Do you want to know how much money craft distillery make yearly? If YES, here are 7 factors that determine the income & profit margin of craft distillery owners. The major motive behind starting any business is money, hence whenever any entrepreneur wants to start a new business, one of the first questions they usually ask is how profitable the business is.
This narrative also applies to entrepreneurs who are looking towards starting a craft distillery. They would want to know how much they are likely going to make annually from their craft distillery.
The American Craft Spirits Association defines a “craft distillery” as a distillery that produces fewer than 750,000 gallons per year; is independently owned and operated (with a greater than 75 percent equity stake, plus operational control), and is transparent regarding its ingredients, its distilling and bottling location; its distilling and bottling process, and its aging process.
The truth is that there is no one-mould-fits-all when it comes to how much a craft distillery is expected to make. There are some factors that we are going to look into before giving an estimate of how much an average craft distillery makes yearly and these factors are;
7 Factors That Determine How Much Money Craft Distilleries Make
Table of Content
- 1. The Size of the Craft Distillery
- 2. The Location of the Craft Distillery
- 3. The Product Cost
- 4. The Management Style of the Craft Distillery
- 5. The Business Model of the Craft Distillery
- 6. The Advertising and Marketing Strategies Adopted by the Craft Distillery
- 7. The Number of Years the Business is in Existence
- Estimated Profit Margin for a Craft Distillery
1. The Size of the Craft Distillery
One cannot conveniently state the amount a craft distillery is expected to make yearly if you do not know the size of the distillery. The amount a mom and pop craft distillery is expected to make annually will be far different from the amount a standard craft distillery will make annually even if they operate in same location.
Of course, the amount invested in a small craft distillery is different from the amount invested in a large and well – organized distillery hence the amount they will both make will be far different.
The approximate cost of starting a craft distillery could be anywhere between $30,000 and $500,000 and even more depending on what you want to achieve. Please note that this includes spending about $5,000 on the initial lease and relevant licensing and $5,000 on equipment such as stills and fermenters and mash tuns.
2. The Location of the Craft Distillery
When it comes to setting up a new business, location plays a major role which is why feasibility studies and market survey are essential. For example, the amount a craft distillery that is located in a low traffic area will make yearly will be lower when compared to the amount a craft distillery that is located in a high – traffic area will make.
So, if you want to make it big in the business, then you must be ready to rent a facility in a high traffic area, a location with the right demography of people that loves liquor. Please note that you are going to be paying more to rent a store in a high-traffic area.
3. The Product Cost
For a craft distillery, the cost of the beverage sold is a key variable in long-term profitability. This takes into account direct and indirect costs that ultimately affect bottom-line profits. A craft distillery, just like other retail businesses, figures these costs by including the value of inventory at the start of a given period, adding in new purchases made during the period and also calculating costs such as labour and shipping.
Costs to sell goods can be lowered based on factors such as the machines and raw material’s country of origin and automated and online processes the business can use to obtain materials, track shipments and otherwise keep inventory closely matched with demand.
4. The Management Style of the Craft Distillery
Another key factor that will determine the amount a craft distillery is expected to make yearly is the management style of the craft distillery. Trust me, the results you will get when you have a good manager and an average or bad manager managing same type of business will be obvious and different. Even if you give the managers same conditions to work and same recipe and products to retail.
5. The Business Model of the Craft Distillery
There are different business models that a craft distillery can adopt and these business model offers different results. For example, the amount a craft distillery that also runs a craft distillery with deliveries make yearly will be different from the amount a strictly brick and mortar craft distillery will make yearly.
The amount a craft distillery that also sells will make yearly will be far different from the amount a strictly one location walk-in pub craft distillery will make. This goes to show that the amount a craft distillery will make yearly is dependent on the business model of the distillery.
6. The Advertising and Marketing Strategies Adopted by the Craft Distillery
Another key factor that will determine the amount a craft distillery can make yearly is the advertising and marketing strategies adopted by the distillery. Trust me, there are several advertising and marketing strategies that can help a business increase their earnings, but you may be expected to spend more.
But the results you will make will far outweigh the amount you spent on advertising and marketing. Of course, you don’t expect a craft distillery that is engaging in aggressive advertising and marketing to make same amount yearly with a craft distillery that is passive with its advertising.
7. The Number of Years the Business is in Existence
In business, the number of years you are in existence will go a long way to determine the amount you will make. For example in your first fiscal year (FY1) you might make two hundred and fifty thousand dollars ($250,000), in your second fiscal year (FY2) you might make three hundred thousand dollars ($300,000) and in your third fiscal year (FY3) you might make three hundred and fifty thousand dollars ($350,000). Interestingly, most businesses including craft distillery usually breakeven from the third year of operations.
Estimated Profit Margin for a Craft Distillery
In order to calculate the profit margin from a standard craft distillery, then you should be able to place a figure on the recurring and ongoing costs of running the craft distillery. The bottom line is that there is great potential for profit for a craft distillery. As an industry, small (craft) distilleries have now become a $450 million market, and the amount of craft distilleries has increased by 300 percent.
Generally speaking, a craft distillery can make a profit margin of about 30 – 45 percent gross margin (profit before labour and overhead costs) if careful planning is done when developing the recipes and you have access to cheaper labour and ingredient supply.