Revenue is the Benchmark to Beat

Courtesy of Roxanne C., Philadelphia PA

We have said before that SPIN is performance-based, which means that success is measurable. The traditional and often used benchmark in farming is yield.

Certainly the amount of crops you produce is important. But to succeed as a business, what is most important is not the ability to grow in significant volume. It’s the ability to sell, at pricing that makes it worth your while.

Many don’t yet see how this applies to SPIN-scale production because up until the last 10 years or so, there were no markets to support it, so it did not have much of a dollar value. But now there is real money to be made. In the USDA’s 2012  agriculture census valued local food sales at $7 billion.

SPIN’s guide # 18 Crop Profiles is the first attempt to quantify just how lucrative backyard farming can be. These are numbers worth chewing on, and they give farmers different, and highly rewarding, benchmarks to beat.

DDG3 photo 9

SPIN’s small plots generate high yields, but the overall volumes are low compared to conventional farming. 

SPIN photo seed to cash restaurant delivery

 

What is important is that SPIN-scale production can be sold locally at prices that make it worth your while.  

SPIN photo seed to cash invoice for restaurant

 

Even big name hotels and institutions that rely on Sysco are deciding it is worth it to purchase from local farmers because they have less spoilage when they get crops fresh picked. Also, more and more of their customers are demanding it.  

How Much Goes into a Unit?

Courtesy of Wally S., Wally’s Urban Market Garden, Saskatoon SK

Unlike selling wholesale, there are no established unit sizes in SPIN-Farming, and no standards to go by. So how much to put in a unit is an ever popular topic in our online support group.

To take the mystery out of it for beginning farmers, I tell them to first decide how much money they want to make per bed. Then determine the price/unit combination that will generate that revenue, based on their yields and current market conditions. So the exercise for establishing a price/unit combo goes like this:

  • Set your targeted revenue per bed. SPIN’s benchmark is $100 gross per standard size bed.
  • Set pricing. SPIN’s benchmark of $3.00 per unit, or 2 for $5.00.
  • Calculate how many units you need to sell at the pricing you’ve set  to reach your targeted revenue.
  • Given your yield, calculate how much you can put into each unit.

After going through this exercise, you have arrived at your best guess on a price/unit combo to go to market with. Over time, your guesses will turn into better judgment based on your market experience. For  instance, if you have good yields, but sell out early because you are putting too much in a unit, reduce the unit size so you can sell more. Eventually you will get a good feel for the ranges your customers are willing to pay for a unit.

Also, remember that you should always strive to make the most money you can from whatever size plots you have. If your market conditions are highly favorable because you don’t have much competition, and you are producing hard-to-get, high quality crops, $100 per bed may be under achieving.

As a farmer selling direct to consumers, you should always be adjusting your price/unit combo according to the volume of your production and your current marketing conditions. Above all, you’ve got to make it worth your while. When it comes to pricing and unitizing, your needs – not the customer’s – come first.

hc-ct-3micro-farmingphoto courtesy of SPIN farmer Brenda Sullivan, Thompson Street Farm, Glastonbury CT 

Beginner’s Catch -22: There are no hard and fast rules in farming, so you always need to use your best judgment. But judgment is based on experience, and as a beginner, you don’t have much yet. What to do?

SPIN Crop Profiles to the rescue! They give you yield and pricing benchmarks on 40 classic SPIN crops you can use to make informed assumptions when just starting out. They are also useful for experienced growers. These benchmarks will give you a kick in the pants if you are underachieving. Or, if you have busted pass them, let us know. Stretch goals are what keep SPIN-Farming moving forward.

SPIN Pricing 101

Although backyard-scale growing produces much higher volume than a typical garden, the volume is much less compared to multi-acre farms. So because you have a limited amount to sell, you need to get good prices to make it worth your time and effort. Low production and low prices are a recipe for failure.

Getting good pricing takes innovative thinking. Never take pricing as something that is fixed. Fixed pricing is more common to larger scales of production. As a farmer selling directly to the public, you have the ability to vary your pricing according to what’s available or scare at market, the volume of your production, and your needs.

Look at what other vendors are setting their prices at. Chances are they using fixed pricing and selling at the low end. Set your prices higher, and never reduce your prices towards the end of the market to sell out. This will hurt you and the other vendors by training people to come late and haggle. Take surplus produce home or donate it to a food bank. As you gain experience, you will more likely sell out before market’s end, rather than have leftovers.

Always question your own pricing scheme. This year I have re-arranged my pricing. With SPIN’s old mix and match pricing of 2 for $5.00 I had too many people spending just $5.00. Now I have $3.00 for one, 2 for $5.00, and any five for $10.00.

The pitch is you buy 4 bags/units get one free. Making unit sizes smaller to compensate. Now I am getting many more $10 – $20 purchases. So for my green garlic, even at $2.00 per bunch, that makes a row $50, with a 15 foot bed worth $250, with five rows per bed.

SF photo Wally green garlic test crop harvest

As a small business owner, which is how you should think of yourself, you have to find price points that not only please your customers, but that also please you.

 

Market conditions versus Labor input pricing

Courtesy of Wally S., Wally’s Urban Market Garden, Saskatoon, SK

You should not set pricing solely on time/labor spent harvesting. You also need to take into account market demand and timing. I know an organic guy who charges according to labor input, and then can’t  move his product because his price point is higher than everyone else’s.

On many occasions the price you can get can is far above the labor you put in. For me that is for items like green dill, early new potatoes/carrots, first at market baby spinach. So when setting prices, you really need to have your ” boots on the ground ” and set prices based on current market conditions. Using just labor input based pricing in these sorts of cases will not allow you to capture the real potential of where you can put your price point. So don’t blind yourself to what in some cases seems like “absurdly high ” pricing, or what may seem like it to you, but not according to the customer.

Setting Restaurant Pricing

Courtesy of James K., Virtually Green, San Francisco CA

Basic wholesale organic pricing for some major metropolitan areas in the USA can be found using the Rodale Institute organic wholesale prices online tool: http://rodaleinstitute.org/farm/organic-price-report-tool/

The USDA has quite a bit of different kinds of pricing info at: http://www.marketnews.usda.gov/portal/fv

Find out what restaurants are paying for the crop in your area. If your crop is organic then find out the organic pricing. Then ask some chefs what kind of premium they’d pay for the crop if  they could advertise it as locally grown and freshly harvested: some will pay a premium. Also ask chefs what additional premium they would pay for a special variety of the crop harvested at a specific stage of growth: this is where you tailor your crop and harvesting to suit a specific restaurant client.

Using the above approach you may be able to find some chefs who will pay you retail or higher prices for your crop.

Advice on Market Pricing

Courtesy of John S., Blue Ribbon Eggs, Franklin, NC

The best advice I ever got on market pricing was from Robert Plamadon who raises eggs and broilers in Oregon. At first he tried to ‘be price competitive’ and realized that as soon as he had to raise his price a nickel,  the ‘price shoppers’ were gone. No loyalty to your brand. When I was selling eggs I charged about the same price as premium organic eggs in the local groceries because I was selling premium organic eggs, produced locally and my customers became my friends. My profit came from eliminating all the middlemen. That’s where most of new regulations are coming from too. ‘Local Food’ is hurting the bottom line of those who don’t sell direct. .

I would occasionally have someone say, “right now I can get eggs for 99 cents a dozen”.  My response was essentially, “Have at it, it’s your body”.

Another great suggestion on pricing comes from an ATTRA marketing sheet.

“If at at least 10% of your potential customers aren’t walking away shaking their heads, you aren’t charging enough. 20% is better.” I retired from a career in sales,  marketing and branding and that is absolute gospel, no matter what you grow or produce and sell.

We are all producing unique, high quality, locally raised products, and we touch every leaf or root or stem and the customer gets to look the producer in the eye-person to person. They don’t want agribusiness, they want us. Charge a fair price for your work, smile, be polite and charming and let the cheapskates and chiselers walk. Give up on ‘selling everyone’.