Increase Ranch Profits: Move from Auctions to Direct Sales
Many Ranchers across the country start their business in the sale barn, because they are familiar with the system and commodity markets make it easy to move a lot of product.
However, the sale barn takes away a lot of freedom from the Farmer, giving other people the power to price your products, and erodes your profit margins. In the commodity market, you are also at the mercy of the auction house, market trends and price changes.
Direct Farm sales gives your Ranch the freedom of complete control over your products, pricing and your customer base. You determine the price, the product packaging and the target customers to whom you sell.
Independent Farmers have more stability selling direct to consumer and wholesale buyers, knowing their products will be sold at a fair price. All the Brand value accrues to your Ranch, increasing customer loyalty and enabling your business to charge a premium (and make more money)!
Why Sell Direct to Consumer?
Independent Farmers have more freedom in their business. When relying upon auction houses to purchase products at commodity prices, Ranchers are giving them full control on the outcomes. When selling direct, you determine the prices and packaging, meaning you can optimize your profit margins (and still move all your products).
Instead of settling for commodity prices per head, your Ranch can capture the full market value of the animal. As a result, profit margins are much more attractive.
When selling direct, your Ranch accrues all the Brand value, you own the Buyer relationships and can communicate however you wish. Our most successful Farmers move all their product in Bundle Boxes (versus getting stuck with products in the freezer), and build recurring revenue with Subscriptions.
No matter how the sale barn fluctuates, your independent Farm will have consistency, recurring revenue, higher margins and a high profile Brand in your local community. While the commodity market favors large scale Ranches, selling direct will serve your business well, no matter the size.
Start Selling Direct
Price your Farm Products at Premium
When choosing to sell direct, you must recognize the inherent value of your product versus commodity alternatives in your local grocer. 9 out of 10 people are willing to pay more for a sustainably-raised product from a local family-owned Farm.
Convey the value of your products with consistent marketing, to reinforce your Brand and meet Buyer expectations. Then, price your product based on Buyers willingness to pay. Do not fall into the trap of cost-plus pricing, or comparing your products to those at big-box retailers. You do not want to be in a race to the bottom (you’ll lose). Rather, price your products at premium (in the same way a microbrewery charges 2x versus conventional alternatives).
Unlike commodity producers at the sale barn, your Ranch does not have to focus on scale to increase your income. Rather, you can focus on quality, increasing prices and improving your profit margins, to grow your net income. Depending on your Ranch type, size, costs and location, there may be a range of products you need to grow and harvest to secure and maintain a livable wage.
Independent Farmers can make much more profit on fewer heads of cattle by selling direct to consumers, given their willingness to pay a premium for a local, sustainably raised product.
Establish Healthy Margins
To ensure you’re building a viable business selling direct, you must know your numbers. Consider all your overhead costs that do not change, no matter how much product you produce. You must account for the costs to maintain your Ranch, property taxes, essential labor costs, utilities and upkeep of your land and buildings.
At a minimum, your gross margin must cover the costs of your overhead. Also consider the cost of your product before selling, including variable costs, such as harvesting and nurturing. Ensure that you are charging enough to provide a positive net income. If you wait to track these numbers, you will be stressed when it comes time to paying bills (and you may be in the red - losing money).
Once you know your numbers, then ensure the price you set reflects the value of your products and will turn a profit. Look to ensure healthy margins (versus razor thin margins). If a few customers are not expressing concerns about the high cost of your products (and actually saying ‘No’), then you aren’t charging enough.
Marketing to Farm Buyers
If you want to pivot your Ranch to a direct to consumer business, you must have many Buyers ready to purchase your product. To access Buyers, you must market to them consistently to build Brand awareness, so they know you exist and appreciate the value of your sustainable products (as a premium purchase). Meeting people within your community, through local partnerships or routine spots (churches, schools, markets) will help you build a personal relationship with local Buyers.
As you begin to grow your list of Buyers, then you must market to them consistently through targeted email campaigns, newsletters and social media. There is a cost to your marketing efforts (time), but this can be streamlined with Farm software to automate many of the interactions. Once you build up an email list through in-person and online sign-ups, you can engage potential Buyers with targeted communications to prompt recurring sales.
With consistent processing dates, fulfillment schedules and automated communications, you can organize and streamline your business to make it easier to manage (versus being at the will of the commodity market). Buyers will appreciate your consistency and know what to expect from your Farm. If you put in the effort to reach local Buyers, the work will pay for itself.
Sell Direct with Farm eCommerce
Independent Farmers value the relationships built within their community. This increases Buyers trust and helps foster partnerships that will benefit your business. These relationships can lead to new possibilities for the Farm, such as on-Farm events (dinners, events) and agritourism (field trips, educational tours). These secure extra cash flow for your business and attract new, potential Buyers in your community.
To secure more Buyers, make it easy to access your products - online and in-person. If Buyers make a purchase ahead of time online, you already have their payment secured, and can trust they will pick up the product. Software that allows you to sell by weight and offer bundle boxes subscriptions will make your order options more tailored to your products, attract more Buyers and build recurring revenue.
You can choose how to package items, bundle complementary products, or offer Pre-Orders and Subscriptions (for additional sales in the off-season). As an Independent Farmer, you have many more opportunities (not available in the commodity market) — you simply need to build a base of Buyers to purchase your products consistently.
Conclusion
Your Ranch can benefit from selling direct to Buyers in your local community by building a business that is fully in your control. You do not have to give up control of gross income to auction houses that benefit commodity production (and erode your margins).
You can increase your Ranch profits when you price your products based on the value Buyers are willing to pay. With increased profits, you will have more net income to employ labor to help manage a growing base of Buyers, giving you back more time.
Direct sales offers greater stability for your Ranch business, that is not achievable in the commodity markets, which is subject to market fluctuations. As an Independent Farm business, your Brand, your Buyers and the prices for your products are your own.
Your Ranch can begin making the transition to Direct Sales today and build a more resilient business for the long-term.
Barn2Door offers software for Independent Farmers to create and promote their brand, sell online and in-person, and save time managing their business. If you’re curious to learn more, watch this 5-minute video.