Course given at SSAWG 2018 Conference, How to tell how your farm business is doing

1. Reaching for Profits—Using
Benchmarks to Make
Adjustments
Ellen Polishuk
SSAWG Conference
Chattanooga, January 2018

2. What is a benchmark?
A standard to measure by: A Historical
Comparison
Business Standards
Comparison to Peers
Goals You’ve Set for Yourself
Competition in the Market

3. Examples
Business Standards
• I should be spending 10% of my gross on capital
improvement
Comparison to Peers in other geographic regions
• Gross Sales for similar sized farms
Goals You’ve Set for Yourself
• Gonna make $40,000 this year,
• Gonna break $4000 at market etc
Competition in the Market
• Other peoples prices, other farms wages

4. Benchmarking by data type
Production – Yield, labor usage
Financial – profit, gross sales, $/acre
Lifestyle – insurance?, vacation?, children?
Prices

5. Apples to Apples
Gross vs Net
Owner Income included?
Geographic/Market Environment
Not-so-obvious Subsidy/Support?
◦ Spouse
◦ Free labor (volunteer, intern)
Gotta look a little deeper…

6. 3 Step Process
1. Self-Analysis - What’s really happening?
• Need data
2. Comparison – How am I doing?
• Need benchmark
3. Improvement – What can I do differently?
• Need ideas and the will to make changes

7. 0
10
20
30
40
50
60
70
80
90
1988 1990 1992 1994 1996 1998 2000 2002 2004
$ 1,000
Farm earnings of farm households
Off-farm income of farm households
Total income of U.S. households
Average farm operator household income by source
compared to average U.S. household income, 1988-2004
Source: Farm Costs and Returns Survey (1988-95) and Agricultural Resource
Management Survey (1996-2004), Economic Research Service
Slide from John Hendrickson,
Outreach Program Manager
Center for Integrated
Agricultural Systems
University of Wisconsin-
Madison

8. Most farmers have off-farm income;
Most small-scale operators depend on it
Slide from John Hendrickson,
Outreach Program Manager,
Center for Integrated
Agricultural Systems,
University of Wisconsin-
Madison

9. Craig Chase work – 2012
mixed veg CSA farm
Number of shares per acre: 50
Gross income/acre: $17,500/acre ($350*50
shares)
FTE/acre: ½ - ¾ person
Labor as a percentage of production costs: 65-
75%
Net income ratio: 35% ($6,125/acre at $17,500
gross)
https://www.extension.iastate.edu/agdm/wholefarm/
html/c3-65.html
FTE/Ac includes owner labor but not
overhead/management labor
Net Income is what’s left to cover
owner salary, and capital
improvements

10. Craig Chase work-mixed veg non CSA
Gross income per acre:
• Direct to consumer sales – (organically certified) -
$20,000 - $22,000
• Direct to consumer sales – (non-organically certified) -
$16,000 - $18,000
• Institutional sales – (food cooperatives, restaurants) -
$12,000 - $14,000
• Institutional sales – (universities, hospitals, care centers)
- $10,000 - $12,000
• Institutional sales – (mainstream grocers, K-12 schools) -
$8,000 - $10,000
• Wholesale sales – (via a food broker) –
$6,000 - $8,000
https://www.extension.iastate.edu/agd
m/wholefarm/html/c3-65.html
FTE/Ac includes owner labor but not
overhead/management labor
Net Income is what’s left to cover
owner salary, and capital
improvements
FTE/acre: ½ – ¾ person
Labor as a percentage of
production costs: 65-75%
Net income ratio: 35%

11. Craig Chase work - 2012
Gross/acre FTE/Ac Labor as % of
production
cost
Net income
ratio
CSA
Model
Farm
$17,500 ½ - ¾ 65-75% 35%
($6125/ac)
Non-CSA
Farm
$6-22,000 ½ - 3/4 65-75% 35%
($2100-7700)
FTE/Ac includes owner labor but not overhead/management labor
Net Income is what’s left to cover owner salary, and capital improvements

12. Data from UW Study of 23
Vegetable & Market Farms In
Wisconsin - 2005
These farms all
grow multiple
vegetables and
sell in multiple
channels.
Benchmarking With Other Farms

13. Farm Size <3 acres 3 to 12 acres >12 acres
Average Gross Sales per
Acre by farm size
$15,600 $11,120 $10,810
Range $9,000 $28,000 $7,060 $15,260 $6,710 $16,690
UW Study of Small Vegetable & Market
Farms In Wisconsin –
Gross Sales per Acre
Variability!

14. Farm Size <3 acres 3 to 12 acres >12 acres
Average Labor hours per
Acre by farm size
1,957 850 554
Range 592 3,021 349 1,870 166 729
Average FTE per acre 0.3 1.5 0.2 0.9 0.1 0.4
UW Study of Small Vegetable & Market
Farms In Wisconsin –
Average Labor hours per Acre
Variability!
FTE = Full Time Equivalent (2000 hours/year)

15. Farm Size <3 acres 3 to 12 acres >12 acres
Net Income per Acre-
(no owner pay yet)
$5,664 $4,679 $3,757
Range $-1,886 $17,269 $466 $9,792 $779 $10,120
UW Study of Small Vegetable & Market
Farms In Wisconsin –
Net Income per Acre
Variability!

16. How Do You
Compare?

17. The CSA Benchmark Collaborative
How Well is My Operation Really
Doing?
Gary Matteson Erin Pirro
The Farm Credit Council
2012

18. Five-Line Income Statement
Create a Five-Line Income Statement to turn a bunch of numbers into a
snapshot of your business performance.
This is part of your One-Page Business Plan! www.foodshedguide.org
Gross Sales
Less COGS
Equals Gross
$1.00
- .58
.42
.28
.14
Margin
Less Overhead
Equals Net Margin
-
The Farm Credit Council
.55
.45
.30
.15
PVF

20. What are the possible reasons for lower
gross sales numbers?
The Benchmark says gross sales should be $18-20,000 per acre
You are grossing $10,000
Now What?

21. Unpeeling the Onion
or
Asking the 5 Whys?
YIELD PROBLEM?
COST PROBLEM?
PRICE PROBLEM?
MARKET PROBLEM?

22. Yield Problem

23. Yield
Benchmarking
Conventional Ag:
• Knott’s Vegetable Guide
• University Crop Budgets
Smaller Scale Sustainable Ag:
• Roxbury Farm Harvest Guide
• Wiswall’s book (20 crops)
• The Market Gardener

24. FIELD TOMATOES
Wiswall’s Book – The Organic Farmers Business
Handbook

25. My Yield Data

26. Other Yield Benchmark Ideas
Your own data from the past
Your Extension Agent’s eye
Your Neighbor’s Eye
What other Farms Look Like
Hint hint – go visit other farms!

27. Unpeeling the Onion
or
Asking the 5 Whys?
YIELD PROBLEM?
COST PROBLEM?
PRICE PROBLEM?
MARKET PROBLEM?

28. Cost Problem
Possible Solutions =
1. Use smaller holes in the
plastic
2. Weed sooner
3. Overall farm weed
management improvement
4. Don’t Grow Onions!

29. Cost Problem?
Possible Solutions =
1. Improve this wash station
with better plumbing, room
for 2 folks to work
2. Build another wash station
3. Get Root washer
4. Don’t grow things that need
washing

30. Cost Solutions

31. Cost, Yield, and Labor Benchmarks
Beets, bunching
- Yield = ⅓ bunch per foot at 7200 bunches to the acre
- Value = $1.50 per bunch at $10,800 per acre. Remainder is
harvested for beets without tops at a value of another $4,000
Standards:
- Harvesting: 30-40 bunches per hour per person depending on
quality of the leaves @ approximately 200-250 hrs per acre in
cutting plus loading and unloading boxes from and to washing
area
Washing: 100 bunches per hour
From Roxbury Farm Harvest Guide

32. Unpeeling the Onion
or
Asking the 5 Whys?
YIELD PROBLEM?
COST PROBLEM?
PRICE PROBLEM?
MARKET PROBLEM?

33. Price problem?

34. Other Price Benchmarks
are you really looking?
• Conventional stores
• Specialty grocery stores
• CSA’s – look online
• Farmers Market Prices
• Remember to compare apples to apples!

35. Benchmarking Price
• Increase lettuce and chard prices by 25 – 50 cents
(based on prices seen at Whole Foods and FM)
• Price purchased produce comparable to other
roadside stands in the area

36. Increase Price: A little change in price
can make a big difference….
Cost of
production
Price Gross profit per bunch Gross profit per
100 bunches
Percent increase
in profitability
$1.00 $1.50 $0.50 $50.00 0
$1.00 $1.75 $0.75 $75.00 50%
$1.00 $2.00 $1.00 $100.00 100%
Bunched Chard, or Parsley or…

37. Unpeeling the Onion
or
Asking the 5 Whys?
YIELD PROBLEM?
COST PROBLEM?
PRICE PROBLEM?
MARKET PROBLEM?

38. Market Problem?

39. Market Problem?

40. Unpeeling the Onion
or
Asking the 5 Whys?
YIELD PROBLEM?
COST PROBLEM?
PRICE PROBLEM?
MARKET PROBLEM?

41. Unpeeling an onion
One Example
Now What?
The Farm Credit Council
Your labor cost as a % of sales is 45%,
That is higher than the benchmark of
33-35%

42. What are possible reasons for high labor cost
(as a percent of sales)?

43. Problem = High Labor $/acre
 Possibility #1
cost per worker equivalent:
Now Spending $30,000 ($15/hour) on a full-time
equivalent
the benchmark is $30,500
Conclusion: We’re spending an
average amount per worker
Benchmark data from Farm Credit East Ag Retail Benchmarking Group

44. Problem = High Labor $/acre
Possibility #2,
hours worked per acre:
Now putting 345 labor hours in per acre
the benchmark is 350
Conclusion: Our farm is about average
efficiency-wise
Benchmark data from Farm Credit East Ag Retail Benchmarking Group

45. Problem = High Labor $/acre
Possibility #3
sales per worker equivalent:
Now workers generate $50,000 of
income per full-time equivalent;
the benchmark is $75,000,
Conclusion: We’re not grossing enough
Benchmark data from Farm Credit East Ag Retail Benchmarking Group

46. What are possible reasons for
< $75,000 in sales per Full time
equivalent worker?

47. Possible reasons for
< $75,000 in sales per Full time equivalent
worker?
Yield problem? = not enough to sell
Sales problem? = not selling what you grow
Price problem? = selling it all, there is plenty,
but the price is too low

48. Remedies for We’re not Selling Enough?
Increase Yield
Boost sales efficiencies
• Add value
• Change product mix
• Train staff
Increase prices

49. Five-Line Income Statement
This is part of your One-Page Business Plan! www.foodshedguide.org
Gross Sales
Less COGS
Equals Gross
$1.00
- .58
.42
.28
.14
Margin
Less Overhead
Equals Net Margin
-
The Farm Credit Council
.43
.57
.33
.10
PVF
Overhead Benchmark Problem?

50. Infrastructure Cost Problem?
Make sure I can afford big infrastructure
improvements and that they help me with profits

51. CSA Farm Ratios – from 6 farms in Wisconsin and Minnesota, 2012
Farm A Farm B Farm C Farm D Farm E Farm F PVF
Net to
Gross
48% 36% 39% 27% 37% 33% 36%
Veg.
Acres
6 4 7 3.5 3 4 20
Gross per
Acre
$24,081 $46,237 $19,271 $19,954 $33,000 $10,323 $22,000
Net per
Acre
$11,574 $16,578 $7,568 $5,426 $19,500 $3,358 $7900
Assets
per Acre
$23,667 $37,221 $17,431 $44,286 $16,667 $13,000 $40,000
Assets to
Gross
1.0 0.8 0.9 2.2 0.3 1.3 1.8
Assets to
Net
2.0 2.2 2.3 8.2 0.9 3.9 5.0
Slide from John Hendrickson, Outreach Program Manager,Center for Integrated Agricultural Systems
University of Wisconsin-Madison

52. How do you compare?
And does it even matter?

53. Let’s Grow Better, Together
Ellen Polishuk
Ellen@planttoprofit.com

54. • Reaching for Profits: Using Benchmarks to Make Adjustments —
What are the benchmarks you look at to measure success on the
farm? How do you assess the overall market and gauge what your
peers are doing — whether it’s at the farmers’ market, on their farm
stand, or in their marketing materials? We don't farm in a vacuum —
competition for markets, for price, and for labor is fierce. In order to
make a profit, it pays to learn from other’s examples. Ellen Polishuk
will share strategies for assessing and refining your systems. Ellen
Polishuk, farm consultant (MD)