Breweries have incredible profit potential – the gross profit margin on brews ranges between 74% and 92%. While breweries and taprooms do have other expenses such as food costs and additional labor, these expenses only expand your access to the thriving retail market that makes breweries so successful.
Now, let’s get down to it - how much do restaurants make?
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Costs to Start a Brewery
A brewpub or taphouse is a combination of two business models – a restaurant and a brewery. These two models complement each other well. The restaurant provides steady exposure for your most creative brews and your brewery increases the venture’s overall profitability.
It also means, however, that the starting costs can be very high – between $500,000 and $2,000,000 on average. This guide can help you budget for all the essentials of starting a restaurant and a brewery, including labor, goods, marketing, and brew equipment.
Planning for Your First Year
The first year of business will be expensive, but very critical in your brewery’s success. Startup costs for your brewery will mainly include top-of-the-line equipment, space to brew, and licenses.
In addition to these initial costs, it’s important to account for the monthly expenses of your first year of operation. Consider the financing requirements for your first year of business carefully.
Contingency funds help your brewery run smoothly until it becomes profitable. Liquid assets in the form of a personal loan, savings, or investments will be required to pay staff or any unforeseen expenses. Even the best businesses aren’t immune to Murphy’s law!
- Startup - $500,000- $1,500,000
- Equipment - $500,000-$1,000,000
- Permits/licenses - $500-$3,000
- Contingency Funds - $20,000 - $500,000
Average Brewery Costs
For your first few years, the monthly expenses of operating a brewery will total 80 to 90% of your monthly sales. You might have to invest in the brewery to make up for losses in labor, food costs, or marketing. While you can deliver great brews and eats, proper financial plans are what will solidify your brewery’s long-term success.
- Operating Costs $13,000 - $65,000
- Parking - $500-$1,000/month
- Insurance - $500-$8,000/month
- Utilities - $1,000-$1,200/month
- Marketing - $500- $5,000 (3-6% of sales)
- Food Costs $5,000-$25,000 (30-35% of sales)
- Labor $2,500-$25,000 (24-40% of sales)
Forecasting your Brewery’s Sales
Typically, restaurants use sales data, labor costs, food costs, and production capacity to forecasts their sales. Without sales history, it is difficult to make calculations about how your restaurant will grow each month in your brewery’s first year. Consider factors like seasonal peaks in your area, your marketing strategy, and other Key Performance Indicators (KPIs) when forecasting sales.
To start on the right foot, begin calculating your daily capacity. Conduct this process separately for your brewing operations and brewpub or taproom. Then, based on the food costs and profits of your menu, you can calculate how much you have the potential to make during a shift.
Of course, you won’t be working at capacity every shift – perhaps not even most of them in your first year. If you have sales data from a month (or even a week,) you can view the average sales from each of those days and calculate the average for each shift. A proper Point of Sale (POS) technology will streamline this process by providing you with an organized dashboard of the daily capacity data you need.
Average Brewery Revenue
The average revenue of restaurants, nationally, is between $250,000 and $500,000. However, the revenue potential of breweries is much higher. The profit margin on beers and ales is typically around 45%, while the profit margins for restaurants range from 3% to 15%. Luckily, with both a restaurant and brewery, you can strike a lucrative balance between the profits of your taproom and brews.
Brewery Profit Margin per Month
A restaurant’s profit margin is typically between 3% and 5%, but some make as little as 0% while others as much as 15%. To calculate your breweries’ profit margin, use the following equation:
monthly sales x profit margin = profit
If your brewery averages $40,000/month in sales, and the profit margin is 4%, the profit is $1,600.
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Brewery Owner's Salary
Once your brewery and/or taproom becomes profitable, then you as the owner can think about taking a salary! In a small operation, your salary might be a high percentage of the business's profits relative to how much labor you expend. If you are the brewmaster, bottler, and distributor, you can afford to pay yourself more.
Usually, a business owner’s salary is less than 50% of the profits. As the owner, you’ll have to make tough decisions about how much to pay yourself while also investing profits into the growth of the business. The first year can be especially daunting, but improving your sales with marketing and technology will put your brewery on the road to success.
Timeline to Breaking Even
Most breweries can become profitable within their first 3 years of operation, but restaurants can expect to become profitable within the first 18 months to three years, depending on food and production costs along with your business’s KPIs.
You’ll have to work to ensure that your brewery becomes profitable before you spend through your contingency funds and financing. Now that you have a full picture of how to forecast your brewery’s revenue, you can estimate how long it will take for your business to break even and see its first profitable month against startup and operating costs.
Here’s a detailed example of a brewery’s timeline for breaking even:
Drew’s Brews in Northern Virginia starts with a savings of $700,000 and takes out a loan for an additional $500,000, with a repayment period of 7 years:
Permits & Licences
The summer in Northern Virginia is the busy season and the locals in the area love to support craft breweries. While Drew is getting started, he works as both brewmaster and accountant to keep his labor costs manageable.
The annual cost to operate Drew’s Brews is $621,600.
Drew’s best sour beer sells well in his restaurant and he is able to keep it brewed year-round. His Drew’s Brewpub seats 115 and the average ticket per guest is $24.50 if they have a brew, and $13.75 if they don’t. His servers can turn each table over around three times per shift – serving 345 a guests a night a full capacity. About 50% of Drew’s guests visit for the brews. If he operates 6 days a week at capacity, he can make $30,955 a week, $120,405/month, & $361,215/quarter.
Profit Margin at 100% capacity:
Drew can’t expect to operate at 100% capacity. During the busy season, he might operate at an average of 41% capacity and at an average of 20% to 40% during the late fall and winter. Drew’s Brewpub opens in the Spring and projects the following average quarterly sales.
By the end of Q4, his Drew’s Brews are in most local grocery stores. His marketing strategy continues to bring locals into his brewery, until his average capacity levels off around 40% (except during the busy summer months.) The restaurant is profitable at an average of 40% capacity, which it achieves in year 3.
Revenue (120,405 x 3 x performance)
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The Right Tech
Technology can empower your brewery with all the tools it needs to maximize efficiency and profitability. Set your business up for success by utilizing inventory, time-tracking, and financial software from the start. When you’re ready to scale up, the right technology keeps the business organized and your growth on track.
One pro-tip is to invest in a POS system that brings everything to one place. A reliable POS will streamline activity between your front of house, back of house, and brewery!
Brew your way to Success
Running a brewery is both exciting and daunting. By understanding the profit potential of your business, you can set yourself up for long term success. Don’t slack on doing the numbers - this work can make all the difference.
If you’re still dreaming about starting a brewery and taproom, it isn’t too late to get started. On the Line’s latest article on how to start a brewery can provide you with the tips you need to brew your dreams into reality.
Related Brewery Resources
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