Who knew running a successful brewery business meant so much math? Aaargh.
Unfortunately, the only way to run a successful, thriving brewery is by keeping on top of the important numbers in your business.
Net profit margin?
Percentage of return customers?
These are all numbers you should be tracking in order to get the best out of your brewery… and take home the maximum amount of money.
After all, that’s why we’re all here, right?
Measuring your business performance against KPIs, or Key Performance Indicators, is the only sure way to ensure your growth trajectory and profitability are the best they can be.
Looking to improve your brewery’s success but struggling with KPI calculations? You can book a complimentary call with our accountants anytime.
What Are Brewery KPIs (Key Performance Indicators)?
First things first, let’s tackle what a KPI actually is.
KPI is short for ‘key performance indicator’, and it’s a quantifiable measure of performance over time towards a specific objective
KPIs provide targets for teams to shoot for, milestones to gauge progress, and insights that help people across the business make better decisions.
Let’s look at an example.
Let’s say you want to measure the profit margin in your brewery business, and you want to set a goal of 30% to reach next year.
Your brewery now has a KPI of 30% profit margin; a tangible metric that you want to hit in a specific amount of time.
3 Brewery KPIs You Should Track Regularly:
While there are hundreds of KPIs you could be tracking in your brewery, we don’t want to overwhelm you.
Today, we will share three KPIs today that you can incorporate into your financial management strategy today.
Brewery KPI #1: Average Pour Rate
In simple terms, the pour rate is the cost of producing a drink as a percentage of its selling price.
The pour cost rate measures the gross profit of your beer; it’s the ratio of what it costs to make a drink to its selling point.
And lowering the pour rate is one of the most practical and effective ways to increase your brewery profits.
However, this means understanding what it really means and how to calculate it… so read on.
The pour rate answers the question; “How much of this drink’s price did I spend to make it?”
For example, if the pour rate of a certain beer bottle in your brewery is 25%, it means you’re making 75% gross profit from it. In simpler terms, at a 25% pour rate, for every $1 you sell, your brewery gets a gross profit of $0.75.
Answering this question can help you tweak your recipes, wholesale prices, and pricing strategies.
Pour rate can also help expose your brewery’s inefficiencies.
For example, employees could be wasting ingredients, you might be underpricing your beer, or at the absolute worst, your team might be stealing from you.
All of these factors can significantly affect your pour rate numbers.
For example, suppose you spend $20 on materials and labor to make one bottle of beer and your employees are giving away the beer, overpouring, or selling at a lower price. In that case, you’re selling less of your inventory while still paying your suppliers.
This lowers your pour rate and dents your profit margin.
So, how do you calculate your pour rate?
(Production cost + overhead expenses + taxes / retail price) x 100 = pour cost rate
The most crucial part of the calculation is figuring out the production cost of your beer and the retail price.
For example, if a certain bottle of beer costs you $2 to produce and you sell it at $5, then your pour rate is;
($2 ÷ $5 = 0.4) x 100 = 40%
The beverage cost for the entire brewery can be calculated as follows:
Pour cost rate = (Inventory usage ÷ Total sales) x 100
For example, if your brewery used inventory worth $100000 in a quarter, and you made sales worth $250000, your pour cost rate is as follows:
$100000 (inventory usage) ÷ $250000 (cost of products sold) x 100 = 40% (pour cost rate)
This means your brewery uses 40% of a beer’s price to make it.
You can calculate the pour cost rate weekly, monthly, quarterly, or annually, depending on where your business sits financially.
If you’re still trying to figure out your brewery’s financial strategies, like pricing, we recommend doing it weekly to identify the challenges and deal with them early on.
Brewery KPI #2: Inventory Usage
Inventory usage or inventory consumption is a measure of how much your business has used in a given time frame.
It’s similar to the cost of goods sold (COGS), but instead focuses on the number of units sold and not their cost value.
In a nutshell, brewery inventory is counting everything twice at different times and calculating how much of the product you’ve used between that time.
Steps to Tracking Your Brewery Inventory
1. Count everything
You should have brewery inventory software, but if you don’t have one yet, start by counting every product you have and the amount of liquid inside the bottles.
This will be your starting inventory.
Doing it at another period will give you your ending inventory.
You’ll use these two numbers to calculate your inventory usage.
2. Calculate your inventory usage.
Here are the components of calculating inventory usage:
- A time frame
- The starting amount
- Amount of product received between the time frame
- The ending amount of your product
For example, suppose at the beginning of the month you had 1000 beer cans. That’s your starting inventory.
In the middle of the month, you packed 500 more beer cans, and by the end of the month, you had 150 beer cans.
Here’s how you’d calculate your inventory usage:
Inventory Usage (cans) = Starting inventory + Inventory received – Ending Inventory
Inventory usage = 1000 beer cans + 500 beer cans – 150 beer cans
Inventory usage = 1350 beer cans
To find your usage in monetary terms, multiply the usage by the cost of a beer can. If you used $12 to make a beer can, then:
Usage ($) = 1350 beer cans x $12
Usage = $16, 200
Brewery KPI #3: Revenue Per Barrel
Revenue per barrel is a metric that shows you how much your brewery makes for each beer barrel you sell.
Like other KPI metrics, knowing how much a barrel is making can help you adjust and set the pricing for small-scale buyers and determine the profitability of the brewery.
How is revenue per barrel calculated?
Revenue per barrel is calculated by dividing the total revenue of barrels for a certain time frame by the number of barrels sold.
For example, if you sold 100 barrels in one month and made sales worth $30,000, and the only cost incurred is that of raw materials, your revenue per barrel is as follows:
Total revenue ($30000) ÷ Barrels sold (100) = $300
From this figure, you can develop pricing for your distributors. For example, you can expect them to make $150 for every ½ barrel.
Get Help With Your Brewery KPIs
Confused, yet? We told you brewery KPIs involve a lot of math!
But don’t worry, we’re here to help.
We understand that running a brewery involves a lot of moving parts, from recipe creation to branding and packaging, and we know that KPIs can add an extra layer of stress.
At ZenStrategies, we specialize in helping breweries calculate and interpret their KPI figures to boost their sales and strategies.
Our team of experts will work with you to accurately calculate your KPI figures, explain what they mean, and provide tips on how to use them to improve your business.
You can get in touch with our brewery accountants anytime by booking a free chat here.
Until next time!