How should I calculate the amount I charge for a Keg of beer??

[BrewMaster56]

Hi all. This is my first post, so hopefully I won't sound too amateurish in my inquiry. And hopefully this question hasn't been degraded to beating a dead horse. We are a new microbrewery, located in Washington State. After having been open for about 8 months, and having folks stop by to try our brews, I've finally landed a golden opportunity. The Ale House located here has agreed to host some of my beers on a rotating basis. They have quite a steady customer flow, well established in the community, and very open to new breweries ........ provided of course you can pass the tasting / approval of the buyer who simply is an encyclopedia on beers. Anyway, he's quite pleased with my styles, which are traditional German beer, uncommon here in the "Great Northwest", the land of IPA's. My question is, how do I calculate what I should charge for a half barrel keg when I deliver it to him? Would it be based on a ration of cost to produce (I'm assuming that would have a part in the calculation)? They sell 16 to 20 ounce pints for an average of $6 to $7 each. Any advice would be greatly appreciated.

[ckr]

Also from the northwest. Where in Washington are you.

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[BrewMaster56]

The great bedroom community of Sammamish, Washington.

[GlacierBrewing]

Hi Brewmaster56,
Stop what you're doing today, sit down with a calculator and your suppliers invoices and determine your cost of goods produced: what does it cost you to produce a 1/2 bbl of beer. This will be the magic number that will drive much of your future business decisions. Once you know how much money you have to spend to make the beer, you can determine how big of a margin to charge your accounts and any (future) distributors. (Those two prices will be different BTW.)

To determine cost of goods produced determine the following:

• Cost of malt bill (include shipping)
• Cost of hop bill (include shipping)
• Cost of yeast used (could be a sliding cost depending on generation of yeast)(include shipping)
• Cost of chemicals to clean vessels and kegs (include shipping)
• Cost of utilities
• Cost of labor (PAY YOURSELF!)
• Cost of delivery
• Cost of any debt servicing

Now add your margin.

One of the tricky parts is breaking down these costs to the beer volume you need like a 1/2 bbl or 1/6 bbl, etc. Also there is no harm asking accounts what they are currently paying for your closest competitor's kegs. Don't blindly use that number as your own. They might be purchasing raw materials in greater quantities than you thereby reducing their costs and reducing what they are charging. Use their number as an informational reference.
This is a game of making money by keeping margins slim but selling A LOT of units, not having huge margins and selling only a few kegs.
Hope this helps.

Prost!
Dave

[BrewMaster56]

Appreciate the info Dave. I've already gone through the cost of goods produced aspect. I do have to say that there are a few speed bumps there, though I'm working on ironing those issues out. One major advantage that we have is that the brewery operates out of our residence, so there's no lease overhead, and it give us a bit of a tax write-off at the end of the year. Don't have employees, and the business is no leveraged to any real degree. We're a very small brewery, only 1 BBL production at a time as it currently stands. I'm semi-retired, and have no visions of creating another Boston Beer Company, though it would be my goal to make enough to "play" and take a vacation now and then.

The trick indeed is that magic word, "margin". That's what I'm trying to figure out. I guess I could ask what my competitors charge, just don't feel too comfortable doing that.

Don
Bavaria Brewing Company, LLC
819 212th Ave NE
Sammamish, Wa 98074
Craft Brewed German Style Beer

https://www.bavariabrewing.com

[troybinso]

Washington state distributors have a catalog that lists how much each of their products are sold for. They are required to sell the beer for the same price to all accounts. I'm not sure if a distributor will just hand out a catalog to anyone, but a friendly bartender will let you have a look at one.

[jebzter]

What everyone else has said. Do a market basket to see how your desired price compares to others in the area. If your COGS + Margin is below market, you can increase your cost. If it is above market, then you may have to reduce your margins temporarily, but then work on reducing your COGS to get the margins back up. For the difference between 1/6th bbl and 1/2 bbl, its pretty standard here in CA that the 1/6th bbl is half the cost of the 1/2 bbl. Its not a linear relationship, but it takes more labor hours to fill, and if you go look at anything else for sale, more volume = lower unit price.

[Crosley]

This is really a question that can't fully be answered. You can look at your COGS and get an idea but it's now realistic without weighing all of the other variables.
I am on a 3BBL system and for the first year didn't do any tap accounts, everything was sold through the taproom. This year I doubled my ferms and have a few kegs a month excess. I'm in a small town and the bars are not into local craft beer yet. An hour away and kegs are easily selling for $150 - $220. That's never going to happen here so I had to figure out if it was worth it. In the end I ended up only selling to one bar at the highest price they would pay (which was $15 lower than I wanted to cover COGS + desired margin). I did this only because I felt this one bar would be more likely to send a good amount of business to the taproom so I was willing to take a little less.
This is just my one jumbled example of there being no easy answer to this question.


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[Bainbridge]

What it costs all of us to make is irrelevant to what we can sell it for.

There are now more than 300 craft breweries in this state, plus competition from Oregon, California, Colorado, BC, Alaska, and the national craft brands. The market has set its prices and it's up to us to get our COGS in line, not the other way around. So find the going rate. Ask bar managers (BTW if you're talking about the Pine Lake Ale House that's a great account) you know to see the catalogs from Click, Odom, Alpha, Orca, etc. compare and contrast things close to what you're selling. Talk to other brewers. 50L kegs of our normal line wholesale for $139, which I find to be in the upper 75% of the distribution or so. Being tiny you could try and charge above that level, but you won't find many ready and regular adopters that way. But since this is a sort of one-off deal, maybe just hash it out to with them. "Look, you're the only ones getting this. But I need to make $X per keg to make it work. Would that work for you?"

You can also back-calculate. Typically, most bars run a 300% markup on beer. So if they get a keg for $150 and it has 120 pours in it, it's costing them $1.25 per pour. So they'll charge a 300% markup: $3.75. Add $1.25 = that's your $5 pint. So from their pint prices (and it'll differ depending on location, I see my beer on in Capitol Hill at $8 a pint sometimes, for example. If only...sigh.) you can back-calculate the approximate price of the keg.

With you being on 1bbl I'll be brutal. You're going to lose money on this keg thing unless you can charge like $500 for that keg. Not likely. Only reason to do it is advertising. With that in mind, if that's worth it to you, then by all means go for it! But you'll make 5x more money selling it yourself.

One piece of advice I've long relied upon is "Never underprice yourself." You can't win the 'cheap' game, because 'if you play someone else's game you're going to lose'. Until you have sufficient economies of scale, charge as much as you can get!

[BrewMaster56]

Lots of great advice, and now my head is throbbing. Maybe I can still find a place at some exit on the highway, come up with some sob story and scribble it on a piece of cardboard. At least that would be tax free. And yes Bainbridge, it is the Pine Lake Ale House. As for that I feel quite thankful

Crosley - I definitely see your reasoning for avoiding the tap accounts for the first year. The problem on my end is though I do have a tasting area, we live on a private road that doesn't have a good traffic flow. I've designed an a-frame sign to put down at the intersection, and I'm on Facebook as well as Yelp and our web site. As for additional tap accounts I'd hesitate going full throttle on that, but yet otherwise I end up with an endless supply of beer for myself.

[BeerBred]

Go with Bainbridges advice. Your cost has nothing to do with your sale price. Any cheaper than what you can get, you left $$$ on the table. No one is buying you because you're $10 less. Advise you to lose your fear of finding out about the competition. You better find out everything you can. How are you going to position yourself in the market when you don't know it?