Business Plan- How to know how much you will sell?

[davdear]

I know creating a good business plan is important, with good research, accurate numbers, etc. I understand if you know what products you are going to make and how much, you can calculate the equipment/materials/ space required and in turn, the costs associated. But how do you calculate or predict how much you will sell??? What strategy do you use to make a very educated guess instead of a hopeful guess? If I could see something missing in the market it would be easier but in my town of 28,000 there are 6 liquor stores and just over the town line a liquor superstore. Most stores have 6 feet of whiskey, 6 feet of Tequila, etc. In other words plenty of choices! Any good tips for getting a more accurate prediction of the demand you can expect for your product? Thanks! 

[Glenlyon]

It depends. No business plan can accurately predict how many sales you will have. That ultimately, will be up to your abilities to actually sell in the heat of battle. Your business plan though can more importantly tell you what your limitations are going to be. Building size, tasting room occupancy allowances - your combination of mash tun, fermenters, still and most importantly, labour force - will dictate your maximum output, less inefficiencies. Once you know what your overall capacity is then you'll have a rough idea of your potential revenues. From there you can create a budget that will pretty accurately reflect how much cash you'll have to work with, and how much you can afford to spend to get customers and hopefully, what profit you can expect. Realize though, like all plans it won't survive contact with the enemy, but it's totally worth going through the exercise and having one in place.

[Silk City Distillers]

Can you calculate your break-even sales volume?  With and without salary/owner draw?  Can you calculate how long can you afford to float the business before you hit break even?  If so, you can chart a table looking at different breakeven timeline scenarios to understand where you need to be at each point in time.  Makes it easy to understand how long you can go, if your sales are sub-target.  From what I've seen in this business, there are two main problems.  Undercapitalization and overly optimistic sales numbers, model for those scenarios, and you already have a leg up.  Agree with @Glenlyon - how much do you need to sell?  Is that realistic for the market?

 

[Foreshot]

23 hours ago, davdear said:

my town of 28,000 there are 6 liquor stores and just over the town line a liquor superstore. Most stores have 6 feet of whiskey, 6 feet of Tequila, etc. In other words plenty of choices!

In that small of a town it might be hard to achieve success. How large is your area? Is there a bigger town somewhat close? Is there a tourist element to your town?

For products? Go to the stores. Look at what they are selling & price points. That's what sells & the price it sells at. That doesn't mean isn't a market for something different & more expensive. Talk to the people in the store. They probably will be friendly if you tell them what you're doing. They may not. Ask them what people are into.

Once you figure out what sells - do you want to make it? If you do, do you know what make that product good? Does it need to be aged? If so what are you going to do while you're waiting?

For your estimates: Figure out your break even as Silk City said. Now how many bottles at your price point will it take to sell? Not everyone will buy a bottle when they come in, and some may buy more than 1. I would say for your estimates just do a simple 1:1. And let's just say you need to sell 500 bottles per month. Do you know how to get 500 people per month into your store? Have you ever done marketing or retail sales before? If your plan is to rely on Facebook & other social media have you done any work on marketing on social media?

What do you do if you don't sell that much month 1? 2? 6, 7 or 8? How will you pay for everything during that time? What happens when you get close to or run out of money? Asking for a loan or investors at that point is hard. Undercapitialization again as Silk said.

Can you open a bar or restaurant? If you can then you can increase you chance of success, but it will take even more capital. And if you've never run a bar/restaurant before you should find someone that can do that. As the saying goes - hire to your weaknesses.

Or are you going to rely on retail bottle sales and distribution only? That's going to be a really tough road. You'll need to figure out how to do that within your state.

Have to spoken to any distillers in your state/area? That would be a good start.

How much will you sell? While not specific to your state, you can start here: https://www.parkstreet.com/alcoholic-beverage-market-overview/

You can also google "alcohol sales in us" and "alcohol sales in (my state)" to help.

 

[davdear]

Hey everyone thank you for all the help and good advice. Most of it I understand and it makes sense. The town is small but the state has 3.5M so I do want to spread out. I have already had some conversations with local liquor stores and some are really helpful. One person said "Don't worry about making anything but whiskey/bourbon that's the only thing that sells."

Thanks!!!

[Glenlyon]

35 minutes ago, davdear said:

"Don't worry about making anything but whiskey/bourbon that's the only thing that sells."

Not very good advice.

[davdear]

Some things you have to take with a grain of salt. Also, I haven't figured out had to make my still pour out 8 year old bourbon during my spirit run! I think at this particular location there is a lot of interest in bourbon and some believe that Tito's is so dominant in vodka you can't beat it. I remember working on the Absolut account back in the 80's making motorized liquor displays to sell it. You remember Absolut, right? It came from Sweden.... 

[Glenlyon]

You are not selling into Tito's market, so don't worry about them. If you are going for the craft concept then you want to focus on direct to the consumer - either through the tasting room or online. Having liquor stores is great for the ego and to get some local presence. But, they are loads of work to service and provide the lowest returns. Add a distributor and after that it's all about volume 'cuz the margins are very slim by then. In the craft environment, vodka is a reliable, profitable seller as is gin and a lot of other very interesting products - which, is what brings the customers to the door. Whiskey for the small distiller is dessert.

[davdear]

Glenlyon I thought the liquor store was the main channel. Do you know what percentage sales is tasting room sales/online sales/liquor stores? Also, selling to bars and restaurants must be a big part of it, right? We don't have much experience selling online- I mean none. I think I bought a bottle of wine online once- that was it. Is everyone selling online?

[glisade]

Davdear,

You really need to check your liquor laws in whatever state you're in. Every state/country/province/etc..laws may be very different so that it dictates your business model. So first you need to understand your local laws first.

For example: I'm in TN. We can have a tasting room and sell spirits but we can't self-distribute. So every bottle either physically or on paper has to be bought by our distributor first before it can be sold by us or any other retail store. We also can not ship direct to a consumer so no online sales unless we worked with a distributor in an another state. Make sure you don't confuse the fact that you can buy a bottle of wine online with you being able to sell to someone online.

If you can self-distribute that will save you money but may cost you a lot of time. The reverse is true when working with a distributor. So you have to figure out the laws to fold into your business model.  The biggest piece of advice I can give though when selling product to a liquor store or bar/restaurant whether it's direct from you or through a distributor: as much as possible, an owner/distiller/someone from your distillery should be there shaking hands and talking about your spirits to the potential buyer. A distributor sales rep will never sell your product as well as someone who has a stake or passion for the company.

[Glenlyon]

I'm exceedingly fortunate that I operate in craft alcohol heaven. I sell primarily direct through our tasting room, public market appearances followed by online and then private liquor stores and finally bars and restaurants. I would say we sell 20% of our product through the liquor stores and the bars/restaurants. The rest is done mostly face to face (until covid). We only need to pay federal excise on our bottles other than that, whatever we charge comes back to us - and we can charge whatever we want. So I have very affordable vodka and obnoxiously expensive specialty drinks. (GST & PST are charged at the sale and don't impact on our profit.) On average we will close 90% of our customers who spend an average of $95 per visit. On a sunny summer afternoon, we'll easily blow through 200 bottles - and we are a tiny operation, far from the madding crowd.