Profit Margin

[HBC Loves Beer]

I am opening a brewery in a suburban NY market. I am in the process of prepping financials for my business plan. I have been told by brewery owners that their profit margin on keg sales is typically 80%. From the calculations supplied by my brewer I am looking at closer to 60% profit margin which would not make the business sustainable.

Does anyone have any thoughts on this?

Thanks!

[protector]

I am opening a brewery in a suburban NY market. I am in the process of prepping financials for my business plan. I have been told by brewery owners that their profit margin on keg sales is typically 80%. From the calculations supplied by my brewer I am looking at closer to 60% profit margin which would not make the business sustainable.

Does anyone have any thoughts on this?

Thanks!

I suggest you go back to the breweries who stated 80% margin and ask them to break the cost down specifically: material and labor costs per keg. I bet your estimates are closer to reality.

[fa50driver]

60% seems high to me.

Remember to include -


Ingredients (grain/hops)
Shipping for ingredients
Labor (time) to order supplies
Labor to unload grain from truck
Labor to prep fermenters, grain, brewing equipment
Labor to wash kegs, including setup and tear down
DE or filter pads if applicable
Cost of yeast divided by number of brews per use
Energy to wash kegs
Energy to brew (gas/electric)
Chemicals to wash kegs
Chemicals to wash tanks
Chemicals to clean brewhouse, equipment
Labor to filter beer if applicable, including setup and cleanup
Labor to keg beer, including setup and tear down
Energy to cool beer
Labor to load kegs
Labor, gas to deliver kegs if applicable
Distribution costs, if applicable
Keg rings
Keg caps
Tap handles
other giveaways (pint glasses, POS)

Then, if you want to include life limited parts like tanks, pumps, boiler, chiller, water filter, keg washer amortized over time

Then of course you have overhead - Rent, insurance, licensing, etc.

With keg rentals and a distributor, I have calculated closer to a 15% to 20% profit margin on keg sales (depending on what you are charging), not including what I consider overhead (rent, insurance, licensing)

[Helltown]

I add in shipping costs for ingredients and estimate the utilities along with fed and state malt taxes. I am at a much lower profit margin and we aren't selling at discount prices either.

My IPAs are probably closer to 2% profit... the other beers are subsidizing them even though I charge $20-$30 more per 1/2bbl for the IPAs, that increase does include self distribution though.

If you are only looking at the CoGS and not including anything else then the profit would seem much better, but it's an illusion. :-)

But I am not an accountant, I just look at how much it's costing to survive and how much I make, my profit is very low.

[HBC Loves Beer]

Thanks for the replies.

What is your break even point? At 15% profit margin it looks like the break even would be somewhere around 200 bbls of beer sold per month. Is that accurate?

Thanks.

[fa50driver]

Depending on your overhead and markup and what you hope to pay yourself, that sounds to be somewhere in the ballpark for a break even cash flow.

200 bbls per month is tough number for a lot of small production breweries to hit in the first year, so make sure that you have enough reserves to carry you for a couple of years. It will save a boatload of stress in the long run. The other way to reduce stress is to find a more profitable venture :-) I too was under the illusion that the margins were much higher than they truly are, and I suspect that with increased competition from all of the additional brewery start-ups, there will be quite a shakeout in the next couple of years, so get ready for a rough ride!

[ravenbeer]

Your 80%+ profit is in the ballpark for a brewpub as that $35.00 cost for a keg is sold over the bar for $500 or so. A brewery with no on-premise sales, you are typically looking at $30-50.00 markup to the price to the wholesaler. So, your net will be in the 10-15% range. You deal on volume not high profit margins that pubs rely on.

stephen

www.ravenbeerbeer.com