Profits or gains formula
A farmer must have an intention of making profits or gains at the time of venturing into farming activities. Profits are made when the income from farm products and services exceeds the costs of producing the products and services including the general costs of managing the farm. The farmer can confirm the profitability of the farm by applying the following simple formula.
Profits = Sales proceeds from farm products and services less costs of producing income and managing the farm. The aim of the farmer should be focused on maximizing the income (sales proceeds) and keeping farm costs under control. However, the cost control strategy should not inhibit the ability of the farm to increase its income because of strict controls on expenditure.
Approaches to increasing revenue
Increasing revenue requires patience as Henri Alain states “Life on a farm is a school of patience; you can’t hurry the crops or make an ox in two days.” However, there are a number of ways that a farmer can implement in order to grow the revenue and profitability of the farm and the following are some of the key ones among others;
Quality products and services
The farmer should ensure that quality products and services are produced to meet the needs of current and potential customers. By quality, we are referring to the degree of excellence of products and services produced by the farm. The quality at the farm level can be increased mainly through value addition to the farm products and services. Value can be added through cleaning, processing, and packaging of the farm’s products before they are delivered to potential customers. It is important to note customers are willing to pay a high price for quality products and services that results in the improvement of the revenue of the farm.
Quite often a farm does not have the capacity to satisfy all customers’ needs because of production and delivery constraints. The option available is to concentrate on satisfying a small segment of the market (niche) by developing specific products and services that meet the needs of that niche segment. For example, our farm offers customers the experience of sustainable farming in the village setting. The farm cannot afford to sell to all customers in Uganda because of farm constraints and its products and services may not appeal to all. Our selected niche market is made up of potential customers living in urban areas who are looking for a nearby quiet place to enjoy nature and experience village life.
Creative and innovative products
This is when a farmer uses their own imagination or new ideas and creates thinking to continuously produce unique products. For example, we have set up a workshop to produce unique furniture from bamboo and eucalyptus timber harvested from the farm. These unique products are only available at the farm at premium prices. The unique products are used to attract more visitors to the farm.
Build multiple income streams
A farmer can also improve the revenue of the farm by creating a number of income streams or activities that are capable of generating income. For example, farm activities could include carpentry, restaurants, accommodation, and leisure among others. The activities have to be managed as profit centers that have the potential of enhancing the profits or gains of the farm. For this to be done revenue and expenses relating to the profit centers are to be separately recorded.
Application of technology to farming activities and processes has a number of advantages including improvement in the quality of production, enhancing the visibility of the products and services, saving labor costs as a result of employing fewer people, and improving the speed of production among others. For example, by applying appropriate technology we are able to produce quality furniture with fewer people and in time to meet the needs of customers.
Farmers tend to make less income from farm products because they do not link with or sell directly to the final consumers. They go through brokers or intermediaries who are also bent on maximizing their income or commission quite often at the expense of the farmers. It is advisable for the farmer to practice business to Business (B2B) or business-to-customer (B2C) farming model. These models enable the farmer to sell the farm produce directly to the final customers instead of going through brokers. Our farm strategy is to attract the final consumers to the farm so that products and services are sold at the farm directly to the final consumer at premium prices.
Farming is a business venture that is undertaken to leverage your competitive advantage in the marketplace in order to make profits or gains. The farm, however, has to be managed using sound business principles and in accordance with the best management practices. The farmer must be prepared to take action when market shifts, new opportunities, and possible disruptions do arise.