This module addresses the process of deciding on the price per unit for your product(s). In most cases, farms going from direct sales to retail sales will be diversified, with multiple products. The pricing strategies expand in this case with opportunities to balance costs and margins across a product line rather than for one commodity. The module explores different ways to calculate price, margin and the sensitivity of the models to changes (such as renting or buying equipment).
You should review the different options and choose the one that meets your needs and capacity. Options range from a whole product line calculation to detailed cost of production and price to buyer calculations by single commodity. Although the more complicated methods may be more accurate, if they are too complicated to be maintained regularly, then they are similar to doing nothing. The long-term usefulness of a well-maintained tracking sheet that generates realistic costs has to do with the sensitivity of profit to the various costs.
For example, on a mixed farm with a small garlic crop that has been selling with high margins, and a large potato crop with slim margins, what is the impact of losing your garlic crop one year to flooding? What volume of potatoes sold would bring the net profit for the business back up to the target? For farms focused on a few commodities, more detail is necessary to test sensitivity to small changes in input costs, harvest levels, etc. On large soybean farms, where the price is tied closely to fractions of moisture level, and the commodity prices are global, a successful year may come down to the exact hour when harvest is ideal, and a great deal of detailed knowledge is gathered and processed electronically and rapidly.
The following videos will get you started thinking about how your different target markets interact. The next section offers a variety of templates to use to calculate cost of production and pricing.