How can farmers increase their profit?
Every business owner wants higher sales.
It doesn’t matter what country you live in or what size your business has. When you start a business, you want to see more and more sales come in as time goes by.
And you want those higher sales to result in higher profits.
For example, see how this entrepreneur was able to boost profits by almost 40% in 6 months.
But those entrepreneurs that are experts in their field of operations can lack the commercial and marketing skills to scale your business and take it to a higher level.
Agripreneurs – farmers – are one example of business owners that struggle with the commercial skills needed to grow their business.
They know how to grow food and they are experts regarding which prices are being charged on surrounding markets.
But this knowledge is not enough to scale the business unless you are able to produce huge quantities to offset costs. And to do intensive farming, you need a lot of money.
For many small and medium-sized agripreneurs, this is a big ask and not easy to do. However, there are other strategies to consider that are effective and bring quick results. It requires you to put in time and effort, but the financial investment is low.
Let me give you an example.
Business challenges faced by agripreneurs
One of my clients is an agripreneur from a developing country. He owns a plot of land that is irrigated by his own water supply.
Over the past five years, he has grown two types of agricultural products. He does the sowing himself, and also the maintenance (weeding) and fertilising. At harvest time, he brings in day-labourers to help him.
This entrepreneur sells his produce on the big regional market and at local markets near him. He owns a truck that he uses to deliver his products. He also does some limited selling directly from the farm.
Since he owns the land, the water supply and the truck, it means that his farm expenses are mainly variable and are strongly determined by what he is growing.
The problem: how to increase profits
My client has not been able to get a good financial return from his farm. Most years, the farm returned a small profit or even a loss.
He hired my services to help him increase his profits.
When we started working together, we started by analysing his business and the market. These are the things that stood out:
- he knew that the market prices for his products fluctuated strongly, depending on the supply and the season. A good harvest means that a lot of people are selling similar products on the market at the same time. Prices are low at this time. During certain months every year — the off-season — prices are much higher.
- he has very few regular customers. Also, big buyers are always putting pressure on him to reduce his price, especially when supply is high.
– he had a strong understanding of his variable costs and knew how to manage them well
- he continuously researches information about how to improve his farm. For example, which products to add to increase harvest yield and when to apply specific fertilisers to improve the soil.
- he had done market research and understood which products were in demand. His pricing was similar to that of his main competitors.
After discussing the above, we determined that his main risks were a bad harvest or a very good harvest. A bad harvest meant he would not be able to regain his investment. A very good harvest meant market supply would be high and he would be forced to drop his prices to avoid the products going to waste.
My client decided that he wanted to focus on two things:
- distinguish himself on the market so that he could increase prices
- create a diversification strategy to reduce his business risk
We started looking for a strategy that would bring quick results. The first thing we did was gain a deeper understanding of his customers and the market.
We came up with a strategy that had three components.
1. Sell solutions instead of products
We started by analysing his customers.
- Who are the people buying on the market and why are they buying these products? Is it to feed their families? Is it to get the necessary ingredients for restaurants and hotels? Is it to resell to other businesses, like supermarkets?
We realised that many restaurants and hotels in his country experienced challenges to ensure a stable supply of high-quality and fresh vegetables. We also found out that supermarkets faced this challenge.
The agripreneur invested time to talk to supermarket, restaurant and hotel owners to get a better understanding of their challenges. Once he understood it, he came up with a solution for them.
His solution was that during certain months of the year, he could guarantee the delivery of a certain amount of high-quality and fresh vegetables. Every day, at a particular time, 7 days a week. He also showed them samples of his products.
Based on this, a few businesses decided to give him a chance. After he proved himself, more came. This gave him the opportunity to bypass the markets because customers were willing to pay a premium price for consistent delivery and quality.
Some of his customers have also started asking him to deliver additional vegetables. This is allowing him to expand his farm and produce to order.
2. Increase profits by selling to higher-value customers
Once he gained entry into supermarkets, my client worked to convince them to include higher-value products.
For example, instead of just selling freshly harvested cobs of corn, my client started offering boxes that included multiple vegetables. He also included a recipe for a particular dish and made sure to add his branding.
These boxes were nicely (but inexpensively) packaged and sold for a higher price. Through this, he was able to reach wealthier customers and increase his profit margin.
Some of these customers also started following his Facebook page. This made it possible for him to start targeting them with specific marketing offers.
Not all customers are created equal.
There will always be customers who bring in higher profits than others. And there will always be customers who only bring you headaches and stress.
The key is knowing who your most profitable customers are and then finding ways to attract more of them.
3. Expand product offerings for higher sales and diversification
In addition to the fixed delivery, on-demand production and value-added products, my client decided that he also wanted to reduce his dependency on big customers.
Since he was already doing some limited sales at the farm, he decided to expand this source of income. After doing some additional market research, he was able to determine that there were good business opportunities if he targeted a particular type of customer.
He tested this strategy using Facebook marketing to see if his assumptions were correct.
After validating his new product, my client started an online and offline marketing campaign to bring in new customers.
Today, even though sales are still low, this is the fastest growing part of his business. And he did not need a degree in business management or marketing to achieve this growth.
And I am excited to know that he will soon start creating new jobs in his country.
How can farmers increase their profit? That was the question I started this blog with.
The answer is that there is an easy strategy that farmers can follow to achieve this. And, that this strategy also helps to create more opportunities in local communities.