Page 8 - Beverage MasterAprMay 2021
P. 8

Legal & Marketing

                 Disclaimer: Since we are talking pricing, all exam-  account. If your competitor’s brand is selling for a
               ples listed are hypothetical only and used for illus-  hypothetical $12.99 a six-pack, you may want to
               trative and informational purposes. Prices, costs,   price your beer accordingly.
               and margins will vary widely based on market condi-
               tions and other factors.                               The challenge is to figure out how much to charge
                                                                    your wholesaler, who then will charge the retailer,
                        How to Price Your Products                  who then will price the beer at the $12.99 price
                                                                    point. How does all that math work? We’ll take this
               •  Pricing Terms: PTC, PTR, PTW                      in small steps.


               •  How Pricing Works in the Real World: Margin         Here’s a hypothetical example. Let’s say you
                  needed by the brewery, wholesaler, and retailer.  charge the wholesaler $25 for a case of beer. The
                                                                    wholesaler needs to make, for example, a 30% mar-
               •  Use the Pricing Model: Plug n’ play Pricing tool   gin when they sell it to the retailer. To get a 30%
                  for your Beer.                                    margin, the wholesaler then charges the retailer $36
                                                                    for the beer.
                                Pricing Terms
                                                                      The math: $36 minus $25 = $11 Margin for the
                 The typical beer sales cycle looks like this: the   wholesaler. $11 divided by $36 = 30.5% Margin per-
               brewery sells to the wholesaler, who then sells to   centage.
               the retailer, who then sells to the end consumer.
                                                                      Continuing the example, let’s say the retailer also
                 At each stage in the sales cycle, there are differ-  needs to make 30% on the beer. Since they will sell
               ent prices and markups that are charged. The Price   it in six-packs, they markup the beer and charge the
               to Wholesaler, or PTW, is the amount the brewery     customer $12.99 per six-pack.
               charges to the wholesaler. The Price to Retailer,
               or PTR, is the price the wholesaler charges to the     The math: 4 six-packs times $12.99 = $51.96 total
               retailer. Lastly, the Price to Consumer, or PTC, is   sales to consumer for the case of beer. $51.96 minus
               the amount charged to the consumer. This is the      $36 cost of beer = $15.96 margin.  $15.96 margin
               amount listed on the store shelf for your beer.      divided by $51.96 sales price = 30.7% margin per-
                                                                    centage.
                 You won’t be surprised to hear that the price the
               consumer pays for your beer is significantly higher     Each stakeholder needs to make their margins at
               than what you sold it to the wholesaler for. The     each point in the sales cycle. This is what keeps the
               reason, of course, is that each stakeholder in the   world going round, and the beer being sold. The
               sales cycle needs to make money. The brewery, the    numbers can get confusing fast. Thank goodness we
               wholesaler and the retailer all have margins that    have a Pricing Model that will do the math for you.
               they need on the sale of the beer in order to run
               their business profitably.                                        Use the Pricing Model:
                                                                           Plug n’ play Pricing for your Beer
                 Those terms again...
                                                                      There are many variables to consider when pric-
               •  PTW = Price to wholesaler                         ing your beer. You can break out the calculator,
                                                                    pen, and pencil, or you can use this Pricing Model
               •  PTR = Price to retailer                           spreadsheet. Below is a snapshot:

               •  PTC = Price to consumer

                    How Prices Work in the Real World
                                                                      The first step is to determine what your beer costs
                 To properly price your beer, it may be useful to   to make. These costs include direct labor, direct
               work backwards from the Price to Consumer. This      material, and overhead. Next, determine the margin
               is the price of the beer on the shelf at the retail   that your brewery needs to cover operating costs

               6     April - May  2021     BEVERAGE MASTER





          BM040521 Main Pages  copy.indd   6                                                                        3/23/21   3:06 PM
   3   4   5   6   7   8   9   10   11   12   13