Benchmarking Brewery Labor Costs and Keeping Them in Check
Benchmarking labor costs is important for craft breweries, like yours, to manage profitability and ensure you’re operating efficiently. By tracking key performance indicators like labor cost as a percentage of revenue and revenue per labor hour, you can compare these expenses against industry benchmarks and identify areas that need attention. Also, by utilizing POS and scheduling software, you can match staffing to demand. Thereby, reducing downtime and controlling costs. Smart labor management improves margins and helps your brewery to thrive.
Key Takeaways:
Track key KPIs (labor cost % of revenue, revenue per labor hour) to compare against industry standards..
Use data-driven scheduling to optimize staffing and match labor costs to demand.
Leverage technology (POS, time tracking, financial tools) to manage labor efficiency.
This post was inspired by an article in Brewing Industry Guide. Check them out. Subscription required, though.
What are the obstacles for a brewery trying to keep labor costs in check?
Let’s break this down. Get to the root cause. You gotta know what’s driving the problem in order to remedy it.
Staffing levels exceed demand for beer
Every hour is a race between customers wanting tasty beer 😋🍺and the fixed costs of your employees wages.
Why is this a problem?
Scheduling is probably not optimized. Are you overstaffed during slow periods and understaffed during peak periods? Your labor hours are not matching your brewery’s needs.
There’s no system in place for tracking peak and slow hours. Or, if you do - it’s your gut rather than data.
Point of sale (POS) data isn’t being utilized fully. The data you need is probably right at your fingertips!
There’s a lack of effort or expertise in tracking labor information. Whether it’s you, an employee, or a third party - someone’s gotta find the time to dig into this stuff and know what they’re looking at.
Too many other things are pulling at your attention. Ultimately you’ve got to decide where this problem ranks on your list of priorities and if it’s high, make a plan to tackle it and put a system into place.
Brewery revenue is declining
Labor costs used to not be a problem. Now they are. Even though they haven’t increased all that much.
Why is this a problem?
Declining traffic in the taproom. Lower volume, perhaps accompanied with pricing that hasn’t changed in a long time.
The brewery market may have become oversaturated. New alternatives have entered the market and there’s not enough mouths to support it.
Maybe you haven’t adapted to these market changes? Your business model is the same as it was in 2015. Or, you haven’t innovated and updated your flavors to reflect changing tastes.
You rely on your gut rather than quality data. Sensing a theme here? 😁 I get it…you’re a brewer of yummy libations, not a data scientist. But, if you want to keep thriving, you’ve got to dip your toes into some analysis or get some help from someone who can.
There’s a lack of benchmarking. You don’t know what you don’t know. So, you’re left to rely on your gut. Best practices and industry trends are passing you by.
A lack of financial visibility at your brewery
So many numbers to sort through. So much to compare. So much time you don’t have…
Why is this a problem?
There’s little to no standardized reporting. Sure, you’ve got somebody doing your books. And, they probably do a fine job. There’s a difference between categorizing transactions and developing the insight you need to run your brewery efficiently.
Labor costs aren’t properly categorized. Not all labor is the same. The labor you utilize to brew your beer is different from the labor that serves beer. Which is different from the labor that handles your marketing.
KPIs are nonexistent. KPIs? What is this, business school? Seems like silly business jargon, I know. But, again, you need to have these indicators, real-time, at your fingertips to quickly glance at and know the health of your brewery.
Your financial tools are generic. Again, anybody can run a financial statement out of QuickBooks. And, that’s certainly necessary, but it’s not enough. You need brewery-specific ratios, reports, and analysis.
Reporting has been a low priority for you. When sales are high, everything is good and things can slip through the cracks, issue free. If that’s not the case anymore, you have to get over your hesitation to set up critical financial reporting.
How should you have been managing your brewery labor costs up to this point?
The past is dead. BUT, it is sometimes easier to get a concrete vision of how things SHOULD have gone than to envision the future. Which…in turn…can help you understand better where to go from here.
You would have benchmarked your brewery’s payroll
If you’re a member of the Brewers Association you have access to salary benchmarking data based on a biannual survey.
Additionally, you can also utilize (free) publicly-available info from some, or all, of the following:
Bureau of Labor Statistics
State Department of Labor websites
Job posting sites
You broke your brewery’s labor up by department
You, hopefully, understand that not all of your labor is the same. Different responsibilities, different skills, different schedules, different pay. Even if your overall labor costs are in line with benchmarks, some segments of your business might be overburdened (or under burdened) in terms of labor costs.
Furthermore, you should recognize the benefits of being flexible. This could mean that you have a “core” group of full-time employees. Beyond that, you can have some staff cross-trained. “Floaters” that can pick up slack, as needed, when things get a bit hectic.
You exploited your brewery’s technology to get the data you needed
The invested in software and other technology for your operations has been collecting data to help you make decisions. Understanding this - put that data to work so that you can make smart decisions.
POS systems, scheduling software, heck…even good old Excel. Put it all to work to keep your staff lean - but also flexible enough to handle whatever the market throws at you.
What is your vision for your brewery’s labor costs?
Your vision is your own, of course. But, here’s some inspiration until you get it solidified.
Is it implementing labor cost benchmarks that are appropriate for your brewery’s revenue?
What’s appropriate for your brewery will depend, in part, on whether you are taproom or distribution driven. If your focus is your taproom, labor costs can probably be a bit higher - your revenue per bbl is almost certainly more (but less volume).
Benchmarks aren’t just set-it-and-forget-it either. You’ll want to stay on top of them to make sure that you’re not paying too much (or too little). At least - not without a good reason!
Craft Brewery Finance has some advice and spreadsheet templates of their own that might help you too.
What are the pros of implementing labor cost benchmarks?
Identify inefficiencies – Departments where labor costs are too high.
Helps with decision-making – Data-backed information that guides wage adjustments, staffing levels, and/or scheduling.
Improved profitability – Drives you to keep labor costs in an appropriate range relative to revenue.
What are the cons of implementing labor cost benchmarks?
They may not reflect your unique circumstances – Each brewery has a different business model (E.g., taproom-focused vs. distribution-focused).
Industry data can be old or unreliable – Labor costs are constantly in flux because of market changes and economic conditions.
It might lead to cost-cutting that affects quality – Reducing wages or cutting staff could impact service and/or production quality.
Is it taking advantage of your brewery’s POS and scheduling software?
Most likely, your point-of-sale system has some robust demand reporting features right out of the box. Square, for instance, has daily and hourly reporting to help you know when business picks up and drops off on a particular day.
Armed with this info, you can use your scheduling software (7shifts, for example) to ensure that you’re operating as lean as possible, but never sacrificing quality or customer service.
What are the pros of using data from your brewery’s POS and scheduling software?
Automated tracking – Most software minimizes manual effort because you can pull real-time data.
Improved labor efficiency – Optimize staffing to match sales patterns.
Help with decision-making – Get clear insight into labor cost trends.
What are the cons of using data from your brewery’s POS and scheduling software?
Proper setup and integration required – software must be configured correctly to provide useful reporting.
The potential for misleading data – If not analyzed correctly, data might lead to bad decisions.
The cost – The reporting features you actually may require a more expensive subscription.
Is it training your managers to take some of the load off your shoulders?
Take what you learned about your brewery’s labor cost benchmarks and pass it on to your trusted subordinates. Teach them to read the reporting on labor cost KPIs and let them know what the expectations are.
Also, emphasize the importance of cross-training so that the people who are working at a given time can flexible enough to provide support when and where it is needed.
Let your managers know that the expectation is a dynamic and fluid workforce that can support your brewery’s needs.
Here is a walkthrough of ALL key operating expenses for breweries (not just labor) that may help your managers get up-to-speed.
What are the pros of training your managers?
Frees up your time – Lets you work on the business rather than in it.
Promotes accountability – Managers can take responsibility for labor cost control.
Improved decision-making – Managers, with the right training, can optimize staffing without owner micromanagement.
What are the cons of training your managers?
Training them takes time and effort – You (or someone else) will have to dedicate yourself to teaching effective labor cost analysis.
Managers may not care about cost control – They may focus more on “keeping the peace” than efficiency.
Risk of mismanagement – If your manager’s decision making is subpar, the effort could backfire.
Adding this additional responsibility could require that you pay your taproom/general manager a modest bump in pay. $2,000 to $5,000 annually, perhaps? A performance bonus is a viable alternative too - if you’re already pushing your labor benchmarks.
Contrast this with getting outside help through a Fractional CFO or consultant, which could cost you several thousand as a flat or monthly fee.
Where can you get help to achieve your brewery’s vision?
For starters, there are some basic reports and analysis you’re going to want to run (or have run for you). At the very least, for your brewery, you’ll want…
Departmental labor cost report - This separates costs for taproom, production, sales, and admin functions.
Labor cost as a percentage of revenue - How much of your brewery’s revenue is getting eaten up by labor?
Revenue per labor hour - See which of your departments is efficiently driving revenue.
Lucky for you, I created a worksheet that calculates all of this.
Brewery Labor Costs Worksheet
As mentioned previously, the Brewer’s association has salary benchmarking data that should be valuable in terms of knowing where you stand among your peers. These reports should contain information on averages in terms of labor costs, wages, and staffing levels. Again, this will require a membership to the Brewers Association, which will run you (as of the time of this writing) $230 per year.
If you’re interested in bringing in some expertise on the matter. Financial consultants exist that specialize in breweries. Small Batch Standard is one such consultancy. Looking at their website, they appear to put a big emphasis on benchmarking (beyond just labor costs!). A benchmark assessment is going to require an investment of several thousand dollars. However, the potential exists to increase your efficiency and have a good ROI on that investment.
Also mentioned above, take advantage of your POS reporting. There could be valuable data compiling that you’re not incorporating into your analysis yet. If you’re comfortable you can look up some help on YouTube (here’s some for Toast) to be sure you’re getting the most out of your point of sale system.
If you’re NOT comfortable, consider delegating some of this report creation and analysis to one of your capable managers. Again, you want buy-in from your trusted lieutenants on this (and hopefully everything else!). Explain to them why it’s necessary and how it will benefit all involved. Particularly if they’re the ones making the schedules - you want their support.
Software solutions for managing your brewery’s labor cost
(Full disclosure, I’ve never tried any of these pieces of software. So, I make no claims as far as their quality!)
Beer30 - Offers scheduling and time management tools
Crafted ERP - Provides KPI analysis and cost control features.
Ekos - Features insights into labor costs and tracks production and sales data.
Why will your brewery’s labor costs be okay?
Just because your brewery’s labor costs are higher than they should be, doesn’t mean you’re going out of business tomorrow. For your taphouse, labor might comprise 25%-40% of your costs. For the beer you sell through a distributor, it’s likely lower. Possibly in the 10%-20% range.
Definitely worth taking action on - but there’s no need to panic.
Incremental adjustments to your brewery’s labor will be just fine
Maybe your inclination is to dive head-first into this problem and figure it out once and for all.
You can do that, certainly. But don’t look past the opportunity to make a few small changes here and there that will eventually get your brewery labor where you want it.
For starters, pull some benchmarking info. Compare it to your brewery. How far off are you? Is the disconnect legitimate? Or, is it because it hasn’t been managed and has morphed on its own into the bloated cost it is now.
Then, next week, take a look at some of the boilerplate reports in your POS system. Also, look at next week’s staffing schedule. Does it jive? If not, make a change or two…you’re making progress!
The week after that, make some of the staffing changes more permanent, cross-train some people.
And on and on… You get the point.
Here’s a short case study about a brewery that was able to streamline bottling and reduce the number of man hours needed to bottle their beer.
Any changes to your brewery’s labor are likely to have a high ROI
Once you have a system in place that works for you, the benefits should keep rolling in. Having just the right amount of staff, when you need them and where you need them, will keep those costs in check. And, as long as it doesn’t negatively affect sales, bam! You’re keeping a little extra margin for every beer sold.
Furthermore, with a staff that’s well-trained and cross-trained, your efficiency will skyrocket. Not to mention employee satisfaction will probably be higher as will customer satisfaction.
Your brewery will be more resilient
Again, any positive changes that you make (and continue to manage) will benefit your brewery in perpetuity. That additional margin will make you more financially resilient.
Furthermore, this additional resiliency will make your brewery more attractive should you need to open a credit line or bring in a partner or investor.
“The really efficient laborer will be found not to crowd his day with work, but will saunter to his task surrounded by a wide halo of ease and leisure. There will be a wide margin for relaxation to his day. He is only earnest to secure the kernels of time, and does not exaggerate the value of the husk. Why should the hen sit all day? She can lay but one egg, and besides she will not have picked up materials for a new one. Those who work much do not work hard.”
― Henry David Thoreau, The Journal, 1837-1861
