drop in revenue. I would caution against weighting this portion too heavily, as many factors can affect sales, and some of them will be beyond a manager’s control. If a manager’s bonus closely linked to sales performance, and sales are down, it will significantly affect motivation to hit targets in other areas.
A typical weight for sales increase targets is 25% of MBP payout, with the objective of achieving a 3% increase over the previous year or period.
You can either incentivize your managers with a bonus expressed as a percentage of profits from the P&L or as set bonus amount. There are advantages and disadvantages to both but, in most cases, the most successful is based on a set figure. Managers who are incentivized on profits may not make a bonus at all, despite working hard to hit predetermined targets. MBPs are at their most successful when people know how much money is at stake and believe there is a realistic chance of consistently making bonus. Basing incentives on salary also means you can budget for a predetermined bonus allocation. Equally, if your manager doesn’t make target, you can recover some of the losses.
Start by outlining the basic structure of the MBP to ensure that all the best practices are in place. The next step is to get an agreement to the terms of the incentive program and ask your manager to help develop the finer details. This consultative process increases the chances of success, and in many cases enriches the program by uncovering more
ways to add value.
Timing and communication are critical when you’re creating a Management Incentive Plan. Don’t make the mistake of putting together an annual bonus plan. In an industry with high turnover, incentive periods need to be more frequent, with the prospect of reward shortly. When you’re measuring performance against target, make sure you apply the rules consistently, and that you’re scrupulously fair. Then communicate results quickly. Schedule unmovable quarterly meetings with your management team to review MBP plans and results, so you can highlight exceptional performance, and act fast to make improvements in areas that need attention.
Sculpture Hospitality, an inventory service firm with offices throughout the world, specializes in setting up bar and restaurant manager bonus plans and making sure our clients have reliable data to administer their Bonus Plans.
To download a free bar & restaurant manager bonus-plan template, follow the link below: