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It Makes Cents

 

Before we sold our first kegs of beer, I spent a tremendous amount of time investigating what similar products were selling for in our markets. I wrote about this in an earlier post, about the need to be careful about under or overpricing your product for a given market.

But that leaves you thinking you can just set a price that is competitive, as long as it seems like you can make money at it. Not quite. Really, you also need to take into account your mix of products and the revenue they bring to your brewery. Keep in mind your brewery is limited in how much beer it can produce. You need to figure out how to make the most of that beer.

I use a spreadsheet with all of our costs and then I break down the revenue for each brand by format. (A brand is each of your different beers and the format is the various sizes of kegs and bottles or cans you package it in. For a brewpub, it might also include pints, growlers, etc.) What I want to know is the profitability of each format. The best way to calculate this is to determine your profit per ounce. For example, bottling incurs a lot more expense with the bottles, labels, caps, and labor, but it sells for more, so the per ounce profit can be higher than it in kegs. Of course, there is a big difference between six-packs and bombers or cork-and-cage 750 mL bottles.

I had someone tell me that they made more profit on a half-barrel keg of beer than they did on a couple cases of bottles. Unfortunately for them, they were comparing the gross profit on a half barrel keg versus a couple cases of six packs. As a small brewer, the fact that a keg of beer sells for more than a case of beer shouldn’t distract you from what is most effective for your brewery. The total dollar amount might be higher on a keg, but the per ounce profit can be lower. Since most small breweries are limited on how many ounces they can produce, they need to make the most profit off of every ounce.

I suppose if you had a nearly endless production capacity, then you wouldn’t mind how much profit you made on an ounce of beer. You would just care that every format is profitable and you would sell as much as you possibly could. Only making $0.50 on a half-barrel keg? OK, sell a billion of them and you have made a half billion dollars. Nice. Unfortunately, it is impossible for most of us to sell that much.

Instead, the best approach is to focus on the per ounce profit. I would bet every new brewery has a goal of selling a high quality product, so unique and desirable, that consumers find it a good value at a higher price point. What many miss is that little trick of finding higher profit formats that the consumer also finds a good value. Don’t focus on selling as much volume as possible, rather focus on selling your beer in a way that shows its true value, and the best way to do that is through paying attention to your profit per ounce.

One Comment

  1. grant says:

    Definitely an interesting article. I wonder how valuable it is to understand what other brewers are making per Oz?
    Not like every brewer is spilling those beans, time to break out the forensics..

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