How to accurately price your farm produce for profit

How to accurately price your farm produce for profit

Pricing produce is a big challenge faced by many people in business – not only in farming. But as a farmer – especially, an emerging farmer... 8:02:00 AM

Pricing produce is a big challenge faced by many people in business – not only in farming. But as a farmer – especially, an emerging farmer, it is imperative that you price your produce correctly or you will soon find yourself broke and out of business.

Remember, farming is a business and your first goal should be to survive, make profit and then grow and do all those other things that you have in mind.

Basically correctly pricing your farm produce means being able to recover money spent on costs and having a little bit extra – that is business!

So how do you price your produce correctly for profit?

To establish product prices, you must have accurate record-keeping in the first place. It does not have to be a facing bookkeeping system – just a book where you record all your money spent will do.

Costs

• Record these costs:
• Cost of land (bought or leased), if applicable.
• Cost of tilling land (whether tractor-driven or manually done).
• Cost of seed.
• Cost of fertiliser and chemicals.
• Cost of water/irrigation.
• Cost of labour (includes cost of protective clothing and tools used).
• Cost of harvesting (mechanical or manual).
• Cost of post-harvest handling (might include refrigeration).
• Cost of packaging for marketing.
• Cost of administration (this includes telephone bills, stationery and banking fees).
• Cost of transport.
• Cost of marketing fees or hiring marketing space.
• Interest on money borrowed to get the crop going.

Calculating profit

Work out how much produce will be harvested off the land. A unit would be either a single vegetable (cabbage), single bunch (spinach) or a single kilogram (potatoes or tomatoes). Next, add up the costs you’ve recorded and divide by the number of units to be sold. Then add in your percentage profit to arrive at your selling price. 

Example

Let’s say you have 30 000 cabbages and your total costs come to $15 000.

So it’s $15 000 ÷ 30 000 (cabbages) = $5/cabbage.

$5 much each cabbage cost you to grow.

Now you add your 20% profit – that is, 20% of $5 – probably a $1.

In essence, the lowest price for your cabbages should be $6 if you want a small profit.

20% profit is not the standard as situations differ – it is just an example. A neighbouring farmer –who cannot calculate his costs accurately, might be selling the same cabbages so you might not sell any at $6 if he is selling at $4.

You can either teach your neighbour about profit-making or find a market a little further away.

Profit margins can vary from 1% to 100%, or even more. 

Understanding local pricing will help you determine what percentage will make your selling price a popular one. Never under-price a commodity!