April 4, 2022
Agata Kaczmarek
The microbrewery industry holds a large space in the overall market. According to IBIS World, in 2022, breweries are a $30 billion industry with over 8,500 companies in business. Though 2020 was the toughest year for the industry with a decline of 5.5%, it is starting to make a bounce back. As of 2021, the industry began to grow at a steady pace of 3.9% per year.
The pandemic hit the industry hard, much as it had many others, but there is light at the end of the tunnel. For those wanting to get into the microbrewery business, now would be a good start as the industry continues to expand in the high-demand market.
Common Steps to Starting a Microbrewery Business
Microbreweries, like many other businesses, have to get their feet under them to get off the ground and running. Before you’re able to see some of that profit you’re hoping to make from your business, you’ll need to follow most – if not all – of these steps below.
- Plan the microbrewery
- Form the microbrewery into a legal entity
- Register the microbrewery business for tax purposes
- Open bank and credit card accounts
- Set up an accounting process
- Obtain permits and licenses
- Purchase insurance
- Define brand and website
- Advertising and marketing campaigns
How Much Does It Cost to Start a Microbrewery?
Future business owners will ask themselves this question first – how much does it really cost to start the business? Depending on the business, those costs will vary from a few hundreds to thousands of dollars.
These three sources (Untappd, On The Line, Truic) estimate that individuals opening a microbrewery will incur the following startup costs.
Minimum startup cost for a microbrewery = $250,000
Maximum startup cost for a microbrewery = $1,500,000
Average startup costs for a microbrewery = $500,000
Costs associated with starting a microbrewery will fall into the following categories:
- Utilities
- Location
- Interior design
- Equipment
- Marketing and advertising
- Staff
- Operating costs such as permits and licenses
How Much Can a Microbrewery Make in Sales?
The sales of any business are based on many factors. The size of the facility, the amount and price of product, and the number of customers. Before calculating the potential sales those are some of the factors you’ll need to determine.
- How to set prices?
Setting prices at a microbrewery will require a little math and strategizing. Namely, there are two strategies businesses could use to determine the prices they want to set, even if it is completely up to the business owner.
Market-Based Pricing
For a microbrewery, this might be a little trickier to determine especially if you make your own specialty beer. However, the idea is to mimic the prices on the market for a comparable product. A simple internet search is a good way to start to find out what the prices are at microbreweries within the area – if there are any. If not, look toward the nearest match.
Remember, the price is ultimately what you’d be comfortable with. However, unless you have a product that is not easily replicated and has a niche market willing to pay a higher price, it’s best to stick to market prices.
Target-Based Pricing
A little more math will be involved with this particular method. For a microbrewery, you can either aim for a specific profit margin or the percentage of beer cost. According to LiveOakBank, it’s entirely possible to reach a profit margin as high as 70%. Though this type of profit margin won’t happen overnight, with an average of 3 years, the prices will have that goal in mind.
Prices can also be set by keeping in mind the cost of the beer and whether you are selling by pint or keg. First, determine the cost associated with making the beer, such as the production and cost of product. Second, ask yourself what total percentage of price you are willing to spend on the costs.
For example – you’re willing to only go as high as 25% of the total sale price as the cost of the product. If it took you $.50 to make the beer (single serving) and you are willing to only spend 25% to make it, you’ll perform the following equation: x*25%=.50; the answer is $2. Of course, if you want to spend less – such as 15%, you’re looking at a price of a little over $3 per single serving.
- How many customers will you have?
The good thing to know is that microbreweries draw a larger crowd and will continue on that upward trajectory. According to the latest census in 2015, 35% of the 234,380,363 adults aged over 21 years old in the U.S. drank craft beer at some point in their life. Most of these adults continue to do so. This brings the total U.S. market to over 82 million adults in the market.
Of course, the number of clients your business will draw is determined by the location. Unexpectedly, Portland, Maine has the highest concentration of breweries; 18 breweries per 50,000 people with a population of 70,000.
Overall, as you’re deciding where to open a brewery, it’s best to conduct surveys or find out how popular they are with the population in the area. You also want to pick an area that isn’t already saturated where you’d have to compete with established breweries for existing clients.
Microbrewery business revenue potential
The potential revenue for a microbrewery can have a wide range. Predicting the number will require some leg work. First, determine the potential number of clients you’re likely to see in a month or a year. You’ll want to choose a location that caters to the target market of anyone between 21 to 49 years old to maximize the number of potential clients.
As a microbrewery, you’ll likely sell more than one type of beer, which might make predicting revenue a little trickier. You can try to estimate the amount of beer you’ll sell at each price point. Combining this information will provide a rough estimate for microbrewery revenue, however, there are some estimates gathered below. You can use our brewery financial projection template which will help you predict your revenue in just minutes.
Microbrewery Unit Business Annual Revenue
Three sources (LiveOakBank,KissMyBrew, ToastTab) provide us with an estimated potential revenue for a microbrewery.
Minimum revenue for a microbrewery business = $220,000
Maximum revenue for a microbrewery business = $3,000,000
Average revenue for a microbrewery business = $500,000
What Are Common Expenses for A Microbrewery?
Expenses are something a business cannot get out of paying. Of course, these expenses eat into the overall profit but are a necessary evil in order to one day turn a profit.
Expenses fall into two categories: variable and fixed. Variable expenses are likely to change from month to month and are usually impacted by the amount of business completed each month. Fixed expenses won’t change drastically, no matter how the business does.
Variable
- Maintenance
- Repairs
- Cost of Goods
- Utilities
- Supplies
Fixed
- Loan Repayments
- Property Lease
- Legal and Accounting Fees
- Marketing and Advertising
- Interest Expense
- Payroll
- Insurance
How much profit can a microbrewery generate?
The profit generated by a business will be different than the above-mentioned revenue. Once the cost of goods is deducted from the revenue, along with all other expenses, the true profit comes out. The number will range significantly depending on the business and the location.
Brewery Business Profit Margin
Three different sources (ToastTab, TRUic, Unleashed) tell us about the potential profit margin for a microbrewery.
Minimum profit margin for a microbrewery business = 2.7%
Maximum profit margin for a microbrewery business = 15%
Average profit margin for a microbrewery business = 9.1%
If you have any questions about starting a brewery, don’t hesitate to reach out at support@projectionhub.com. And if you’re putting together a business plan, trying to get a loan, or raise investment, check out our financial projection template built specifically for breweries.
