If you are planning to start a brewery, you may want to know how much profits you can make with this business. In other words, you must know how much revenue you must generate to reach break-even and make profits.
Breweries have become very popular: after a decline during the pandemic, the number of breweries have bounced by 8% to reach an all-time high at 9,247 in 2021.
Despite the hype, there is also a lot of competition. So if you’re wondering how much profits you can make with a brewery, you’d have to consider how much turnover you can generate and the costs you’ll have to pay to run this business. Let’s dive in!
What is the average turnover for a brewery?
Considering that there are 9,247 craft breweries in the US with a total turnover of $26.8 billion, the average annual turnover for a brewery is approximately $3,000,000. This, of course, includes any type of breweries: micro to regional large-scale breweries.
When it comes to brewery owners’ earnings, Craft Brewery Equipment reports that the average annual salary ranges between $46,000 and $75,000 depending on the brewery’s size.
What is the average profit margin for a brewery?
For a brewery, there are 3 different profits margins:
- Gross margin: revenues minus all Cost of Goods Sold (COGS) expenses (malt, hops, etc.)
- EBITDA margin: revenues minus all operating expenses (COGS, salaries, rent, etc.)
- Net profit margin: revenues minus all expenses (COGS, salaries, rent, corporate taxes, etc.)
Whilst there is no publicly-disclosed data for EBITDA nor net profit margins, breweries have on average gross profit margin of between 74% to 92%.
EBITDA and net profits depends on the scale of your business (revenues) and your cost structure. Let’s now have a look at how to estimate your brewery’s net profit margin.
How much does it cost to run a brewery?
Running a brewery involves certain recurring expenses and they include:
- Raw Materials: You must purchase raw materials for your brewery, and they make up the biggest cost
- Packaging: Packaging is the next biggest expense and often accounts for 10% of the sales
- Rent: You must pay rent for the commercial space you will use for brewing
- Staff Salaries: You must pay salaries to your employees
- Insurance: You will require mandatory general liability insurance and other types of policies
- Marketing: You need to spend on marketing and ads to gain visibility and build trust
On average, it costs between $93,500 and $118,500 a month to run a 2,000 barrels p.a. craft brewery. For more information on how much it costs to run a brewery, read our article here.
We are including below the example of a brewery generating $1.5 million in sales per year (~13% net profit margin).
How to forecast profits for a brewery?
In order to calculate profits for a brewery, you must first forecast revenues and expenses.
Profits = Revenue – Expenses
Forecasting revenue for a brewery
Revenue can easily be obtained by multiplying the number of covers by the average order value:
Revenue = Barrels sold x Price per barrel
For example, if you sell 150 barrels in a month orders in a day with an average price per barrel of $800, monthly revenue is about $120,000.
Forecasting expenses for a brewery
There are 2 types of expenses for a brewery:
- Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
- Fixed expenses: salaries, debt interest (or leasing) costs to acquire the truck, marketing and all the other operating costs listed above
Calculating profits for a brewery
When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.
In order to get to EBITDA, we use the following formula:
EBITDA = Revenue – COGS – Operating Expenses
We’ve included below the illustrative profit-and-loss of a brewery (from our financial model template for breweries).
Whilst gross margin (including packaging & bottling) is rather high (~70%), EBITDA margin can go up to 20-30% depending on the brewery, and net profit margin up to 10-20% for the most profitable breweries.
What is the break-even point for a brewery?
Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.
Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.
Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs. As we just saw, breweries typically have rather high gross margins (~70%). Indeed, a big part of expenses are actually fixed costs (salaries, marketing, etc.).
The break-even point can easily be obtained by using the following formula:
Break-even point = Fixed costs / Gross margin
Using the same example earlier, let’s assume your brewery makes $120,000 in turnover per month and has the following cost structure:
|Operating cost||Fixed vs. variable||Amount|
|Raw materials||Variable cost||$20,000|
|Staff costs||Fixed cost||$30,000|
|Rent, bills||Fixed cost||$5,000|
|Other (legal, bookkeeping, etc.)||Fixed cost||$6,000|
The break-even point would then be:
Break-even point = Fixed costs / Gross margin %
= $51,000 / 70% = $73,000
In other words, you need to make at least $73,000 in sales per month to turn a profit.
Assuming the average order value (per barrel) is $800, your break-even is 91 barrels per month. In other words, you make profits once your brewery sells 3 barrels a day.
How to increase profits for a brewery?
There are various strategies that you can use to increase profits for your brewery, and they include:
- Build brand awareness: Increased brand awareness increases sales and organizational success, thereby leading to increased market share
- Strong value proposition: Offer superior value to your customers to increase sales and brand loyalty
- Increase reach: Consider listing at liquor stores, use online delivery and e-commerce to maximize reach
- Train distributors: Provide branding materials to distributors and provide product knowledge to the distributor staff so that they can explain how your product delivers more value
- Product pricing: Select a value-based pricing policy to ensure that the price aligns with customer sentiment and loyalty
- Increase product range: This will help to increase sales and boost market share
- Maintain consistent overhead costs: Keep brewery expenses under control by introducing accounting software, offering incentives to employees to encourage them to use cost-cutting measures, etc.
- Limit waste: Reuse and upcycle things like a beer can ring to reduce waste and cut costs
- Purchase in bulk: Purchase raw materials in bulk to reduce costs
- Bookkeeping: Use bookkeeping software to keep a tab on cashflow and expenses
To learn more about these strategies, read our post here.