COGS (Cost of Goods Sold)
What is COGS?
COGS (Cost of Goods Sold) is the total cost of the products you actually used to generate sales over a period of time.
For a bar or restaurant, it’s what you spent on ingredients that were sold, not just what you purchased.
The Formula
Beginning Inventory + Purchases − Ending Inventory = COGS
That’s the core equation.
Quick Example
Let’s say for a week:
Beginning inventory: $8,000
Purchases: $3,000
Ending inventory: $7,000
COGS = 8,000 + 3,000 − 7,000 = $4,000
That means you used $4,000 worth of product to generate your sales that week.
Why It Matters
COGS is what connects your inventory to your sales.
It tells you:
how much product you actually used
whether your costs are in line with your pricing
whether your numbers make sense
If this number is wrong, everything built on top of it is wrong too.
What Counts as COGS
Anything that goes into what you sell:
liquor, beer, wine
food ingredients
mixers, juice, syrups
garnishes
prepped or batched components
If it ends up in a drink or dish that gets sold, it belongs here.
What Does NOT Count
COGS does not include:
labor
rent
utilities
equipment
marketing
software
Those are operating expenses, not product cost.
COGS vs Purchases
This is where people mess up.
Purchases ≠ COGS
Purchases = what you bought
COGS = what you actually used
If you buy $5,000 of product but still have most of it on the shelf, your COGS is much lower.
COGS only reflects what moved.
COGS and Pour Cost
COGS feeds directly into pour cost.
COGS ÷ Sales = Pour Cost
If your COGS is off:
your pour cost is off
your margins are off
your pricing decisions are off
Everything ties back to this number.
Common Mistakes
Using purchases instead of actual usage
This makes your costs look higher or lower than they really are.
Not counting inventory regularly
If your beginning and ending numbers aren’t accurate, your COGS won’t be either.
Ignoring shrinkage
Lost product still shows up in COGS, even if it wasn’t sold.
Inconsistent counting methods
Different people counting different ways leads to unreliable numbers.
Not breaking out categories
Liquor, beer, wine, and food should usually be tracked separately for better insight.
What a “Good” COGS Looks Like
It depends on your concept and category.
For bars:
liquor often lands around 18–25%
beer and wine vary more depending on pricing and program
There’s no single correct number.
What matters is:
consistency
knowing your targets
catching changes early
One Thing Most People Miss
COGS includes everything you used, not just what you sold cleanly.
That means:
overpouring
waste
breakage
spoilage
All of that ends up in this number.
If your COGS is creeping up, it’s not always a pricing problem. It’s often an operations problem.
When to Pay Attention to COGS
weekly or monthly reviews
after inventory counts
after price changes from suppliers
when margins feel off
when scaling up or changing menus
If your numbers don’t match expectations, this is one of the first places to look.
Related Terms
Related Guides from Spec
Bottom Line
COGS tells you what your product actually cost you over a period of time.
If this number isn’t accurate, nothing else will be.
It’s one of the most important inputs in running a profitable bar.
