5 Essential Inventory Metrics Every Liquor Store Should Track
You know a baseball player is strong if they have a high batting average. You know a stock is a strong buy if it has a good price-to-earnings ratio… What numbers tell you if your liquor store inventory is on track for success?
You have customers in your store every day. You can easily pay your utilities and the lease on your property. Your store must be doing well, then, right?
If you’re not managing your inventory at peak efficiency, you may be in trouble down the road — even if things look like sunshine and rainbows right now. How can you tell if your liquor inventory processes are optimal? It’s simple: Track essential inventory metrics.
This post covers the essential inventory metrics every liquor store owner should track. For each, we’ll cover what it is, why it’s important, and how you can calculate it for your store.
Inventory Metrics: Setting the Baseline
Before we examine the essential inventory metrics you need to track for your store, let’s answer a foundational question: Why is managing inventory metrics so important in the first place?
Managing inventory is crucial because it lets you closely monitor what's happening in and out of your store. With the right metrics in place, you can identify top-selling products, spot slow-moving items, and avoid stockouts. In short, if you want your liquor store to thrive, inventory tracking is an absolute must!
Let’s take a look at some of the basic steps you must take before you begin tracking more advanced inventory metrics. First, you must assign Stock Keeping Units (SKUs) to each product. SKUs are unique identifiers for your items, making tracking and managing them easier.
Next, you must populate your point of sale (POS) system with detailed product descriptions. These descriptions help you quickly identify items, especially if you have a wide variety of liquors and spirits. Of course, you'll want to know how much of each product you have in stock. Keeping tabs on current stock levels prevents you from overstocking or running out of popular items.
Now, when it comes to tracking inventory metrics, you have two options: tracking manually or using a POS system. Doing it manually might work if you have a small store with a limited product range.
However, as your store grows, manual tracking can quickly become a nightmare, time-consuming and prone to errors. That's where a POS system shines. It streamlines the process, automating inventory tracking and providing real-time data. You'll save time, reduce human errors, and better understand your liquor store's performance.
Sure, investing in a POS system might have some upfront costs, but the benefits far outweigh the drawbacks in the long run. So, consider it a smart move for a thriving and efficient liquor store!
Armed with this information, let’s examine some of the top metrics you should track for your store.
1. Lead Time
Lead Time refers to the duration it takes for a liquor store to receive new inventory after placing an order with a supplier. It's the time that elapses from the moment you initiate the purchase until the products are physically available on your store's shelves.
This metric is crucial for liquor stores because it directly impacts your ability to manage inventory and meet customer demand effectively. Knowing the lead time allows store owners to plan their inventory replenishment accurately and avoid running out of stock, ensuring a steady supply of popular items.
To calculate lead time, you can track the time between placing an order and the actual delivery date.
Example: If you placed an order on July 1st, and the items arrived on July 10th, the lead time would be 9 days.
2. Days on Hand
Days on Hand represents the average number of days a liquor product stays in your store before it is sold or used. This metric helps liquor store owners understand how quickly their inventory moves.
This metric is essential for liquor stores because it directly relates to inventory management and cash flow. High Days on Hand may indicate slow-moving products or overstocking, while low Days on Hand may lead to stockouts and missed sales opportunities.
To calculate Days on Hand, you take your average inventory divided by the cost of goods sold over the number of days in your period.
Example: If you have $3,000 worth of a certain liquor in stock, and your average daily sales for that product are $100, then the Days on Hand would be 30 days.
3. Dead Stock
Dead Stock refers to items in a liquor store's inventory that haven't been sold within a specific time frame, often measured in months. These are products that have become obsolete or are no longer in demand.
Monitoring dead stock is crucial for liquor stores because it helps identify slow-moving items that tie up valuable shelf space and capital. By addressing dead stock, store owners can make better purchasing decisions and free up space for more popular products.
To calculate dead stock, you can count the number of units of a particular item that haven't sold within a defined period, say six months.
Example: If you have 50 bottles of a specific liquor that haven't sold in the past six months, those 50 bottles may be considered dead stock.
4. Stock Turnover Ratio
Your Stock Turnover Ratio measures how efficiently a liquor store manages its inventory by indicating how often your store's inventory is sold and replaced within a specific period, typically a year. A high stock turnover ratio indicates that the store is selling products quickly and efficiently, while a low ratio may imply slow-moving inventory.
This metric is vital for liquor stores because it helps optimize inventory levels, reduces holding costs, and ensures that the store keeps up with customer demand.
To calculate the stock turnover ratio, divide the cost of goods sold (COGS) by the average inventory value.
Example: If your liquor store's COGS for the year was $500,000, and the average inventory value during the year was $100,000, the stock turnover ratio would be 5.
5. Sell-Through Rate
Sell-Through Rate indicates the percentage of inventory that a liquor store has sold within a specific time frame. This metric measures how efficiently your store is selling during a given period.
A high sell-through rate suggests that products are in demand and moving quickly, while a low rate may indicate slow-moving or less popular items. This metric is crucial for liquor stores because it helps identify which products are performing well and which may need adjustments in retail pricing, promotion, or marketing efforts.
To calculate the sell-through rate, divide the total number of units sold for a specific product by the initial inventory quantity of that product, and then multiply by 100 to get the percentage.
Example: If you had 100 bottles of a particular liquor in stock and sold 70 bottles, the sell-through rate would be 70%.
Track Your Inventory Metrics With Ease
Tracking the inventory metrics in this post will help you keep your finger on the pulse of your liquor store’s sales, turnover rates, and more. But trying to track all these figures manually will send you into a tailspin!
Instead, you need a robust point of sale solution with strong reporting capabilities. With this solution in place, you’ll be able to manage the most complicated inventory metrics with ease.
Bottle POS offers a fully remote back office. You can access your reports and inventory data from anywhere using your mobile device. With our solution you can easily track trends in sales, timelines, seasonality, and more!
See if Bottle POS is the right solution for your store by scheduling a free demo today.