But does it consider fluctuating ingredient prices, production yields, production variances and overhead costs? If yes, then you probably understand the amount of effort that goes into manually calculating those costs as well as keeping your component costs up-to-date while reconciling them against actual practical costs of goods sold in your bookkeeping software.
The challenges of calculating beer costs
Bookkeeping software and other “brewery software tools” lack the ability to account for beer production, which goes through multiple processes, often with varying results in production due to recipe adjustments, production yields and overhead allocation.
To make matters even more complicated, every batch of beer ends up using a different amount of ingredients and components with varying production yields. Most breweries simply “expense” purchases of raw materials, labor and other production components immediately as a cost of goods sold because it’s simply more convenient or the only way that you are able to cost your beer.
Bill of Materials: The recipe for profitability
OrchestratedBEER uses what’s called a Bill of Materials (BOM) and relationships between the BOMs to help determine the total costs of your finished beer. The initial BOM for wort is your recipe and drives the cost of that brand of beer through the rest of the BOM relationship. Expected yields and additional ingredients or components get added on to latter BOM’s in the relationship to direct an accurate cost of what it takes to produce your finished beer.
The BOM can be displayed in an interactive “relationship map” view to graphically illustrate tall components required to produce a finished beer. The relationship map is a hierarchy of ingredients, liquid components (considering expected yields), labels, bottles and crowns – each assigned with its own value related to purchase price of those ingredients and components.
Tracking fluctuating component costs
What happens when hop, grain or other component costs fluctuate? Instead of manually changing costs of an ingredient across a fleet of spreadsheets or databases; OBeer automatically updates the value of the ingredients and components in real time, dynamically updating all your recipes to reflect the new cost of your finished beer.
Accounting for production variances
The most challenging aspect of beer production cost accounting is that what actually happens in production always differs from expectations. Varying alpha acids, yeast generations, temperature fluctuations in the cellar, spillage or bottle breakage in packaging are all variable factors in your bottom line that can drastically alter your expected yield.
For this reason, you can’t just simply assume that your spreadsheets, bookkeeping assembly limitations or a “brewery software tool” can accurately account for the true cost of your beer. None of those tools are designed to accurately cost the production of beer. You’ll find yourself hiring a full-time employee or a staff of accountants just trying to “adjust” financials on a regular basis to get you an accurate perspective of your financials. Here’s an example.
Beware of leaking profits
A vast majority of the breweries we transition onto OBeer from spreadsheets and other “brewery software tools” had no prior way to calculate what their beer was actually costing them. Once up and running on OrchestratedBEER, some of the breweries who had previously relied on the accuracy of bookkeeping software and other tools to track inventory and costs suddenly made the alarming discovery that for the longest time they were actually not making as much money on that one brand or SKU of beer… In fact, some discovered that they were actually losing money on that one particular beer! Wouldn’t it be nice to at least know if a brand was leaking profits?
Building a new foundation on OBeer
You can ditch the spreadsheets or other “brewery software tools” to build a new foundation on OrchestratedBEER. With OBeer everything is kept in a centralized place and accounting is automated behind the scenes. Related: The Problem With Multiple Systems
Extra Credit: Calculating Gross Profit
Armed with the confidence provided by an accurate, real-time beer costs, you can take things to the next level and even calculate what your gross profits are going to be for a particular order.
OBeer provides a handy “gross profit” icon on sales orders to instantly see the margins of that pallet of Pale Ale you’re about to promise a distributor. You can even set up alerts to warn when a SKU dips below a certain margin.
Check out the 3-minute video below to see how easy it is to calculate gross profits of your beer.