Sometimes I just think and think and think and agonize and agonize and agonize ... and well ... you get the idea. There are just some decisions that I have a difficult time making as I try to process the information and come to the best conclusion. One of those decisions that I'm agonizing over right now is pricing. I know that I need to adjust my prices and I'm not ashamed of that (because if I don't the feed prices might drive me mad). But, what I do agonize over is just how much to raise them and how exactly to land on that perfect price!
Without a doubt I am not very prepared to figure out the exact amount that I need to charge because I'm not doing a very good job of tracking feed conversion and feed consumption of my growers and sow herd. That's not to say that I don't know how much they are eating and about how much per day that they are eating, but rather I'm just not sure how well that feed is working and at what rate it's turning into pig pounds! I've read quite a few research papers on the topic and I know that I need to do a good job keep the feeders adjusted and things like that to get just the right feed-to-weight conversion, but I'm not there yet.
So, I just toss the figures that I have around in my head throughout the day and then try to land on a price that I think is fair for the farm. I'm getting close to having it nailed down and when I do then I'll be sharing more information about the pay-as-it-grows program. If you are interested in a pork whole or half feel free to send an e-mail and I'll add you to the list!
Even though the weather has taken a step back from the 60º and 70º temperatures that were so much fun I have been making my way around the farm and taking stock of the projects that need the most attention as spring comes. There are some repairs that need to be done on the hi-tensile fence, along with some fencing issues that just never were finished. I really want to get out and mow down some tall grass and bushes, but the PTO isn't working on the tractor (again). Of course I need to get thinking about prepping the garden ... thankfully there is a rear-tine tiller to help me this year! And, if I wanted to save myself some headaches later this year I should really be out in the woods cutting paths for the pig paddock fences!
We'll see how the spring goes ...
Pricing is hard to do. I tend to not raise prices quickly enough. But I know that our restaurant customers need a long lead time on price increases because they've made their menu up by the quarter or even six month period.
ReplyDeleteI tend to under price which isn't good. I get told by our customers our prices are too low and that we should charge more but when I look at the prices they seem high thinking as a buyer. The price needs to be a lot higher than we think because it always costs more. Things come up. It isn't 100% efficient. Not all the animals make it to market. Feed is wasted. Buyers don't take all the meat - they want the high on the hog stuff. Somebody doesn't pay you and that has to be covered by your other pricing.
What I do is survey other producers. I keep my prices lower than the max but above the 75% for other farms similar to ours (all natural, pastured, etc). I observe what the real super market prices are (NOT manager's special which is almost out of date food) but don't compete with that. Sell on quality.
For comparison see our price sheet at:
http://SugarMtnFarm.com/literature
For wholesale pricing figure on about 70% of those numbers for the Buy-The-Cut. Wholesale buyers buy regular, weekly large standing orders to get that price break. About 90% of our business is wholesale delivered to stores and restaurants on our weekly delivery route. See:
http://flashweb.com/outlets
Having an efficient route is very important. We try and keep the truck always full.
To my way of thinking, a product has a set value (or selling price) regardless of its cost of production.
ReplyDeleteThe cost of production shouldn't have any relationship to how much is charged for your product.
But, the difference between the cost of production and the set value of the product will determine the amount of profit.
So, the selling price should be figured out first (How much are customers willing to pay?), the cost of production should then be figured out (How much feed does it take and how much does it cost?), then the cost of production should be "fine-tuned" to increase your profits.
As an example, increasing the efficiency of your feeders, lowering the cost of your feed, or improving the quality of your feed could all lower your production costs. Of course, taking that sort of thinking to the extreme is what leads to confinement facilities (but that shouldn't invalidate the basic premise).
Rich,
ReplyDeleteSure there is a top price that someone may be willing to pay for a product, so in some senses yes the price on a level must be set before production. Nobody will pay $25 for bacon, so if that is what it will take to produce it then I just shouldn't produce it.
But, on the other hand I don't want to be a price taker that lets someone totally control my price. Yes ... there are things that I can do to lower my production costs, but at what cost? Feed efficency is the easy one ... But, how would I lower my feed costs or up the quality? Maybe I could grow my own feed ... well then I would need more equipment and more land. That almost seems like it would price farmers like me out of the game.
Just a couple quick thoughts ...
If you are the one setting the price after consideration of what you think your customers would be willing to pay, I don't see how you would ever become a price taker or how someone else could control your prices.
ReplyDeleteBut, if you grow even a small amount of your feed, you will have more control of your costs and the quality of your feed.
Concern about equipment costs and the possible need for additional land is understandable. But, those obstacles might be easier to overcome than some would have you believe.
When I first started farming, I had it in my head that ideally I would like to no-till our cropland, but I convinced myself that I couldn't afford the equipment and the equipment would never pay for itself on a farm of our size so I never fully pursued the idea.
A few years later, I actually looked for some used equipment and was able to buy a good used no-till planter and drill for a fraction of the cost that I originally estimated. If I hadn't convinced myself that I couldn't afford to try no-till, I could have started doing what I originally wanted to do a lot earlier and would have actually saved the money that I spent on "cheaper" equipment.
So, if you actually want to try growing some of your feed, etc. don't assume that you can't afford the equipment or don't have enough land until you actually look into what is available and exhaust all possibilities.