Brewery profit margins are a crucial factor in the success of any brewery business. Profit margins are the percentage of revenue that a brewery keeps as profit after accounting for all expenses.
Understanding profit margins can help breweries identify areas where they can cut costs and improve profitability. In this blog, we’ll explore strategies that breweries can use to improve their profit margins and increase their bottom line.
Understanding Profit Margins for Breweries
There are two types of profit margins that breweries should be familiar with: net profit margins and gross profit margins. Gross profit margins represent the percentage of revenue that a brewery keeps after accounting for the cost of goods sold (COGS), while net profit margins represent the percentage of revenue that a brewery keeps after accounting for all expenses, including COGS.
Industry benchmarks for profit margins vary depending on the size and location of the brewery. However, according to the Brewers Association, the average gross profit margin for craft breweries is around 45%, while the average net profit margin is around 9%.
Common expenses that breweries should consider when calculating their profit margins include labor costs, rent or mortgage payments, equipment costs, marketing and advertising expenses, and raw materials costs.
Understanding profit margins is important for breweries because it allows them to identify areas where they can cut costs and increase profitability. By analyzing their profit margins, breweries can determine which products are the most profitable, which expenses are the highest, and where they can make improvements to their operations.
Three Ways Breweries Can Improve Their Profit Margins
In order to succeed in the competitive world of craft brewing, breweries need to be constantly looking for ways to improve their profit margins. Fortunately, there are several strategies that breweries can use to increase their bottom line.
Three key strategies that breweries can implement to improve their profit margins are managing financial records, controlling production costs, and implementing accounts receivable software. By adopting these strategies, breweries can position themselves for long-term success in the industry.
1. Managing Financial Records
One of the key factors in improving brewery profit margins is effectively managing financial records. In today’s digital age, breweries can best manage their financial records with the help of technology. To gain a clear understanding of their financial position and identify areas where they can cut costs, breweries should be tracking P&L statements, understand their cost of goods, and use software tools to track their finances.
Profit & Loss Statements
Another important aspect of financial record management is tracking profits through P&L (profit and loss) statements. P&L statements provide a snapshot of a brewery's financial performance over a specific period of time, allowing brewery owners to quickly and easily identify trends in revenue and expenses.
Inventory & COGS
Another crucial aspect of financial record management is understanding inventory and cost of goods sold (COGS). By tracking inventory levels and accurately calculating COGS, breweries can gain a clear understanding of how much it costs to produce each unit of beer. This information is essential for identifying areas where production costs can be reduced without sacrificing quality.
Optimizing your accounting software can also help breweries manage financial records efficiently. For example, accounting software like NetSuite and Quickbooks can automate many financial tasks, including generating custom reports regularly. These systems are also able to integrate with Notch's Accounts Receivable solution, which streamlines invoicing and payment processing, reducing the time and effort required to manage accounts receivable records.
Learn more about simplifying the accounting process for breweries here.
Overall, effective financial record management is essential for breweries looking to improve their profit margins. By prioritizing digital accounting, implementing efficient financial processes is much easier, and breweries can gain the insights they need to make informed decisions and optimize their operations for maximum profitability.
2. Controlling Production Costs
Another key strategy for improving brewery profit margins is controlling production costs. Breweries can achieve this by increasing efficiency and automation, sourcing quality supplies and ingredients, managing waste, and utilizing by-products.
Increasing Efficiency & Automation
Breweries can reduce production costs by increasing efficiency and automation in their brewing processes. This can include investing in equipment that reduces the amount of labor required for production, implementing process improvements, and optimizing production schedules to minimize downtime. Examples include automated brewing systems, keg cleaning machines, and label makers. By investing in equipment that reduces labor, breweries can optimize their operations and reduce production costs. However, it is important to evaluate the costs and benefits of each piece of equipment, considering factors such as maintenance costs, and space requirements before making an investment.
Sourcing Quality Supplies
Breweries can also reduce production costs by sourcing high-quality supplies and ingredients at competitive prices. This strategy may include negotiating with suppliers for better pricing, using local suppliers to reduce transportation costs, and monitoring pricing trends to identify opportunities for cost savings.
Managing Waste and By-Products
Managing waste and utilizing by-products can be a cost-effective strategy for breweries to reduce their production costs and improve their sustainability. One way to do this is by implementing recycling programs to reduce waste and promote sustainability. Breweries can recycle cardboard, glass, aluminum cans, and plastic bottles used in packaging to reduce landfill waste and potentially generate additional revenue through recycling.
Another way is to repurpose spent grains, which are a by-product of the brewing process. Breweries can sell spent grains to local farmers for animal feed or use them to create baked goods, such as bread, pizza crusts, and even dog treats. Breweries can also reduce packaging waste by using environmentally friendly materials and packaging techniques, such as recyclable or biodegradable materials for packaging, or refillable growlers and reusable kegs instead of single-use bottles or cans.
Overall, managing waste and utilizing by-products can help breweries potentially generate additional revenue while reducing their environmental impact.
3. Implementing Accounts Receivable (AR) Software
Implementing Accounts Receivable (AR) software is another effective way for breweries to improve their profit margins. By automating billing and collection processes, breweries can reduce the time and costs associated with these tasks. For example, Notch's AR software is designed to streamline the billing and collection process for breweries, enabling them to manage invoices, payments, and collections efficiently. Companies using AR automation software regularly report a 60% reduction in manual AR tasks and a 30% improvement in payment collection.
Increasing Cash Flow
One significant advantage of implementing AR software is that it can increase cash flow by enabling breweries to collect payments faster. The software allows breweries to automate payment reminders, set up recurring payments, and accept payments online, making it easier for customers to pay their bills on time.
Leveraging Your Data
In addition to increasing cash flow, AR software can provide breweries with valuable insights and data that can help them maximize their business potential. By tracking customer payment histories and patterns, breweries can identify areas where they can improve their billing and collection processes. For example, they can identify customers who are consistently late with their payments and take steps to address the issue.
Overall, implementing AR software can be an effective way for breweries to reduce costs, increase cash flow, and gain valuable insights into their business operations. By choosing a reliable software provider like Notch, breweries can streamline their billing and collection processes and take their business to the next level.
Understanding and improving profit margins is crucial for the success of breweries.
By focusing on managing financial records, controlling production costs, and implementing AR software, breweries can reduce their expenses, increase their cash flow, and maximize their business potential.
To achieve these goals, breweries should prioritize accounting and processes, track profits through P&L statements, and understand inventory and COGS. They can also increase efficiency and automation, source quality supplies and ingredients, manage waste and utilize by-products, and implement AR software to reduce time and costs on billing and collection while gaining valuable insights and data.
By following these strategies and implementing reliable software solutions like Notch's AR software, breweries can improve their profitability and position themselves for long-term success in the competitive brewing industry.