Tracking Time in Craft Brewing: Overhead vs. Cost of Goods Sold (COGS)

Craft brewing is an artful blend of science and creativity, where passionate brewers craft unique flavors that captivate beer enthusiasts. While the focus often lies on perfecting recipes and creating memorable experiences, understanding the financial aspects of the brewing process is equally important. In this blog post, we'll delve into the world of tracking time in craft brewing, specifically differentiating between time allocated to overhead and time that contributes to the Cost of Goods Sold (COGS).

Understanding Overhead vs. COGS

Before we dive into tracking time, let's clarify the distinction between overhead and COGS:

1. Overhead: Overhead costs are the expenses incurred in running your brewery that are not directly tied to the production of beer. These include rent or mortgage for your brewery space, utilities, administrative salaries, marketing expenses, and other general operational costs. Overhead costs are incurred regardless of whether you produce beer or not.

2. COGS: Cost of Goods Sold (COGS) represents the expenses directly associated with producing your beer. This includes the cost of ingredients (malt, hops, yeast, and water), labor involved in brewing and packaging, packaging materials, and any other costs directly tied to the production process.

Tracking Time as Overhead

1. Administrative Staff: Time spent by administrative staff, including management, sales, marketing, and accounting personnel, falls under overhead. This includes tasks such as managing finances, marketing campaigns, sales negotiations, and other non-production-related activities.

2. Facility Maintenance: Maintenance and repair work on your brewing equipment, utilities, and the brewery facility itself are considered overhead expenses. This includes time spent by maintenance personnel and contractors.

3. Quality Control and Assurance: While ensuring the quality of your beer is essential, the time spent on quality control and assurance is typically classified as overhead. This includes sensory evaluations, lab testing, and other quality-related tasks.

Tracking Time as COGS

1. Brewers and Production Staff: The time spent by brewers and production staff directly involved in the brewing, fermenting, and packaging processes is considered part of COGS. This includes time spent milling grains, mashing, boiling, cleaning equipment, packaging, and all other production-related tasks.

2. Ingredients Handling: The time spent handling ingredients like malt, hops, yeast, and water, from receiving and storing to adding them to the brewing process, is an integral part of COGS.

3. Packaging Labor: The time spent by production staff in packaging beer into bottles, cans, or kegs, as well as labeling and palletizing, contributes directly to COGS.

Why Tracking Time Matters

Accurately tracking time as either overhead or COGS is essential for several reasons:

1. Financial Analysis: Proper allocation of time allows for accurate financial analysis. You can determine the true cost of producing each batch of beer and assess profitability more effectively.

2. Pricing Strategy: Understanding your COGS helps in setting appropriate pricing for your beer, ensuring that you cover production costs and make a profit.

3. Efficiency Improvements: By tracking time, you can identify areas where you might be able to improve efficiency in production, potentially reducing your COGS and increasing profitability.

4. Resource Allocation: Knowing how much time is allocated to overhead versus production can help you allocate resources more effectively, whether that means hiring additional production staff or streamlining administrative tasks.

Conclusion

Tracking time as overhead versus COGS is a critical aspect of managing the financial health of your craft brewery. It allows you to gain insights into your cost structure, make informed decisions, and ultimately build a sustainable and profitable brewing business. By understanding where your time and resources are being allocated, you can enhance efficiency, optimize costs, and continue crafting exceptional beers that delight your customers.