It all starts with cost: Knowing the costs involved in brewing beer

Note

This piece is a selection from a larger e-book titled "Lifting the cask on... brewery accounting" that we wrote for breweries to help them gain a better understanding of the inner workings of brewery accounting. To read more about brewery accounting, please make sure to download and access our full "Lifting the cask on... brewery accounting" ebook here. 

It all starts with cost

When we hear the word cost – what comes to mind? Cost can be defined as the required expenditure to gain or create something. Honestly – that’s a little dry. When we talk about cost in accounting we’re straight away talking about how much it costs you to produce a pint, a keg, or a barrel. Do you really know the costs involved in brewing your beer? If you don’t then you might be in trouble.

“The biggest tip to running a successful brewery is understanding cost. Not only your inputs, not just inventory tracking but also your allocation of costs. You can allocate, power, energy, labor, everything. The best tip is to track as many costs as you can so you get the best understanding of batch profitability. If other breweries aren’t doing this already they should be. This gets more important as you grow. You can quickly lose control if you aren’t keeping an eye on it” - Jeff Harms, Finance Manager at Rebellion Brewery

COGS or Cost of Goods Sold is a measurement of the direct cost
associated with the production of goods. Usually split further down into materials, labor, and overheads. Materials are your ingredients, labor is your staff, and overheads are your utilities and rent. Direct overheads also include depreciation, so any of your old equipment that loses value as it ages can be factored in. That’s a super simple cut down of COGS but the metric itself is vital if you want to be successful, because if you don’t know what it costs – you don’t know what you’ve made.

In terms of the COGS of your beer, this can include everything from the materials and ingredients used to brew your beer to the packaging your beer is in. Once you have your beer’s COGS it can be combined with your price to determine your profit margin. Want to use more expensive ingredients to brew your beer or has the price of aluminum cans gone down? Your COGS will reflect that. Your overheads are also an important consideration. An overhead is any ongoing business expenses you face that is unrelated to the actual production of your beer. For example, paying for the internet or your staff’s wages. While not directly related to the production of the beer, you still need to consider them when budgeting because the chances are you can’t run the rest of your business without them.

As a note here on specific costs – never forget water. It takes a huge amount of the stuff to brew a beer so any fluctuation in its price, let alone its quality, can have a drastic impact on your bottom line – very sobering.

One consideration to make is if you’re a growing brewery, and we hope you are, you’re going to need to build out your distribution. That means you’ll need to keep stock topped up in a warehouse. If you’re still selling from your distillery then you now need to account for increased costs to supply two distribution channels.

“With Brew Ninja, it’s so much easier to keep track of costs. As the recipes change/evolve we can see fluctuations in costs” - Jeff Harms, Finance Manager at Rebellion Brewery

To read more about brewery accounting, please make sure to download and access our full "Lifting the cask on... brewery accounting" ebook here.