Price your Farm Products for Profit (Not Competition)
Will Campbell from Old Rich Valley Farm in Virginia recently shared his tips for pricing products to sell, and make a profit. Every business is different, so it is important to understand that what works for one Farm, may be different for you. However, all Farmers must consider their underlying costs, to ensure their asking price can deliver a healthy profit margin.
And, when considering the “value” of your products, start with what differentiates your products from other market alternatives. To hear Will talk more about pricing, listen to the new podcast:
Know What you Can Control
You cannot control the cost of your inputs, but you can control the price of your output. It is important to consistently review your cost to produce versus your product pricing and overall margins. Instead of pricing a product to be ‘reasonable’ for the Buyer, explain why the price is reasonable for the value of the product. The price of your products must cover your costs and provide a healthy margin to pay for your time, care and attention. The “value” of your Farm products should always be at a premium above commodities.
Most Farms offer an array of products, from individual products to Bundle Boxes and Subscriptions with a range of fulfillment options. Give Buyers the option to choose what they want (within reason for your Farm), whether it is a bulk order or a specific item priced accordingly. Each item may have a different production process, with a variety of costs across your inventory. Evaluate your production costs across all your inventory, then identify a price to turn a profit. Buyers will have numerous options across different price points to suit their needs.
It is smart to reevaluate your costs and revenue every year, to determine if your Farm sales are sustainable for your business, or if your prices need to increase. Adjust according to your cost to produce (feed, fuel, interest rates) year-over-year. Especially around tax season, it is important to reassess your numbers and measure the health of your business. There may be opportunities to expand certain product categories and there may be parts of your business at-risk (not enough demand). Even with rising costs, loyal buyers will spend more with Independent Farmers if you convey the value of your products.
Raising your Prices Over Time (to Charge a Premium)
Inevitably, the prices for your Farm products will have to rise over time. Costs of production, from feed to fuel, rise with inflation across the country. Every business must adjust their prices to reflect the changing prices to continue to make profit (and survive). Your Buyers are not immune to price increases. While you feel hesitant about raising prices, it is a reality that will affect the viability of your Farm long-term.
Be honest with your Buyers. Do not fear losing some Buyers over raising costs of products in your Farm store. You can and will maintain a strong base of loyal customers through these changes if you are transparent about price increases.
Keep your Buyers informed in email, newsletters, on social media, or at a market, as to upcoming price increases (and why). If Buyers understand that your business must raise prices to keep up with production costs, then you will endear loyalty. Honest Farmers are trustworthy Farmers, and Buyers will appreciate your transparency.
Read: Buyer Trust Infographic
While you may lose some Customers after a price increase, it is important to remain consistent. Do not be discouraged if you see a few Buyers leave - there are many, many other new customers to attract. If you price products low simply to maintain certain Buyers, then you may eventually be unable to afford your Farm. Build a strong relationship with Buyers to show the value of purchasing local Farm products. Your Buyers understand that you are doing your best, communication is key.
Don’t Sweat the Competition
Your Farm is unique. It has its own story, brand and values. You must understand that your Farm is vastly different from a Farm down the road from you, even if you sell similar products. Practices, procedures and expenses range from business to business, so focus on what prices work best for your Farm to ensure a healthy profit.
Many Farms believe they must price products low to sell, and in turn push more product to secure profit. However, this results in lower margins, and a loss of what you could have made on those products. If you put products on sale simply to increase orders, you are going to lose more money and ‘accelerate’ your loss. To continue Farming, your numbers must add up, and provide a net increase in profits for the future of your business.
Don’t attempt to compare your prices to Big Box grocery stores, or you will miss out on margins. If you lower prices to compete on volume, then you are diminishing the value of your Farm products by trying to appease everybody. As a Farmer, you are not selling to everyone in your area. You are selling to those who value supporting local, sustainable Farmers. Recognize these Buyers in your community, and communicate the value of your products. Educate customers via email, newsletters and social media to explain the differing costs in locally grown food versus mass-produced goods at the local grocer.
I hope consumers see the value in our products, but at the end of the day, we Farmers get to say, 'Okay, this is what it's worth for us to produce and make a living.' Then, if people buy it, great, but if not, we'll find the next customer.
- Farmer Will
Note, local Microbreweries do not attempt to price match Commodity Beers - rather, they charge a premium price for a locally sourced product (often charging 2x as much). Customers make this choice because they know that the lower priced Commodity Beers lack the taste and quality of a Microbrew. Additionally, Buyers prefer to support local, small business owners.
In the same vein, your Buyers need to be educated that your Farm Products taste different, look different and have more nutritional value (making them higher quality). In fact, one egg from a local pastured Poultry Farm could have as much protein as 4 eggs from a Big Box grocer, readily justifying a higher cost to benefit your health.
Communicate the Value of your Farm Brand
At the end of the day, you can not expect everyone to ditch the grocery store and shop exclusively from your Farm. However, you can provide better quality products that are worthy of purchase and inspire a commitment to healthier alternatives.
Your products are a reflection of your Farm values as a producer. The people you serve will appreciate your stewardship of the land, animals, plants and the health of your local community. Through email, newsletters and social media, share what you are doing on pasture to provide a glimpse into sustainable agriculture. Your Buyers will be intrigued to see what is happening on your Farm, increasing their excitement to support your business.
Be authentic - people want to buy real products from real people. Share your aspirations with your Buyers, and they will feel a sense of connection that will lead them to secure a purchase (and support your mission). Educate Buyers on the higher nutritional value in sustainably raised products, with animals that lived a better life and crops without chemicals.
To own and operate a family-owned Farm, it must be financially sustainable as a business. Maintain prices that reflect the value of the products you have grown and harvested, with healthy margins that provide a living for your family.
Conclusion
Your Farm can stand out and charge a premium price for your products (and make a healthy profit). While many Farms may attempt to compete with prices at Big Box grocers - that is a losing proposition (and a race out of business). Our most successful Farmers focus on communicating the value of their products to attract customers eager to buy local. Build a base of loyal Buyers who want to support your Farm, your family and your commitment to quality (that is priceless). Be honest, transparent and invite your Buyers to be a part of your Farm’s mission to feed your local community.
Barn2Door offers software for Independent Farmers to create and promote their brand, sell online and in-person, and save time managing their business. For more information on tools Barn2Door offers to help you market your Farm, watch this 5-minute video.