Deciding how to price your wines is both an art and a science. But you should probably figure it out before your first barrels are ready for bottling. Determine your desired or required winery profit margins. How much should you charge? There are several factors at play, from production and administrative costs to the impact of price on your brand.
Figure Out Your Cost of Production
Before you can price a bottle of wine, you must know your cost of production. This includes everything from the cost of maintaining your vines and harvesting your grapes (including labor costs), plus debt service, utilities and building maintenance, insurance, administrative costs, supplies (bottles, barrels, corks, etc.) and professional services like marketing, legal, and accounting.
When you know what costs you incur each year, and how many bottles you produce, you can calculate the cost of production of one bottle of your wine.
No one goes into business just hoping to break even each year. Determine the profit margin you need to not only maintain but expand and perpetuate your operation, including setting aside money for emergencies or unforeseen events.
Subtract the cost of your bottle of wine (“cost of goods sold”) from the revenue it generates (price), and divide the result by the revenue. If your cost of producing one bottle of wine is $10, and you sell it for $25, that would be $25-$10=$15/$25, or .6=60%. Most wineries get along with a margin of 50%, so if you can make 60%, you’re doing OK.
Margin is different than “markup,” which is the difference between the cost of production and the price and revenue. In the above example, the bottle of wine costs $10 to produce, but sells for $25. Markup is also expressed as a percentage, so in this case you’d take $15 revenue – $10 cost/$10 cost to arrive at a markup of 50%.
If your state permits, your winery can sell directly to tourists and visitors at full retail price. That way, you get the margins that would otherwise go to distributors and then retailers. But how do you price wine in your on-premises shop?
Psychological pricing may be a factor. It’s the reason retailers price items at $4.99 rather than $5.00. People who read left to right tend to favor the left-most number. The also perceive $4.99 as “less than $5” rather than “more than $4.50”). Fractional prices also convey the idea of a bargain.
But sometimes, prestige can play into pricing. Round numbers without decimals look classier on restaurant menus than the same price expressed as “x dollars and 00 cents.” This is where pricing wines becomes more of an art than a science. How do purchasers of your wines perceive your brand? Are they willing to pay more for your brand over similar bottles from another winery?
Here at The Crafty Cask, as wine, cider, spirits, and craft beer consultants, we are familiar with pricing concepts. We can teach you about this topic and many other craft alcohol marketing topics through our online marketing courses, Craft Alcohol Marketing Bootcamp, and more. This will help you determine how to arrive at a pricing strategy and full marketing strategy for your winery that will earn you the profit margin and demand you need to keep your operation thriving. Learn more and sign up today!