Margin Train

Cheers to 11 years!

Last Friday SBS turned 11. 

birthday cake picture

Wow, it’s been 11 years of helping breweries and distilleries.

Another cool thing happened last week, I got to talk about margin versus markup. 

Before I talk about the differences between the two, let’s talk about YOUR gross margin in wholesale. 

Do you know what your margins are when you sell a product through the wholesale channel? “Shitty” is not the correct answer here.

All I am asking about here is gross margin… revenue less COGS divided by revenue.

It’s worth repeating again, costs are rising fast and pricing can’t keep up. This is a recipe for disaster. 

To walk you through this area of uncertainty, I have created a chart for your review.

You might be saying:

“Chris, how do you get there?”

Here is the math on 12oz cases while using a distributor:

  • Cost = $14 (includes raw materials, packaging, labor, overhead)
  • Price = $22
  • Profit = $8 per case
  • Margin = 36.6% 
    • ($22-$14)/$22

See what I did there? 

Ok, not sure I can say more on this topic other than the margins on sixtel and 16oz are “awesome” and the margins on half bbl and 12oz cases are “average.” 

Piggybacking on this topic, I want to explain the differences between markup and margin at different points in the supply chain.  

train in trees

In the margin vs markup game, margin wins… always.  

Distributors and retailers work off margin. Margin is the amount you have leftover to pay your bills after the product is sold. 

Businesses try to hold on to as much margin as possible for as long as they can. 

Here’s a breakdown:

  • Beer: 1/6 BBL of Pale Ale
  • Cost: $30
  • Price to distributor: $57
  • Price to retail: depends on distributor margin

Brewery → Distribution

  • $30 x 1.9 (a 190% markup) = $57 or a 47% margin

Distribution → Retail

  • Typical distributor deals start at a 30% margin with most now creeping up to a 35% margin    
  • $57 x 1.44 (a 144% markup) = $82.08 or a 30.56% margin

That’s it for this post.

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