Farm Table says:
In this article, Matt Bryant talks about profit margins and discusses the results of a recent study of farmers in the Wimmera-Mallee region of Victoria.
Bryant states that “Looking at the profit margin for a farm business provides an insightful measure of how efficient the business is in managing costs in relation to income.”
The following profit margin and profit driver guidelines are outlined:
- Farm profit margin: 10%
- Farm operating profit margin: 20%
- Input costs: 26%
- Machinery and labour costs: 45%
- Overheads: 9%
- Finance costs: 10%
The findings of the research included:
- Most successful growers within that region consistently operated with a higher operating profit margin than the group average.
- Good business outcomes tend to result for those who manage costs relative to income.
- Top 20% profit group offset their higher costs with stronger income so their profit margin is greater. All costs have increased with machinery showing the greatest increase.
Whilst ‘gut feel’ is often an approach taken by growers, this can be made more accurate by applying some easy to use tools to fully understand the key factors driving farm profitability.