Challenge: Unknown Profit Margins
A rapidly growing brewery had limited to no internal accounting function. The financial information they did have was not reliable, profit margins were unknown, and there was no inventory system in place. A custom margin analysis was necessary for the brewery to grow and scale their business.
Calculated COGS for each product line. We started by determining the true cost of goods sold (COGS) for every product, calculating the total cost to brew and package each type of brew (Amber, Blonde, Hefeweizen, etc.) and size (case of 12 oz. bottles, 15.5 gallon kegs, etc.) sold. The COGS incorporated all the raw material costs (grains, hops, yeast, etc.), as well as personnel and packaging costs.
Compared COGS with sales price to analyze profit margins. This provided insight as to which product lines were the most profitable, (e.g., a case of Hefeweizen 12 oz. bottles had a 52% margin), and which had smaller margins (such as their cases of Amber 12 oz. bottles which only had a 38% margin).
ROI: Increased Profits by 15%
Based on the product margin analysis we provided, the brewery decided to adjust their pricing and distribution strategies. This included increasing some prices, eliminating one product line, and modifying their marketing to focus on more profitable product lines. These decisions collectively led to the brewery increasing overall margins and profits by 15%.
Best Practices for Profit Margin Analysis
- Know your profit margins by individual product line–not just overall company revenues–in order to:
- Adjust pricing and distribution strategies based on product margins
- Focus your marketing and promotional efforts on more profitable products
- Calculate the appropriate cost of acquiring a customer (CAC)
Want to learn more?
If you want to increase profits and grow your business through a custom margin analysis, or want to learn more about Signature Analytics’ outsourced accounting services, contact us today to schedule a free consultation with one of our CFOs.