Should you do a price breakdown for your customers?


Last week on a free monthly marketing call I host I was asked a question I’m super-opinionated about.

Anna called in and asked if it was a good idea to do a blog post, email, or even facebook post to her customers explaining how she came to pricing her meat chickens she sells.

My instant response – the short answer — is a big fat “NO!”

You do not deserve the conflict nor criticism that would arise out of this practice!!

I have seen farmers attempt to publicly explain the pricing behind their raw milk, eggs, meat prices and more, in an effort to educate and explain why their food might be more expensive than in a grocery store.  Then I watch as these well-meaning business owners are torn apart, criticized and called names online by non-farmers.

Anyway, to continue.  When I go to my local Wilco Farm Store to buy a new Carhart jacket, not only would I not DREAM of asking them what are the costs involved in producing this jacket so I know if their price is fair, I really don’t even want to know.

I don’t want to know that the fabric cost $2.30 and the zipper was forty-three cents and the person running the machine was paid $5 per day and then there’s the few cents it cost to be on a big boat from Cambodia. Then, it was trucked to Wilco where an employee unpacked it and hung it up, costing a few more cents.

So the costs, including wages, are $5 or so.  And the price tag says $89.99.  I don’t want that explanation that will then cause me some stress wondering who gets the other $84.  I have way too many other stressful things to think about, such as how to afford to fix the fence that had trees fall across it in 8 different places, and how to fill my next year’s hog orders when our breeder when out of business, and the stress of a freezer that keeps breaking down and costing money to repair but we can’t afford the new one.

But stress aside, some farmers feel they owe it to their customers to explain their pricing.  No way, never, please don’t do this!! 

For one thing, I’ve spent the last 10 years watching farmer after farmer get into business and then go out of business after 1 year, 2 years, maybe 4 at the most.  Hardly anyone I knew farming even 6 years ago is still in business.  Farming on the small scale that is so much healthier for the land and animals is a very deep money-pit that you will continually dump your heart and dollars into, also paying an emotional and physical price, and hopefully make a go of it for longer than your neighbor.

 So, no matter how much you’re charging, I know from experience you are likely not charging nearly enough to be sustainable.

But your customers who aren’t farmers will not get that.  Even if they own a few chickens, they still won’t get it.

The only time I discuss the breakdown of my costs is in a consulting meeting with other farmers who are in business or planning on getting into farming and need realistic info.

One thing farmers often forget to put into their cost breakdown, and that the public has the most problem with is a wage – a living wage here in NW Oregon within an hour or so of Portland is about $22 per hour. Most farmers tell me they are averaging LESS than minimum wage and are ok with that.

Until they get tired of living unnecessarily in poverty.  Then they call me to let me know they’re going out of business because their family life is suffering due to all the hours they put in their business and they can’t hire anyone because they did not figure a living wage into their pricing.

I hear from farm owners and laborers who are on food stamps and other forms of public assistance.  Shame on their customers for demanding food so cheap that their farmer lives in poverty!

Most farmers also don’t include things like car payments, mortgage payments (or rent), taxes, and total loss of crops or animal replacement.  Or fencing and replacement fencing!  (and so many more unseen costs).

Even if you get your land for free or very low rent because of generous family or neighbor, this won’t last for long so if you have not budgeted for rent/mortgage, when the person gifting you the property decides to sell or charge you, then you’ll not be prepared to go out and rent land.

Total crop loss and animal death is another big money pit – you must account for these things in your pricing.  New farmers often lose their crops due to inexperience.  And I hear all the time from small dairy operators that one of their milk cows died.  Again, this inexperience must be accounted for in product pricing.

But if you list that out – a line item for a replacement milk cow for instance – customers will question you as to why you need to do this.  Non-farmers, and even new farmers, have a hard time understanding that it is a very common occurrence.  Customers pay for the crop they do eat but also they must pay for the losses, or you won’t stay in business!

One farmer I knew spent his first year feeding hundreds of meat chickens.  But because he was inexperienced, and he was buying feed from a newer feed producer, the protein balance was off and all the chickens tasted like fish.  He made lots of refunds and is out of the chicken business.  You must build your learning curve errors and the high-costs of farming into your products.

Another item small business owners often fail to consider is wear and tear on property.  We have 30 people a day drive into our driveway to our farm store.  This means a lot of maintenance dollars spent on the driveway and the parking area, regularly, and that must be built into the cost of the product.

Taxes and insurance are a big expense a lot of small business owners leave out of the cost of their product. Maybe because they started out their business and had friends or volunteers helping out and had so many losses that taxes weren’t an issue.  But that is not sustainable – once you have employees and in order to stay in business you’ll need to get there – you must pay worker’s comp and social security and Medicare and others, so taxes and insurance must be figured in to the cost of the product from the start.

I have several different insurance policies on my farm – a general farm liability policy, a raw milk liability policy, a meat liability policy, coverage for my hay in the barn, coverage on 4 barns + other outbuildings, and another policy for running a business in my home.  And I’m sure I’m missing some!!! And because of the touch nature of raw milk they can’t all be rolled into one.

This adds up to lots of $$ spent on insurance.  But 3 neighboring farms had barn fires in the last 6 months.  At least one had no insurance coverage on their hay and lost their winter’s worth of hay.  They can’t afford to replace it so are just closing up shop.  So if you figure insurance is too much to pay up front, you need to think again – lack of coverage will do you in.

If you have a problem with your customers wanting to know the cost breakdown (mine NEVER ask) then those are not your ideal customers and not the customers who will make you sustainable. 

The 3 Cow Marketing Course (offered again in March) will give you the confidence to charge the prices you need to charge, even if at first you think they are so high no one will pay them.  The strategies taught in the Course will also teach you how to build such a deep relationship of trust with your customers that they would not dream of questioning your prices and will gladly pay what you need to support your farm.

  • Now it’s your turn – you help everyone in this community by sharing – scroll down below to the comment section and tell me —

    what costs do you think need to be figured into your product pricing that maybe you’re forgetting? 

Maybe a premium charge for having to milk cows on Christmas Day or other holidays?  My employees who work Christmas Day get paid double.  Why not you?

Have a super Happy New Year!!!  Let me know what you want to hear about on this blog!!  Just hit ‘reply’ to this email and let me know your struggles or hopes you want answers for!

Happy New Year!!!  Many successes to you and your business in 2016!

Charlotte

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Hi, I'm Charlotte Smith!

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