Costing out time spirits aged in the barrel

[KRS]

We have our first release of aged rum ready for sale, but we're uncertain about how time spent in the barrel should factor into our selling price.

[Mash]

My opinion is time in the barrel really means nothing.

Barrels are a part of COGS. So if your equating time to value of the spirit your missing the point of pricing. Pricing is a function of one simple/complex principle VALUE, Value = taste+presentation+story+the emotional attachment and willingness to purchase.

What does your market testing indicate? Do you have a tasting room? During development did you ask potential customers what they would be willing to pay?

I have a spirit that was three years aging, it sold from $35 to $125 per bottle, the mean price point is $69 to $79. The second batch sold at the same price points but was better received by the consumer, they liked it better. (it was less than 6 months old.) All this was the result of a hands on market testing. We have customers that are requesting it in an un-aged version, at the same price points.

So, here is what you do, test, taste, compare to other products, compare price points and make money. Not to be too blunt, but there is a lot of craft and mainstream whisky/spirits that taste like crap. I've been to every conference for the past 5 years, and tried them. How some stuff stays on the market is beyond me, but it all goes back to the Value equation. A market test showed the three largest bourbon whiskys where the first choice of loyal consumers but in a blind taste test they all came in last. Which proves the Value equation is more than just taste, but they still purchased the stuff they like the least. (emotional attachment).

[John McKee]

Mash,

No one could say it better.

Cheers,

McKee

[captnKB]

Well said Mash. Id also say that if you start with a slightly higher than expected price, you can always lower price to increase sales. It is safer to take this route than to start with a low price that competes with big distilleries. If you participate in the price race to the bottom you will encounter big problems if you try to raise your prices in the future.

[bluestar]

Two costs from aging can be factored in: angel's share and facility storage costs. The latter is a direct cost, and not usually much, but the former is indirect and should be picked up in your estimated reduction in volume with aging correcting the COGS.

[KRS]

Thank you, Bluestar. You have provided a very sensible answer. Handcrafted spirits will cost more undoubtedly, but products sell better if the cost is in a middle range for its type. Inflating the price on the basis of--I don't know what to call it, self-approval seems the least confrontational I can think of at the moment--self-approval seems like a springboard into delusions of grandeur. Micro-distilleries have a very hard time establishing market share, so we need to price our spirits to sell, not keep. Profitability does require the true cost of goods sold in addition to overhead. The profit margin should be based on that amount, and set at a normal percentage. Our spirits are hand-crafted at every stage of production, right up through putting on the labels and sealing the boxes. We love what we do and we want to make our living doing it. Profitability: price, sales, market share--re-orders. Thanks for the replies.

[TuftedTurtle]

KRS,

While Bluestar's answer is more straight forward, you really should consider a lot of what Mash has said. Just because you price it high, doesn't mean it will sit on the shelf. I don't think most of us are getting into this industry to become marketing experts...but you kind of have too if you want to survive/thrive.

Cheers,

Turtle

[KRS]

Thank you, Turtle. Yes, I do agree that market research is critical in determining your product's sales potential. We've gotten very positive response to our products at public tastings and at private tastings for members of the trade. For instance, we put 10.5 gallons of our first peated whiskey in a 15 gallon barrel January 12. Our distributor is so enthusiastic that he wants it bottled now. We intuit from this that we can sell for the high end price. However, being well received at tastings doesn't translate to sales because brand visibility is a significant factor. We price our white spirits by the competitive market, and we're going to do the same with the barrel-aged spirits. However, any time our distributor becomes ecstatic about one of our spirits, we'll price high. Thank you all for your advice.

KRS