Fundamentals

COGS: Know your true cost of production.

Before you can set a profitable FOB price, you need to understand every dollar that goes into making a case of product. Here's the complete COGS breakdown.

Cost of Goods Sold is the single most important number in your business that most founders get wrong. COGS represents every direct cost required to produce a finished case of product — and it is the foundation upon which your entire FOB pricing strategy is built. Underestimate it and you will sell at a loss. Overestimate it and you will price yourself off the shelf.

What is COGS in the beverage industry?

COGS (Cost of Goods Sold) includes every direct cost attributable to producing a unit of product. For beverage producers, this means raw materials, packaging, direct labor, and manufacturing overhead — everything that goes into turning ingredients into a sealed, labeled, boxed case ready to ship.

What COGS does not include: sales salaries, marketing spend, office rent, distributor programming, trade discounts, or any other selling, general, and administrative (SG&A) expense. These are operating expenses that come out of your gross profit, not your COGS.

COGS vs. Operating Expenses

Think of it this way: COGS is everything that happens inside the production facility. Operating expenses are everything that happens outside it. If your facility shut down tomorrow but your brand still existed, operating expenses would continue (rent, salaries, marketing) while COGS would stop. This distinction matters because COGS determines your gross margin, which is the first and most critical profitability metric in the three-tier system.

For most beverage brands, COGS represents 40–60% of revenue. That means for every dollar of revenue, $0.40–$0.60 goes directly to production costs before you pay a single salesperson, run a single ad, or cover your office lease. Understanding and managing this number is the difference between a brand that grows and a brand that bleeds cash while appearing successful.

Raw materials and ingredients

Ingredient costs are the most variable component of COGS and the one that differs most dramatically by beverage category. A craft beer's grain bill is fundamentally different from a functional beverage's adaptogen blend, and the economics scale differently with volume.

Category Key Ingredients Typical Cost per Case (24 units)
Craft Beer Malt, hops, yeast, water, adjuncts $8 – $15
Hard Seltzer Sugar wash or malt base, natural flavors, water $4 – $8
Canned Cocktail (spirit-based) Base spirit, mixers, natural flavors, water $12 – $22
Wine (canned) Grape juice/concentrate, sulfites, water $10 – $18
Hemp Beverage Hemp extract, emulsifiers, flavors, water $10 – $20
Functional/Adaptogen Functional compounds, sweeteners, flavors, water $8 – $18

These ranges assume moderate production volumes (5,000–25,000 cases per year). At lower volumes, ingredient costs per case can be 30–50% higher due to minimum order quantities and less favorable pricing from suppliers. At high volumes (100,000+ cases), costs can drop 15–25% through bulk purchasing agreements.

Ingredient cost drivers

Several factors drive ingredient cost variation within each category:

Packaging costs

Packaging is often the largest single component of beverage COGS — frequently 20–35% of total production cost. The choice between cans, glass, and PET plastic has enormous implications for your unit economics, and the decision should be driven by cost modeling, not just brand aesthetics.

Format Cost per Unit Cost per Case (24 units) Notes
12 oz aluminum can $0.08 – $0.14 $1.92 – $3.36 Most common; affected by aluminum tariffs
16 oz aluminum can $0.10 – $0.16 $2.40 – $3.84 Popular for craft beer and energy drinks
12 oz glass bottle $0.12 – $0.22 $2.88 – $5.28 Higher cost but premium perception; heavier freight
750 ml glass bottle $0.30 – $0.80 $3.60 – $9.60 (12-ct) Wine and spirits; wide range by quality
PET plastic bottle $0.05 – $0.10 $1.20 – $2.40 Lowest cost; limited to non-alcohol in most states

Beyond the primary container, don't forget secondary packaging costs: labels ($0.02–$0.08 per unit), carrier trays or boxes ($0.30–$0.80 per case), shrink wrap ($0.10–$0.25 per case), and closures/caps ($0.01–$0.05 per unit). These add up to $1.50–$4.00 per case in total secondary packaging.

Watch Your MOQs

Custom-printed cans typically require minimum orders of 100,000–200,000 units. For a small brand doing 5,000 cases per year, that is a 2–4 year supply of a single SKU. Many startups use pressure-sensitive labels on blank (brite) cans to avoid this constraint, accepting a slightly higher per-unit cost ($0.03–$0.05 more) for the flexibility to run shorter batches and change designs without waste.

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Labor and manufacturing overhead

Labor and overhead are the COGS components that founders most frequently underestimate, especially at low production volumes where fixed costs are spread across fewer cases.

Direct labor

Direct labor includes everyone physically involved in production: brewers, cellar workers, canning line operators, quality control inspectors, and warehouse staff who stage finished product. For a small production facility running 200–500 cases per day, direct labor typically costs $2–$5 per case. At larger scale (2,000+ cases per day), this drops to $0.50–$1.50 per case.

Manufacturing overhead

Overhead includes the indirect costs of running a production facility: utilities (water, electricity, gas), equipment depreciation, facility lease or mortgage, maintenance, insurance, and regulatory compliance costs. These are fixed costs that must be allocated across your production volume.

The overhead allocation trap is real: if you plan for 20,000 cases per year and only produce 10,000, your overhead per case doubles. This is why accurate volume forecasting is critical for COGS accuracy — and why many startup brands underestimate their true COGS by using optimistic production assumptions.

Co-Packing vs. In-House

Co-packing (contract manufacturing) converts your fixed production costs into variable costs. Instead of owning equipment and leasing a facility, you pay a per-case fee that includes labor, overhead, and often packaging. Typical co-packing rates are $3–$8 per case for canning and $5–$12 per case for bottling. The math favors co-packing below roughly 30,000–50,000 cases per year and in-house production above that threshold, though breakeven varies significantly by category and complexity.

Calculating COGS per case

Here is the master formula and a worked example for a 6×4 case (24 cans) of craft hard seltzer:

The COGS Formula

COGS per Case = Raw Materials + Packaging + Direct Labor + Allocated Overhead

Component Cost % of COGS
Raw materials (sugar wash, flavors, water) $5.50 17%
Primary packaging (24 cans + lids) $3.00 9%
Labels $0.96 3%
Secondary packaging (carriers, tray, shrink) $1.80 6%
Direct labor $3.20 10%
Manufacturing overhead (allocated) $4.50 14%
Quality control and testing $0.40 1%
Total COGS per Case $19.36 ~60%

From COGS to FOB

Once you know your COGS, you can calculate the FOB price needed to achieve your target gross margin. The formula is:

FOB = COGS ÷ (1 − Target Gross Margin)

For our seltzer example at a 50% gross margin target: $19.36 ÷ (1 − 0.50) = $38.72 FOB per case. At a 60% gross margin: $19.36 ÷ (1 − 0.60) = $48.40 FOB per case. The FOB you need determines whether your product is viable at the shelf prices consumers expect. Use the Alculator calculator to model how different COGS assumptions flow through to shelf price.

Reducing COGS without sacrificing quality

Every dollar you take out of COGS is a dollar that flows directly to gross margin — and gets multiplied through the three-tier system as a competitive advantage at shelf. Here are the highest-impact levers:

Volume purchasing agreements

Negotiate annual volume commitments with your key ingredient and packaging suppliers. Even a modest commitment (e.g., guaranteed 50,000 cans per quarter) can unlock 10–15% discounts over spot pricing. The risk is that you are committing to volume you may not need, but if your forecasting is solid, the savings are substantial.

Packaging optimization

Evaluate whether your packaging is over-engineered for its purpose. Lighter-gauge cans, simpler label constructions, and standardized (non-custom) secondary packaging can reduce costs without any perceptible impact on the consumer experience. A one-cent reduction in can cost saves $240 per 1,000 cases.

Production efficiency

Canning line speed, fill accuracy, and downtime are the three metrics that drive labor and overhead allocation per case. A line running at 90% efficiency versus 70% efficiency produces 28% more cases per shift with the same fixed cost base. Invest in preventive maintenance and operator training before investing in new equipment.

Supplier diversification

Get quotes from at least three suppliers for every major input. Even if you don't switch, having competitive bids gives you leverage in your existing relationships. This is especially important for specialty ingredients where a single supplier may have been setting prices without competition.

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