The Pricing for Profit: Benchmark Your Beer webinar teaches craft business owners and stakeholders how to stay competitive and revenue positive with help from The Beer Accountant! Patrick McDonald has been a CPA for 10 years and focused the last 3 years on helping keep breweries profitable.
If you missed the live webinar, you can watch the recording here. Or, keep reading for an in-depth recap of all the best practices for benchmarking beer that Patrick shared!
All Of The Factors That Influence Your Beer Pricing
Before we get to actual numbers on your menu board, let’s see all of the factors that influence your beer pricing:
- Cost of goods sold (COGS) such as grain, hops, disposal fees, etc.
- Packaging and artist fees
- Keg collars, tap handles
- Cans, labels, cardboard carriers
- Costs specific to how your beer is made—in-house vs. outsourced, even partially
- Insurance liability
- Mobile canner vs. on-site
Keep in mind that labor costs have a significant impact on your pricing as well. Because labor varies so much from craft business to craft business, Patrick chose to leave labor out of the gross COGS calculation for the sake of the webinar.
Healthy Beer Margins In The Post-Pandemic Era
A lot’s changed in the past 5 years. Because of the increased costs to make beer, healthy margins look different these days. To quote Patrick’s favorite rapper, DJ Quik: If it don’t make dollars, it don’t make sense.
First, let’s recall how to calculate your gross margins:
Gross margin = Gross revenue – COGS
To increase margins, you either have to increase revenue or decrease costs. Let’s look at healthy beer margins for the following product categories thanks to Patrick’s industry expertise:
What’s the 33% Rule you see called out in the Food category? Patrick explains that revenue from each plate of food is split in thirds: the cost of the food itself, labor costs to make the food, and the remaining ⅓ is left to cover the rest of your costs.
Despite expected small margins, craft businesses often offer food as a strategy to make guests stay longer and order another beer. Besides effective tab boosting, there are many other benefits of offering food in your taproom.
How Beer Menu Pricing Should Differ For On & Off-Premise Offerings
Yes, a pint in your taproom is going to have a different price than 16 ounces of that same beer elsewhere. While you’re waiting with baited breath, let’s first talk about pricing differences in standard and premium offerings.
Premium Pricing For Premium Product Is OK, Folks!
…and expected, by the way! Guests recognize and respect that some beers require more time or more ingredients, and they’re willing to pay extra for them.
No one’s picketing outside Chipotle about the guac-is-extra fee!
Recommended On-Premise Beer Pricing
Here’s what you can expect from on-premise beer sales:
- Your margins are highest here
- On-premise is the biggest insurance liability
- Guests are paying for more than just your beer, including service, atmosphere, space, etc.
Here are recommended price ranges for on-premise beer offerings:
Notice how Patrick has tiered standard versus premium pricing based on pour size. If you prefer a pricing system where standard and premium items reflect the same tiered prices, Patrick suggests pouring less ounces of premium beers at the same price point, which is reflected in the chart above.
Flights may be a pain in your beertenders’ rears, but check out that gross profit percentage! Beer flights enable you to sell 20 ounces of beer for upwards of $20, so they’re worth the extra time. To keep your bar staff happy, check out brewery POS systems that offer beer flight tools that make order and assembly fast and easy.
Recommended Off-Premise Beer Pricing
Below are off-premise sales expectations:
- Offer-premise is a smaller insurance liability
- Your margins are smaller too due to increased costs like packaging
- Guests don’t benefit from an in-house experience, and are therefore not willing to pay as much for your product
These are recommended price ranges for off-premise beer offerings:
As you can see, profit margins are lower for off-premise goods, but distribution is really important for growing craft businesses because it increases brand awareness. Heck, Hi-Wire Brewing is on track to open 11 taprooms in 10 years and a lot of their success came from early distribution efforts.
The moral of Patrick’s story is this: From a guest’s perspective, there’s nothing better than having a delicious pint in a taproom and then taking a 4-pack of it home. And from a bottom line perspective, it’s equally awesome.
Plus, Patrick has found that offering the same beers on draft that you have available for to-go boosts sales of each!
Best Practices For Beer Benchmarking
Patrick has 6 tips when it comes to accurate benchmarking with the help of your brewery POS system:
- Update COGS for every item you have: Yes, right now, or in the next week. It’s that important! Inaccurate COGS creates a negative domino effect in your sales data and ultimately in your bottom line.
- Separate draft offering from to-go offerings: Again, you want to make sure your margins are as accurate as possible.
- Verify inventory settings: Are the right item sizes, costs, and tags associated with each of your menu offerings? Double check!
- Implement a tasting size: Giving a splash to sample is a tried and true guest engagement tactic. You don’t need to charge for tasters, but you do need to track that liquid lost. Ring tasters up as $0 on guests’ bills so that your brewery POS can track those ounces leaving the keg.
- Ensure accurate COGS every 4-5 batches: With costs rapidly changing by the day, it’s important to stay on top of the accuracy of your calculated COGS.
- To-go beer sells best when the same variety is available on draft: Everyone loves trying before buying. Patrick is a strong advocate for offering the same beers on draft as what’s being offered for to-go.
All of this fine tuning on the backend will make your brewery POS reporting that much more accurate!
Brewery POS Reports You Need To Monitor
Patrick could name even more if we gave him all day, but here are the top reports he recommends monitoring in your brewery POS system:
- Category Sales Summary or Sales by Category Report: See your breakdown of sales by product category.
- Beer Breakout Report: See the Top 10 highest selling taproom and to-go beer styles.
- Gross Margin Breakout: Get a high level view of your margins by category.
- Gross Margins by Product: Now see high level margins by individual item and size.
- Top Selling Beers by Revenue: See which beers bring in the most revenue.
- Top Selling Beer Ranked by Revenue AND Ounces: Including ounces in the ranking adds interesting context around discounts and premium offerings. For example, discounted beer will rank high in ounces but low in revenue.
- # of Days To Kicked: Monitor how quickly kegs take to kick by tracking each style’s ounce depletion.
- Golden Hour Grid or Hour By Hour Report: Identify when traffic is the highest so you know when to staff up or down.
For 3 bonus reports that Patrick recommends monitoring as well as a wrap-up of the most important takeaways, check out the webinar recording!
If you’d like to contact The Beer Accountant yourself, visit beeraccountant.com.
Patrick ended the webinar with a reminder that it’s not too late to take advantage of the tax credits available for small businesses. Learn about ERC, FICA, and WOTC here.