How to set KPIs in your winery (2024)
Imagine you are across the country, or across the world, perhaps on a wine tasting tour in South Africa. What numbers do you need to know to understand how your winery is performing?
Total revenue? Perhaps compared to the same period last year?
Total cash in the bank?
Both of these numbers are important, but they aren’t enough to give a complete indication of how business is performing.
You need to get a little more specific if you want to use your KPIs to make critical business decisions.
This is especially true for wineries, where cash flow is typically very, very different than profitability.
Let’s talk about the winery KPIs that you need to keep an eye on for winery performance, whether you’re away from it or not.
What is a metric?
First things first, let’s differentiate between a metric & a KPI.
A metric is simply a number–for instance, a single line on your Chart of Accounts. We split metrics into two categories:
Financial metrics. A single number from your financial statement. Examples:
Revenue
Total debt
Nonfinancial metrics. A single number measuring something in your business that is not on your financial statement. These can also be called operational metrics. Examples:
Total cases sold
Number of transactions in the tasting room
Hours worked
What is a KPI?
On the other hand, a KPI is typically a ratio between two metrics.
KPIs can be a ratio of two financial metrics. Examples:
Gross Profit Margin %: Your gross profit divided by your revenue.
Operating Profit Margin %: Your operation profit divided by your revenue.
% of revenue spent on marketing: Your marketing spend divided by your revenue.
KPIs can also be a ratio between a financial and a nonfinancial metric. Example:
Avg revenue per case sold: Your total wine revenue and divided by your total cases sold.
KPIs can also be a ratio between two nonfinancial metrics. Example:
Cases produced divided by cases sold. This is not a standard metric, but can be useful for a winery to look at on an annual basis to see how the production is comparing to sales.
So what winery KPIs should you use?
There are a thousand different metrics and KPIs that you could be tracking in your winery. The key is to determine which KPIs matter to you, and why you want to track them.
It’s best to start with an objective in mind.
Ask yourself these two questions:
What change in your winery are you trying to effect?
What is your plan to effect that change?
Then ask yourself:
How will I know if my plan is working?
The answers to these questions can help you determine which KPIs would be useful for you to know.
Let’s look at an example.
Let’s say you decide you want to increase the revenue from your tasting room, but you're not sure whether you have much control over increasing tasting room traffic.
With that in mind, you decide to try and increase the revenue from your current traffic by selling more to each customer. You decide to share this plan with your staff along with providing them additional sales training to give them some new ideas and motivation.
The key performance indicator that you decide to keep an eye on is:
Average order value.
To track this, track your customer counts and your overall tasting room sales, and then do the simple math. Your POS may also help you track this data. The key is to make a scorecard where you are inputting this data each week and sharing it with the key people who can help influence the number. A whiteboard that needs to be manually updated and that everyone can see is perfect. Delegate this responsibility to one of your sales staff–which will both save you time and empower your staff.
In this same scenario, you may also decide to track your weekly gross labor costs and compare those to your tasting room sales.
This gives you another great KPI:
Labor Efficiency Ratio (LER)
This is a key metric recommended by Greg Crabtree in his fantastic book "Simple Numbers, Straight Talk, Big Profits."
Crabtree defines Labor Efficiency Ratio with a little more nuance than this, but I have found it to be just as effective to use a simple definition of labor efficiency ratio: your revenue divided by your gross labor.
The result is the dollars in sales that you are getting from every dollar spent on labor.
For instance, if you sell $30,000 worth of wine in a month and spend $8,000 on wages, then your labor efficiency ratio would be $3.75. For every dollar you are spending on wages, you are getting $3.75 in sales. This number can vary wildly depending on how your winery is set up and your proportion of DTC and distributor sales, so start measuring this number and track it against your own history to see how you are performing.
This number could also be shared on your public scoreboard, without sharing the detail of wages.
A list of common winery KPIs
To help get you started, we’ve pulled together a list of common winery KPIs that we like to track with our clients.
Revenue growth (%). Compare this month to the same month last year, or this year-to-date the same period last year. For a more accurate long-term measurement, you can also compare the immediately prior 12-month period against the 12-month period before that.
Annual revenue ($). Measure on a rolling-12 basis to track your progress against your annual target.
Labor budget ($). If you don't have a labor budget built out, consider tracking a Labor Efficiency Ratio (LER). If you prefer, you could also track wages as a percent of revenue.
Monthly operating expense budget ($). Based on your financial plan, identify the average amount you should be spending on operating expenses each month and make sure you are staying close to that number. Make sure you understand any large variances in your spending.
Operating profit (%). We recommend aiming for at least 15% operating profit before interest and at least 10% operating profit after interest. This will allow you enough margin to pay your taxes, yourself, and continue to invest in your winery business.
Additionally, you may want to dive deeper into various areas of your winery, such as:
Tasting Room KPIs
Average order value
Sales per team member
Wine Club KPIs
Wine Club Growth
Wine Club Conversion: the number of new members divided by the number of tastings provided to non-wine club members. We typically annualize this metric for a better view of the overall picture.
Wine Club Attrition: cancellations divided by an average number of members during the period.
Production KPIs
Bottling Cost/Case
Cost/Gallon Produced
Cost/Case Bottled
Tips for setting KPIs in your winery
When it comes to setting KPIs in your winery, there is no right or wrong way to do things. However, here are a few tips that might make it easier:
Be consistent
Whatever metrics and KPIs you choose to track, be consistent.
It's hard to come up with "the perfect KPI", and there is a lot of nuance in designing it. For instance, if you are tracking average order value, you need to decide what revenue you are including and what counts as a transaction. Are you looking at just tasting room numbers? Or online sales as well? Are you tracking only revenue from wine sold by the bottle? Or also revenue from wine tastings, glass pours, food, and merchandise?
Whatever you decide, the most important thing is just to make a decision and then be consistent. You can always track a metric for 3 months and then tweak it if you choose. Don’t let analysis paralysis stop you from getting started!
Share your metrics
Similar to setting other goals in your life, like exercise or weight loss, it is helpful to share targets with others for accountability.
We recommend sharing your KPIs with the members of your team that have the power to effect change. You may want to set a few KPIs for the whole company to strive towards, however, there may be a few department-specific KPIs that only certain team members need to know and track. You can use the KPIs as the basis of a performance incentive plan for those employees, as well.
Track weekly
Finally, make sure you’re tracking your KPIs regularly. Monthly is not typically enough to effect real change. If you really want to drive change, you need to be looking at your scorecard weekly.
And that’s it! We hope you’ve found this useful. If you need more help with setting your winery KPIs, we’re always here to help. You can reach out by filling in the form over on Getting Started page.
Until next time, check out our blog post on quarterly financial reviews. We think you’ll find it helpful!
