When it pays for itself

The usual fixed-and-variable calculation, with one category-specific complication.

Two kinds of cost, and one that is neither

Fixed: equipment, licensing, label artwork, packaging minimums, nutrition analysis, shelf life and alcohol testing.

Variable: packaging, ingredients, labor and delivery per bottle.

And cold storage, which is neither: it is a recurring fixed cost that scales in steps as you add capacity, and it is the line that most often gets missed entirely.

The arithmetic

Contribution is price minus variable cost. Breakeven is fixed divided by contribution.

Suppose fixed costs of 6,000, equipment, licensing, artwork, first packaging minimums and testing, and a contribution of 1.20 a bottle at direct retail.

That is 5,000 bottles to break even.

At wholesale, with a contribution nearer 0.45, the same fixed cost needs over 13,000 bottles. The channel changes the answer by a factor of nearly three.

What the number says

That this is a volume business with thin unit margins, which is why the category consolidates.

That each additional flavor carries its own label minimum and its own nutrition analysis, so a range of six does not break even at twice the point of a range of three.

And that a chilled product's breakeven is further out than it looks, because the cold cost is charged whether or not the stock sells.

The cold line

Add it explicitly: the monthly cost of cold storage and refrigerated delivery, divided by bottles actually sold.

At low volume it is large per bottle and it does not fall until the storage is full.

Which is the real argument for either a shelf-stable version or a tight local radius, and the calculation that shows it rather than asserts it.

References