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  • Percentage of Tap Room Sales

    I am working on my business plan and I am trying to workout the percentage of sales made out of the tap room and what percentage would be made through the distributors? I plan on working with a 10 bbl system brewing once a week. I haven't figured out what type of keg I plan on using yet, but I want to get a rough idea of what sales to expect.

  • #2
    No one here has a crystal ball. No one can predict how much sales you will have or the mixture or anything else. There are many questions you need to answer for yourself first. You need to develop a specific model based on a plan, business model and market conditions. There is no magic formula and what works for one company may not work for another. Make good quality beer and provide an inviting environment to consume said beer. Figure out the sales (profit) you need to support your business and then back into that number with a plan.
    Founder, Head Brewer
    Pikes Peak Brewing Co.
    Monument, CO

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    • #3
      I have to admit that I'm at this point in my business plan as well. It's really hard to find a good source for what makes sense when it comes to % in cans, % in kegs, % of pints sold in taproom, but you can glean some information. My huge problem is understanding if I'm overestimating or underestimating how many pints I can sell. Also, I'm having a hard time accounting for everything involved in overhead costs. What I'm trying to do is make a few scenarios at least, case studies.

      First I recommend looking up demographics in the area you want to start your business. How much do households spend on beer out of the house in a year?

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      • #4
        Since you can't come up with an exact number, you can come up with a range, perform sensitivity analysis to see which combinations of sales numbers work and which won't. You could do a basic Monte Carlo simulation if you want to get real fancy.

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        • #5
          Agreed

          Agreed.
          It's impossible to predict.
          My only advice is to be conservative with your tasting room sales projections in your plan.
          It's always a lot better to underestimate your revenues by a bit, than over-estimate it...
          Dave Witham
          Founder/Brewmaster
          Proclamation Ale Company

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          • #6
            Do you have a contract with a distributor, or do you intend to self-distribute? Off-premises sales projections are meaningless without a go-to-market method.
            Kevin Shertz
            Chester River Brewing Company
            Chestertown, MD

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            • #7
              Originally posted by nateo View Post
              Since you can't come up with an exact number, you can come up with a range, perform sensitivity analysis to see which combinations of sales numbers work and which won't. You could do a basic Monte Carlo simulation if you want to get real fancy.
              Hah...oh boy, my programming background is tingling. I might actually try to run that Monte Carlo simulation, but boy I think it'd be a bit difficult. You'd have to set a ton of conditions on the random number generator that reflect how many pints you think you can sell and accounts you can acquire.

              I guess at the very least, if you didn't put conditions on the random number generator, you could plot out a worst case scenario.

              Going to give this a shot today just for the shit of it.

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              • #8
                Originally posted by grilli View Post
                Hah...oh boy, my programming background is tingling. I might actually try to run that Monte Carlo simulation, but boy I think it'd be a bit difficult. You'd have to set a ton of conditions on the random number generator that reflect how many pints you think you can sell and accounts you can acquire.

                I guess at the very least, if you didn't put conditions on the random number generator, you could plot out a worst case scenario.

                Going to give this a shot today just for the shit of it.
                It probably shouldn't be totally random. You can limit the probability range based on your best/worst/most likely estimates. Like let's say you're expecting tap room sales to be 15% at worst, 45% at best, and 30% most likely. You can set it up as a normal distribution, or any combination of weighting you want.

                Run the simulation a few thousand times, if you go broke a lot, then maybe you should rethink your plans.

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                • #9
                  Translate it into Real World Numbers to see what makes sense; this helps set the range. Number of seats planned, checks turned per seat per day. Average pints per customer, wiggle room for growler fills, translated into kegs per week, barrels per month, etc.. If you find you need to serve a pint every 0.2 seconds, or once every six hours, you're probably not in the right ballpark. Think about your staffing, your size, and what seems about right. Then run the numbers around that range because feelings alone aren't enough
                  Russell Everett
                  Co-Founder / Head Brewer
                  Bainbridge Island Brewing
                  Bainbridge Island, WA

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                  • #10
                    Originally posted by nateo View Post
                    It probably shouldn't be totally random. You can limit the probability range based on your best/worst/most likely estimates. Like let's say you're expecting tap room sales to be 15% at worst, 45% at best, and 30% most likely. You can set it up as a normal distribution, or any combination of weighting you want.

                    Run the simulation a few thousand times, if you go broke a lot, then maybe you should rethink your plans.

                    When you say a proportion like 15% do you mean of volume or of revenue? I would assume the latter!


                    Brian

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                    • #11
                      I guess the way I'm doing it right now is a bit wonky. I've setup my spreadsheet to where I can dictate what percentage of a recipe (in BBLs) goes to the tap room, half-barrels, sixth-barrels and into cans (I of course forgot growlers, but I'll add that in soon™). My Monte Carlo was going to randomly adjust the BBL numbers and spit out the total gross margin 'n'-times (maybe 5000), along with the operating income (after overhead) and net income (after taxes) for each run. That's turning out to be a nightmare in Excel, so I was just going to write some code to spit out the values into a text file for me so I could plot them.

                      After that I was going to take it one step further and add limiters like...how many pints, kegs, etc I feel like I can feasibly sell (i.e., the taproom value should not exceed x amount of BBLs).

                      Instead it looks like the suggestion is to maybe just run the Monte Carlo on some fixed numbers I've dictated (as mentioned in the first sentence), and then see what happens when I'm only able to sell between (as an example) 15% to 100% of that stock? Then change the numbers I've dictated. In the end, what I think I'm hearing is that I should be running the test to see how much my other offerings (distribution) cover my ass if I randomly can't sell enough beer in the tap room? I am looking at # of seats I expect to have, and customer turnaround per hour. Also trying to penalize myself in the first year (i.e. I might only get 75% of my seating capacity while I'm obscure), and penalize myself for maybe the earlier taproom hours, and also penalize myself for seasonal drops in sales. Hoping that gives me a reasonable estimate on worst case versus best case scenarios.

                      Maybe I'm overthinking this, but I do love the idea of simulating the shit out of my market analysis. I admit that I'm an engineer and am literally just picking up accounting and business resources and approaching the market analysis as logically as I can. But what I think is logical may be wrong or not be what people normally do.
                      Last edited by grilli; 10-07-2014, 03:49 PM.

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                      • #12
                        How about plugging in gross profit per barrel at wholesale, pint, growler, 6 pack etc. Then start plugging in the barrel sales per month needed to cover expenses plus desired profit. Pretty easy to get some different mixes and calculate if the sales are realistic to achieve
                        Prost!
                        Eric Brandjes
                        Cole Street Brewery
                        Enumclaw, WA

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                        • #13
                          Originally posted by Brandjes View Post
                          How about plugging in gross profit per barrel at wholesale, pint, growler, 6 pack etc. Then start plugging in the barrel sales per month needed to cover expenses plus desired profit. Pretty easy to get some different mixes and calculate if the sales are realistic to achieve
                          I ended up shelving the Monte Carlo from now and went that route. Hope I'm further along than OP is. I did the demographics research involved and tried to come up with reasonable numbers. I think they make sense, but I'll probably show them to a mentor in a month or two to make sure I'm on the right track.

                          I made average case (conservative I hope) estimates and worst case estimates. Without getting into too many numbers, I was able to at least find that at my average cases, I would be breaking even in the first year (about 8 months). We'd be making a small profit the next year with the same numbers (extra 4 months of sales). At worst case, we'd be in the shit house, but we might be able to balance it since the same overhead wouldn't be necessary in the worst case (less staff required, cuts on software expenses and luxuries). I'm working on those estimates next. Just for reference though, "average" estimates have us operating at 60% capacity. Worst case is 19% capacity...which is, I suspect would indicate that we're doing something wrong in our process. What I like is that 60% capacity means that we have some head room to meet some unexpected demand in the first year and second year. Hopefully if that demand puts us at 100% capacity, we can afford to add fermenters and staff to increase our output towards the end of the second year/beginning of third.

                          The COGS fluctuates a bit depending upon what percentage of a batch goes into cans, kegs, sixtels, the taproom, etc...but it doesn't fluctuate much so I'm able to get a pretty good estimate (I think) of the gross margin per pint, keg, case of beer, sixtel, whatever. The gross margin/unit from a batch is how I'm calculating the income before overhead and taxes. Come to think of it though, I'm including taxes in my COGS...so I'm going to go back now and think about if I'm accidentally counting taxes twice.

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                          • #14
                            Be careful with your COGS calculations. COGS includes manufacturing overhead items which may vary on a per unit basis, but are a fixed amount per period. Like rent is rent, whether you make 5bbls or 500bbls, but your COGS per bbl will be very different.

                            An easier way to think about is to use the contribution margin. I think Eric was talking about doing that. Break all of your costs down to fixed or variable. Some stuff like utilities are actually mixed, but for simplicity's sake it's easier to start with just fixed and variable.

                            The contribution margin approach is cool because it's easy to calculate break-even points:

                            Contribution margin per unit = revenue per unit - variable costs per unit

                            Break even in units = fixed expenses / contribution margin per unit
                            Desired profit in units = fixed expenses + desired profit / contribution margin per unit

                            Also, depending on which state you're in, federal excise tax may or may not go into COGS. Higher COGS means lower taxable income.

                            Here are some formulas for calculating COGS, in case you're having issues:

                            Beginning inventory of direct material + purchases = Direct material available for use
                            Direct material available for use - ending direct material inventory = direct material consumed
                            Total manufacturing cost = Direct material consumed + Direct labor used + Factory overhead
                            Cost of goods manufactured (COGM) = Total manufacturing cost + beginning work in process - ending work in process
                            COGS = COGM + beginning inventory of finished goods - ending inventory of finished goods.

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                            • #15
                              I think I am measuring the contribution margin but calling it something else by mistake. I've calculated for instance the variable cost of a pint (ingredients, water, guesses at utilities and direct labor involved), and the amount of money I'd make on the pint if I sold it for $x. So we'll say for example that I'm selling a pint for $5, but it costs $.75 to make it. I will only make $4.25 off that pint (these are junk numbers by the way).

                              Later on I try to guess how many pints I can sell in a month, and multiply it by $4.25. That gives me what I think is gross income (?). Then I subtract out the fixed expenses for a month (actual wages, salaries, rent, utility cost, insurance, software costs, vehicle repair budget, budgeted discounts and refunds, so on and so forth.) That gives me what I think is called operating income. Then I subtract out taxes and investor or loan payback. That gives me net income.

                              I guess I didn't think about going the other route with this to do a break even analysis. With my numbers I could easily take the fixed overhead I have and divide by $4.25/pint to get the number of pints I need to sell (like you said). At least I think that's what I understood.

                              This is good stuff nateo, thanks for the explanations by the way. I think I mentioned previously that I'm kind of blundering through accounting and may not be using the correct terms for things. Trying to read a few books and also work off of a course I had way back in college. I will take this all to an accountant at some point.

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