Set Yourself Up For Success—The Value of An Estimated COGS
As you may know, a cost of goods sold (COGS) is the breakdown of the costs involved in producing a product. In the beverage world, this includes items like packaging, premix, flavors, freight, etc. Estimating your COGS before producing your beverage is critical for financial planning.
Below are just a few areas where an estimated COGS can improve your business plan and set you up for success:
Set Up Your Pricing Structure—A COGS will help you understand your per case cost, allowing you to start planning margins and retail price points.
Understand Your Supply Chain Costs—You will gain greater visibility into all pieces of the supply chain process that impact your total per case cost, including things like indirect raw material costs like liquid and packaging losses, and freight charges.
Make Better Pricing Decisions—Paired with a cash schedule, a COGS will provide the insight needed to make pricing decisions and adjust ingredient and packaging specifications, while you are still in the product development phase.
Increase Awareness of Future Order Requirements—Detailing a COGS will help you anticipate order volumes, frequencies, and understand raw material lead times.
Reduce Your Costs—A COGS will highlight your largest expenses, giving you the detail needed to develop a cost reduction strategy, if necessary.
Build Your Financial Model—Learning all the above will assists you in developing a profitable and successful financial model, saving you time, efforts, and money up front.
Depending on the number of SKUs and the complexity of your beverage, the process to determine your estimated COGS can be complicated. Accurate estimated COGS is a game changer for your financial planning and the success of your business. Once Purchase Orders (PO’s) are submitted, you’ll be able to calculate your actual COGS. Make sure to continually compare your COGS to your product pricing on a regular basis. This will give you the insight you need to ensure that you’re maintaining the necessary profit margins and benefiting from any potential savings opportunities.
Reach out to the experienced team at BevSource with any questions or to have your COGS reviewed for accuracy.