How to Reduce Your Brewery Operating Expenses

Bringing down costs is always a concern for business owners. But managing costs is even more imperative in an inflation economy. Brewers can be hit particularly hard by inflation as the costs of necessary products like malted barley and other grains can rise exponentially.

One thing you don’t want to have to do as a brewery owner is raise prices astronomically on the loyal customers you have worked so hard to win.

So you find yourself between a rock and a hard place, trying to figure out how to cover the costs of rising goods without passing those costs on to your customers.

What to do?

The first step you can take is to look at your fixed costs versus your variable costs.

Fixed Costs of a Brewery

The fixed costs on your brewery are the costs that will stay the same every month. In order to balance your books and ensure you have a viable business, keeping you in the black, so to speak, you need to know first what expenses you will incur every month no matter what.

Lease and Maintenance

Your easiest fixed cost to remember is your lease and maintenance. Your lease of course could be rent or even a mortgage if you own the building.

(Note: if you can afford to buy the building you’re in, this is much more cost effective in the long run as it is likely a better tax write-off as well as a real estate investment.)

You want to choose a space that will grow with you but is not too big to manage. You also need to account for where to put your equipment as well as a kitchen (if you plan to produce and sell food) and a bar top, if you decide to take the bar route as well.

The cost of your space will vary based on the size and location of your building, and you must balance the benefit of being in a prime location and therefore getting more, and perhaps better, business, with the higher prices of being located in a more appealing area.

Utilities

Your utilities are another cost that should remain relatively fixed each month. Your gas and electric, water, garbage, recycling, as well as janitorial services and any regular maintenance on your equipment all count as fixed monthly expenses.

You’ll also need to factor in expenses like internet, phone, and insurance.

Payroll Expenses

Another area where you will need to balance the cost and the benefit is in payroll.

You should be aiming for a specific level of full time staff each month, and you want high quality employees with low turnover. These people will drive your business, bring in repeat customers, and can make or break your brewery.

Remember, people will not always necessarily rave about great customer service, but they will absolutely complain about bad customer service, and they will likely never return.

Depreciation

In bookkeeping 101, you must track the loss of value of all of your owned equipment. To do this, you calculate each month how much the item depreciated based on how much you originally paid. This is a fixed cost.

Variable Costs for a Brewery

Variable costs, in contrast, are those costs that change every month. It can be difficult to account for these costs, which is why it is so important to keep your costs low where you can, particularly in your fixed costs.

Most of your variable costs in a brewery will be food products.

Grain

You’ll calculate how much grain costs per barrel.

Yeast

Likewise with yeast, you’ll calculate how much yeast costs per barrel.

Hops

And again with hops, you’ll calculate how much you spend on hops per barrel of beer.

Kegging

These next two costs often get left out of the equation. You must calculate how much it costs to keg your beer per barrel.

Bottling

And you must also factor in how much extra it costs to bottle your beer barrel. These two costs can rise and drop as the costs of kegs and bottles rise and drop.

Other

Then of course you need to account for “other” expenses, which could be anything from additional equipment and services you need to a specialist you hire to help out in one area or another.

Where to Reduce Costs in a Brewery?

The tricks to reducing costs in a brewery are the same as in any business, really.

You want to make sure you are saving in as many ways up front as possible. So choose your space wisely. You may do well to pick an up and coming neighborhood and lock in a purchase price on your building or a long lease at a great rate, taking a calculated risk that your business will thrive as more people become aware of the area.

You can negotiate on your utilities as well.

Payroll is an area where you will save not on wages but on employee retention. Few business owners realize just how much money high turnover costs.

When it comes to your variable costs, do as much in house as you can, and cut out as many middle men as you can, and you will save a ton of money.

For example, if you’re using dry yeast, you’re probably paying around 0.15$ / gram. At a dosage of 5-80g / hL, you’ll end up spending up to 12$ per hL. However, you can save a lot by simply propagating your own yeast. It’s ridiculously simple and you’ll get even more benefits than just cost savings, such as high quality yeast and consistent products.

Think of everything you do as an investment, spending potentially more on high value equipment up front but saving thousands of dollars, if not hundreds of thousands, in the long run.

For instance, invest in an affordable yeast cell counter that can help you monitor your yeast at all times, which allows you to harvest, propagate and repitch your yeast effortlessly, but which will also help you prevent costly issues such as stuck or sluggish fermentation. It’s a minor investment that you’ll cover in no time.

And don’t be afraid to charge a slightly higher price for your products to your customers up front. After all, people expect to pay for quality, and it is rarely the cheapest beer on the block that gets the attention.

The trick is to find that sweet spot where you are not clearly overcharging.

You can charge money if you also deliver on value.

Cheers!

If you’re interested in finding out how you can use our technology to control fermentation and monitor your yeast, save work hours and improve the cost-efficiency of your business, drop us a line at info@oculyze.net or check out the product page: Oculyze BB 2.0 (Better Brewing) Yeast Cell Counter App + Hardware

Also, you can now get access to a fully functional demo account to test our Web App. Completely free of charge and with no commitment to purchase.

Sources:

  1. https://bizfluent.com/info-8484354-fixed-costs-brewery.html
  2. https://blog.projectionhub.com/startup-brewery-break-even-analysis-template/
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