Breakeven Analysis and COGS

[tirouj]

Hi everyone,
I am in the early stages of a business plan for a brewery. We would like to have 5 beer styles on tap at all times. I am trying to get some clarification on what other folks did for their business plan at start-up to forecast their sales. Some of the templates that I have seen require that you forecast sales for all your product lines, which means forecasting sales for all five beers styles in my case. Did everyone else have to do that?
Does that also mean that I need to have five separate break-even analysis and COGS since some batches will be more expensive than others?
That would mean I need to come up with five recipes and price them out...
I just want to get some opinions before I go any further just to find that I went overboard.

I also included the cost per batch that I started for some feedback, the pricing in the middle is for a stout, and the one on the right is an IPA.

Thanks for the help.

[BeerBred]

Insurance is way low. I will look at the rest tomorrow.

[Fishweir]

numbers dont make sense

you are using a number like a profit of $50 a BBL. Your profit is only that if you distribute. You cant distribute with a 4.5BBL system. That model doesn't work. If you have a taproom that is selling pints, you will charge $4-5 a pint depending on style/demographics. if you sell a pint for $4 and cost you $.55 to make (as your numbers state) your focus should be on using $3.45 a pint as your break even.

your rent seems low. How big is your space? $2,100 a month doesn't seem enough to cover you rent and NNN for a commercial location.

insurance is way low.

you also don't have payroll taxes, or consumables for the tap room. What about solid waste removal? CO2 costs?

As you will find by doing research, its not really worth all the work unless you start with at least a 7BBL system. 10 is more comfortable.

PM me if you want to chat more about this. I just went through all this and I would glad to help.

[Silva]

Hi there,

I am also in the process of working the numbers and I agree w/ Fishweir, the profit/barrel is too low and price of a pint should be higher; ie. $4.75.

I would use Low & High prices where it is possible.

I found is better to calculate all in Pounds Per Barrel.

Malt1 (cost/lb), Malt2 (cost/lb), Hop1 (cost/lb), Hop2 (cost/lb), Yeast (cost/pkg),
Water/Sewer "(cost/gal)" conv to cost/lb, Eletrical (35kW/h), Labor $/h, Cleaning Chemicals, Federal Tax (bbl), State Tax (cost/bbl)

I am using Federal Tax (cost/bbl) $7 and State Excise Tax (cost/bbl) $6

I am getting the following Upper and Lower End Cost to Make5 bbl Batch of Kolsch Beer:

Total Cost/Batch $1,454 $2,449

Total (Cost/bbl) $291 $490
Total (Cost/gal) $9 $16
Total (Cost/oz) 0.07 0.12



==> Average Cost/Batch, bbl, gal and oz:

Avg Cost / Batch $1,951.42
Avg Cost / bbl $390.28
Avg Cost / gal $12.59
Avg Cost / oz $0.10


==> If you want, take some "Percentage of Loss" before calculate expected gross profit per Batch and/or Barrel. I am using 10%.

==> Once you have the Gross Profit Per Barrel, calculate the Monthly Fixed Costs (Include also the sales tax).

Cheers,

Wanson Silva
Parallel 30 Brewing (Soon!)

[tirouj]

Breakeven Analysis and COGS

Silva and Fishweir,
Thanks for the look, really good feedback. So we don't plan to distribute until the third year ideally...maybe the second year if things are just going so well.
For the year 1 and year 2 we will only have a Tap Room with the option to fill growlers.

The rent rate I am currently using is based on the current tenant ( I just needed a number in the there), I am hoping I can stay between $2500 and $3000.

I just got some numbers for the insurance and I am looking at $150 a month.

I am still working on the Payroll. I do have the CO2 cost @ $10 for a 4.5 BBL batch, do you think that's too low? or are you referring to something else?

Thanks for the reminder of the solid/waste removal and the percentage loss

Since you mention it, I have been giving some thoughts on budgeting for 7BBL, but do I need a 7BBL system if I don't plan to distribute till year 3?

Just to quickly go back to my original question, do I need to do a cost estimate for each beer style for my sales projection? Based on Silva's response, it seems like it's a YES.

What if we change our mind on what recipe (s) to make between now and the time we open our doors? Did you guys use any particular resource to price your recipes or did you do it from scratch?

Thanks guys.

[Blu Dragonly]

Tirouj,

If you can secure the financing for a larger system to start and afford the payments it is not a bad way to go. Trying to read the economic tea leaves, it's been 9 years since the last bubble burst. Craft beer has also really exploded in the last 10 years. If financing got tight in 2-3 years due to a recession or slow-down you may not have the ability to finance an upgrade. On the flip side, someone is always looking for a good smaller system to get started so selling your starter system may not be an issue down the road. Read the classifieds on here and see how fast good, reasonably-priced used equipment moves.

I'm familiar with a brewer who started out with a large system thinking they would not only operate a tap room but get some regional distribution going. They've had no takers yet on the packaged product and sounds as if they are pretty disappointed in sales so far. Other than radio advertising for the tap room I have no idea what they are doing to market the business locally or in the region. I also have no clue as to their sales and marketing skills or how much they've attempted to build relationships to get their product in the door. Dropping off a six pack and a business card won't get you very far in a crowded marketplace. I might add the beers I've sampled from this brewery are all very solid beers anyone could enjoy.

I've been in sales for my entire professional career and personal relationships are what helps drive sales, regardless what the product is. Being in New Mexico, there are tons of beers to choose from trying to stand head-and-shoulders above the pack when there are so many amber and blonde ales, stouts, imperials, IPA's, sours, etc. I hate to say it, but to many consumers, craft beer is almost becoming a commodity in their minds and companies with strong distribution channels like AB-InBev, MillerCoors, et. al. have done their best at buying up "craft" brands and controlling distribution on those.

We are opening a brew pub in a small village and I have no designs on outside distribution. We also do BBQ and will have full food service. We are on a busy tourism route travelers use going to and from ski resorts and summer resort areas and we are also trying to create a community hub with our new venture.

And certainly, I did not mean to create thread drift from your original post on doing a cost analysis, but I did want to help in addressing your quandary as to whether to start out with a smaller system to serve in-house distribution or purchase something you can grow into. As an aside, I have been in the boiler business for a number of years and have sold boilers to many small breweries over the last 10 years. I always offer the advice that due to install costs, if one can afford it, buy the boiler you think will still meet your needs in 3-5 years rather than the smallest you can get by with for now. Keep in mind, you could always start with a larger brew house and smaller cellar (either smaller capacity or fewer vessels) and grow that as the need arises.

JMO and keep in mind I'm quite new to being feet first into the brewing business!

Cheers!

[Catfish002]

Very good points made above. You can always brew a 7bbl batch on a 10bbl system but can’t brew a 10bbl batch on a 7bbl system! Go as large as you can. Expansion can be very expensive later on. And brewing more often on a smaller system keeps you away from running the day to day business operations.

[BlackLocustHops]

The other side of the coin is that if you are brewing 10bbls of IPA you need to sell 20 kegs of it before the flavor starts to diminish(2-3weeks). And that's only one style. If you are expecting enough traffic in your taproom then this is obviously the right size. Otherwise smaller might be better.

[tirouj]

Hi guys!
Sorry it took me a while to reply, I was taking a day to recover from the Pats loss :-(

I think I am convinced that 10bbl is the way to go, I do like the idea of not having to brew many many times a week. If budget becomes an issue, a used system is always an option as Blu Dragonly mentioned.

I do like the idea of being able to make smaller batches during the first few months until we figure out what really sells and what the foot traffic will be.

A quick question for everyone, because I have some many different answers on this...what formula do you guys use to calculate your COGS?

Thanks so much.