Beer Pricing and Sizing: Visualization and a Qualitative Discussion
Hello again, dearest reader!
Last time, we worked up a formula for the “negative boost” required for breakeven if you decide to change your prices. Here’s what that actually looks like with a range of base prices and price changes:
So hopefully not much explanation is needed, but:
margin is obviously the taproom margin - the fact that this changes is actually incorporated into the model! Which is cool
base price: your original prices
the percentages: mathematically, -L, or the drop you can weather (or boost you need) in order to break even after changing your price
qualitatively, a bigger base price leads to smaller relative Ls, since the change itself is smaller
also, obviously, you have to sell more pints if you lower your prices and vice versa
and yeah, discounts! If you lower your pint price by $2, especially if it’s already “low” by LA standards (see, oh, I think two posts ago), you’re gonna have to absolutely crush it to break even
So, what should I actually do? A qualitative discussion
Fair question! And I think if you accept the premise that you should change your prices (and that’s for you to say, unless you want to be an absolute gangster and change them for like 3 months in order to gather data - in doing so, you may actually come up with ideal pricing for all beers, but I have no interest in writing up even pseudocode to describe that process), the question is, how do you mitigate volume loss if raising the price, or ensure volume increase if decreasing the price?
Here are my thoughts:
If you’re under or over the market prices for a certain style, maybe try more closely matching those prices, and after a few months see if you broke even by running, say, a simple t-test (though do it in Python or some other language (R, say) if you can, so you only have to “build the machinery” once
Generally, high ABV, barrel aged, and sour beers are served in small glasses for high prices - take advantage of this, and do the same. If you’re charging your base price +$1 for these, or serving them in larger glasses, reconsider your approach
I forget exactly where, but I’ve made the point that the big game is volume - if you sell a tough-to-drink beer in a Big Gulp, good luck selling another!
Quite simply, I’d rather sell two 10 oz $8 beers than one $12 10 oz or 16 oz pour. Which is to say, I suspect you’re better off shrinking the glass than changing the price too much
As our previous Hazy IPA example showed, even if a beer is kind of pricey, don’t go too crazy on price, and definitely offer 12 oz to 16 oz pours of anything that doesn’t fit the set of beers in the last bullet. Volume is king. BUT, IPAs are generally, I dunno, about $1-$2 more than other beers, so consider bumping your IPA prices if they’re the same as everything else. Going from $7 to $8, you can weather a 19% drop - what are the odds of that steep a drop for a popular beer? Slim
As another interesting example, as your base price increases, single-dollar changes up and down require smaller and smaller volume changes - if you’re charging $21 for something, it’s quite likely that $19.99 will make you a good deal more money. Same for anything that’s like $24/$26, $29/$31 etc - move it up or down a dollar, slap a 99¢ at the end, and let me know if that doesn’t make you more money
Finally, we have a beer that’s $7, vs $8 for virtually everything else, and without running the numbers (I can, but I mean…) I’m fairly confident that the fact that it’s our standout “cheap” beer bumps its sales the requisite ~26% (though that’s actually a good question… again, a simple T-Test, though I’d probably want to normalize Van Ice sales to taproom revenue to remove seasonality… if I do that, I’ll say so)
And that’s about it! If you have questions, feel free to email me at numbers@macleodale.com (I should probably fork over for an @adrianfebre.com address…some day)
And feel free to fill out this poll if you’d like to see something specific as I pivot back into general, loose posts for a while
Cheers,
Adrian