Pricing Beer - a Toy Model
Welcome back, to both of us! I’ve been reading up on small brewery finance, and one of the big topics, beyond accounting, is pricing beer, and the exactly what goes into COGS, aka beer production costs (basically). In the brewery setting, this is a two-parter, namely correctly attributing each cost into the correct category so that, for example, brewery labor is in the COGS category, and so that glassware is in the Selling Cost category, and then collecting this data and, using some shoehorning, producing a cost-per-BBL figure which you can then use to price out your distro offerings, determine how much you should charge for that new Hazy, etc.
But that first thing is about the most boring thing in the world, and is covered in grueling detail in both Small Brewery Finance and the Brewers’ Association’s COGS manual. Plus, as a homebrewer, I’ve always wondered what my beer actually cost, since it feels a hell of a lot more emotionally expensive than the ~$20 in grain, hops, and yeast per batch
So, today we’re going to use my homebrewing setup as a mock brewery, and price out my beer! Spoiler alert: there’s probably no way to make money with a one-gallon brewery
What’s a cost? Better yet, what isn’t?
So obviously, as mentioned, grain, hops, and yeast are the most “visible” costs, followed closely by labor (which is just harder to divide up). But in the glorious world of accounting, all kinds of whacky things count as costs, and that’s not even touching economic concepts. Here are the costs we’ll be considering today
Ingredients - malt, hops, yeast, other. Duh.
But also chemicals, like StarSan, PBW, and Phosphoric Acid (mash pH adjustment)
Utilities - water, electricity (I’m all-electric baby!!1!), and CO2
Labor - I’ll use minimum wage ($14.25/hr) as a placeholder - the real answer is $0 since I’m not an hourly employee (opportunity cost is an economic, not accounting, concept anyway)
Rent - I’ll use a quarter of my apartment at an hourly rate
Fun fact: dividing rent by square-foot-usage is actually the completely legit way to divide up costs like rent and to a lesser extent utilities
Depreciation! Surprise, motherfucker! - that’s right, my gear has value, and we’ll be using the good old 7-year depreciation system to price out the implicit cost of just using my gear - we’ll talk below
By the numbers
Ingredients
We’ll use as an example an Altbier I brewed, with a dead-simple recipe: 2.66 lb Munich Malt, 1.04 oz Hallertau Mittelfrüh hops, and half a packet of Lallemand Kölsch yeast
We’ll discuss this below, but reusing or splitting a package of yeast is an important method the “big boys and gals” use to save money
Another fun fact: it’s not just the ingredients themselves, but also freight and tax that you’re supposed to account for
Thus, using a recent order as an example, we’ll call this $5.03 + $1.53 + $4.99/2 + $2.06 + $19.38/6 = $14.35
(malt, hops, yeast/2, tax, freight/5 since I get about five batches from that much grain, in that order)
But there’s also the chems
Star san - I use .25 oz, ~$12 for 8 oz, so $0.38
Phosphoric Acid - at, let's say, 3 mL, that's ~$3.49*.1/4 for a portion of a four oz container, or $0.09
While we're at it, a fl oz = 30 mL or so, and that's super useful in life. Also tight: a gram of water is a mL, and a cubic centimeter is also a mL. 3.79L/gal. You're set for life now
Brew salts are stolen, so $0 (they’re a few cents if you add them, and of course you can use tap water if you hate yourself or brew malty beers and live in NYC/Prague)
Finally we have PBW, which I use 1 oz of - at $8.99/16 oz, that’s $0.56
What, no shipping cost or tax?? Good call - I accounted for it in the malt/hops/yeast shipment, and the tax in that figure was for a whole order - again, even at this level of detail, I ignore some small details and corrections
So that’s $1.03 - small, but nonzero
Grand Total: $14.35 + $1.03 = $15.38
Utilities
Labor
Again, we’re using my labor at minimum wage, so for a five hour brew day plus another five hours spent in recipe design, prep, packaging, and bottler/keg cleaning, that’s 10 hours
$14.25*10 = $142.50, no tax
This is the biggest number here, and indeed can be a massive percentage of beer costs for certainly small breweries, and probably breweries of all sizes
This is perhaps, then, an endorsement of heavily automated systems - higher up-front costs, permanent savings in labor. In a place like LA with absolutely massive minimum wage, that’s a night-and-day difference, along the lines of $50k/year, say, per person
Rent
I’ll leave you to reverse-engineer my rent, but for five hours and a quarter of my space, that’s $5.68 if I were to brew at my place
Again, I steal electricity, water, space, brewing salts, etc. from the brewery, so much of this is hypothetical, but certainly true were I to have to brew in an apartment
Depreciation
My gear was embarrassingly expensive to build, for two reasons: I built everything from scratch, meaning both no savings on bundling as well as having to purchase from multiple sources for most things, meaning tons of shipping and time, but also because I have what amounts to two or three brewing setups - two chilling setups, two kettles (electric and non-), HERMS and RIMS setups, multiple temp-controlled fridges, thermowells, and kegs…you get the picture. So let’s just lowball and call it $2,000
Using the depreciation model, which “assumes” the gear lasts 7 years, that’s $285.71/year (this is a huge deal for tax purposes, by the way - losses are deductible)
So, if I brew an aggressive 26 times per year (which is a realistic COVID rate but not at all true otherwise), that’s $10.99 per brew which is pretty freaking massive. That’s on par with ingredients and well above utilities. Imagine if my brewing equipment were worth six figures!
Drumroll, please
The total per brew, then, is $15.38 + $3 + $142.50 + $5.68 + $10.99 = $177.55
Without labor, it’d be a way lower $35.05 - this is far “truer”
So what does a beer cost?
That answers a question I haven’t even posed yet: how much does it cost to manufacture 1.25 gallons of beer? Because crucial in this is the per-oz or per-12 oz cost for me, and the per-BBL or per-CE cost for a brewery. To compare apples to apples, that’s the important figure, and for pricing kegs and pints, I don’t care what it cost to make 7 or 15 or 30 BBL, but one BBL or one oz.
So, there are 160 oz in 1.25 gallons, so including labor I pay $1.11 per oz, and without, $0.22 per oz. For reference, a craft beer might cost $0.50, and a Corona might be less than $0.08
Which I find hilarious - many home brewers aren’t accountants, and I’d advise you to completely ignore the “homebrew is cheaper” argument unless you’re brewing 5-10 gallons of weird beer (sour, very hoppy, hazy, hard to find), with gear that costs relatively little (like this beautiful beast)
But I digress - the answer to the question, then, is that a 12 oz bottle costs me either ~$13.32 or a more realistic $2.64
Conclusion
I hope this has shed some light on beer costing, and more generally what the invisible costs are when producing really any product, since this applies to food trucks as much as to Budweiser, and I hope it was at least a little fun to read!
I intend to turn next to a much more math-y, but decidedly more fun (to me, maybe to you) topic - predicting beer competition winners, so stay tuned
Cheers,
Adrian