Measuring sales performance if you run a brewery business is very important if the business is to be profitable. With significant operating costs and increasing competition, it’s even more relevant than ever for brewery owners to measure KPIs to maximise growth and profitability.
From fill rate, average order value, cycle time, break-even point and more, this article discusses the 10 most important KPIs any brewery must track. Let’s dive in!
1. Fill Rate
This is one of the important KPIs brewery owners must track because as it’s both an indicator of client satisfaction but also working capital efficiency.
The KPI measures how fast clients expect to receive their purchases from your brewery. These are the total orders out of the total orders that get to their destination on time and in full.
Understanding this KPI will help you understand if you are fulfilling customer orders or if some improvements might be required. To calculate this KPI, you divide the total orders fulfilled by the complete orders.
Fill rate = # orders shipped to customers / # total orders
For instance, if the brewery received 3,200 orders in a month, but only 1,600 orders have already been shipped to customers, then fill rate is:
Fill rate = 1,600 / 3,200 = 50%
2. Average Order Value
This is another vital KPI brewery businesses should track since it gives information regarding the average amount a customer will typically spend per order. The KPI helps make sales projections if you keep track of your customers.
Knowing the average order value is important in run rate and production planning. This metric is relevant to the specifics of how you sell your beer. It can help you identify areas where to improve, especially after noticing that there is a decline in AOV.
Average Order Value (AOV) = Revenue / # total orders
For instance, if your brewery generated $150,000 in revenue in a month from 150 orders, then AOV:
Average Order Value (AOV) = $150,000 / 150 = $1,000
3. Cycle time
Cycle time represents the average time it takes to produce your beer, from start to shipping.
The KPI is a measure of efficiency that tells you how efficient your machines are and allows real-time reporting on machine performance.
Cycle time = Process end time – Process start time
For instance, if you start the brewing process on October 20 and complete the process to ship the batch on October 29, your cycle time is nine days.
Throughput is an easy one: this KPI measures the volume of production, in other words the number of units produced in a time period (per day for example).
The number of units can be anything: a barrel (1BBL), liters, hectoliters or even cans. It really depends on the production you’re looking at. If you’re looking at beer production, you would likely use barrels. Instead, if you’re looking at the end product after packaging, you could use cans instead.
It’s similar to cycle time in that it tracks the efficiency of production.
You must track throughput in real time: when it decreases, it may indicate an issue with the production line.
You can increase throughput by eliminating downtime, calibrating production lines to run optimally, and improving machine maintenance.
Throughput = Units produced / time
For instance, if your brewery produces 1,200 barrels of beer in 6 hours, then throughput will be:
Throughput = 1,200 / (6 x 60) = 3.3 cans per minute
5. Utilization rate
Utilization rate is the percentage of the total production capacity your brewery is running at.
Tracking utilization rate can help you understand whether there are any issues in production system. Therefore this is a critical KPI brewery owners must track to understand the ability to scale production or implement agile labor allocation during production.
In an ideal world, your production line would run at 100% capacity. Unfortunately, this never happens. Indeed, reasons for this are legion: downtime due to machine maintenance, refill, cleaning process, etc.
Most often though, the simple reason for not being at 100% capacity simply is that there aren’t enough orders.
Utilization rate = Actual output / Maximum output
For example, if in a year you have produced 3,400 BBL yet your total capacity is 7,400 BBL, then capacity utilization will be:
Utilization rate = 3,400 / 7,400 = 73%
6. Gross margin per unit
Gross margin per unit is one of the various KPIs we use to measure profitability of a brewery production.
When we look at gross margin per unit, we assess the percentage margin of 1 unit (a barrel for example) after deducting all cost of goods sold (COGS).
COGS refer to the direct variable expenses you will incur in manufacturing your beer. It mostly includes raw materials (typically ~30-35% of sales) and packaging costs (~10% of sales).
Gross margin per unit = Gross margin / # units sold
For example, assuming you sell 10 barrels for $8,000, and you spent $2,500 in COGS, gross margin per unit (barrel here) is:
Gross margin per barrel = $5,500 / 10 = $550 per barrel
7. EBITDA per unit
EBITDA per unit is another common KPI for measuring the profitability of a brewery.
Unlike Gross margin, EBITDA takes into account not only COGS, but all operating expenses (salaries, rent, marketing, etc.).
Because EBITDA takes into account fixed expenses (like salaries and rent), it may be more challenging to measure this metric over short periods. In other words, whilst you could calculate Gross margin per unit over a day or a week, EBITDA per unit is most often calculate over a month, a quarter or a year instead.
EBITDA per unit = EBITDA / # units sold
Using the same example above, assuming you sell 10 barrels for $8,000, and you spent $2,500 in COGS, $3,500 in labor costs and $1,200 in other operating costs (marketing and rent), EBITDA per unit is:
EBITDA per unit = $800 / 10 = $80 per barrel
In other words, whilst you make a 69% gross margin per barrel, EBITDA margin is much lower (10%).
8. Break-even point
When looking at profitability, the last most important KPI your brewery should track is the breakeven point.
This metric represents the minimum number of units (beer cans, barrels, liters, etc.) you need to sell in a period (a month for example) to be profitable. As such, this number is important in projecting how much revenue you must generate to make profits (to “break even”).
To calculate the break-even point:
Break-even point = Fixed costs / Gross profit per product
Gross profit per product = Selling price – COGS per product
For example, assuming:
- Your micro-brewery fixed costs (salaries, rent, etc.) are $18,000 per month
- Each barrel is sold $800
- COGS per barrel is $250
Then break-even point is ~33 barrels per month. In other words, you start making a profit only after selling 33 barrels per month.
Break-even point = $12,000 / $550 = 33 barrels
Gross profit per barrel = $800 – $250 = $550
9. Days Inventory
Days sales inventory is a working capital metric that represents how many days inventory stays still before it’s transformed and sold as a finished product.
In other words, days inventory is the number of days between the date when you purchase stock (for example malt) and the date when it’s sold as a finished product (beer).
Days Sales Inventory (DSI) = Average Inventory / COGS x 365
For example, let’s assume you started the quarter with $5,000 worth of inventory (malt, packaging, etc.) and finished at $8,000. If you have sold $60,000 worth of beer in the meantime that costs you $15,000 in COGS, then DSI is:
DSI = $6,500 / $60,000 x 365 = 40 days
So in this example, it takes on average 40 days for your stock to be sourced, transformed and sold as a final product.
It’s important to track this metric as any significant increase in DSI may result in cash flow issues down the line. For example, if DSI goes from 40 to 60 days, it takes you 20 more days to earn income from your original inventory purchase (so you’re “blocking” this amount of working capital for longer whilst you could invest it in something else).
10. Cash Flow
Cash flow is arguably one of the most important KPI brewery owners should track because it reflects the amount of money flowing through your business. More importantly, it tells us how much cash (positive or negative) your business generates.
Cash flow simply is the difference between positive and negative cash movements in your brewery. For example:
- Cash inflow (positive cash flows): customer payments
- Cash outflow (negative cash flows): payment to suppliers, rent to landlord, corporate taxes, etc.
To calculate cash flow, you subtract the cash you had at the beginning of a specific time from the cash at hand at the end.
Cash flow = cash inflow – cash outflow
For instance, if in a month your brewery earns $40,000 cash inflows from your customers, and spends $10,000 on malt, hops and packaging to suppliers, another $4,000 in rent and $20,000 on wages, cash flow is:
Cash flow = $40,000 – $10,000 – $4,000 – $20,000 = $6,000
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