How to Achieve Small Farm Profitability

My friend Mark Toigo in Pennsylvania grows tomatoes in greenhouses throughout the winter, and sells them to regional Whole Foods locations. But much like the figs, these heirloom tomatoes have delicate skins, and can’t take much jostling on tractor trailers and loading docks — his tomatoes are distributed from New England down to North Carolina. To solve this problem, the tomatoes are placed in recyclable clamshell containers with Mark’s name and logo, six to a pack.

Providing a product that’s typically only available via the commodity system, my friend Steve Ernst in central Maryland has diversified his farm of many hundreds of acres into non-GMO grains, offering blended animal feed to local farmers and hobby livestock owners. Steve and his sons have constructed their own storage bins and bagging operation, eliminating their former reliance on trucking it to the closest rail yard. These days, people come to him with their orders, arriving in SUVs and pickup trucks.

So what do these three very different producers have in common? They’ve each identified both the advantages and shortcomings of their individual products, accentuated the positive, and honed in on a marketing strategy that best suits their production.

Risk and extra effort are always where the most money can be made. But this is why you’ll need to invest lots of time brainstorming and identifying all the markets that are available to you, and attempt to figure out which market — or more likely, which combination of markets — will best accommodate your needs.

Depending on where your farm is located, you might have a plethora of marketing options, or, at first appraisal, few whatsoever. Whatever your personal circumstance may be, always remember this: You have many more options than you realize at first glance. Yes, location certainly matters. But so does perspicacity — the art of perception combined with insight. Once you really concentrate on identifying marketing opportunities, you may be surprised by the ocean of possibilities that come flooding your way.

Anyone can identify the obvious candidates — grocery stores, farmers markets, and restaurants. But if these are the most likely choices, then rest assured that other farmers are thinking the same way. It’s far more useful to sit down and draw up a list, identifying every single retail and wholesale outlet that comes to mind. Keep growing this list for months, as you come up with new ideas.

Ideas can be big or small, depending on your scale and what you grow. Your local bakery might need 20 pounds of herbs each week, or there’s that coffee shop that wants to feature locally sourced food on its menu. The bed-and-breakfast in town needs fresh produce and flowers each morning, and the gym with 500 members would be a perfect drop-off spot for a paleo-oriented subscription box.

Perhaps these opportunities are too small for the amount of food you’re producing. What about approaching a regional hotel chain about supplying its in-house conference needs? Or nearby wineries and brewpubs about becoming a featured supplier? You could purchase your own two-door refrigerators, brand them with your logo, and place them in country stores in your area. Better yet, open your own country store, and not only sell your fresh produce, but process it into value-added products, such as snack sticks, jams, and baked goods.

I’ve personally tried nearly every one of these marketing outlets myself. There are dozens upon dozens of ways to market your products. As an old farmer once told me, “I’ve seen all sorts of trends come and go over the years, but one thing always stays the same: People gotta eat!” Find where people eat, buy food, or go to be entertained — or, ironically, to exercise off the food they eat — and you’ll find customers. Again, one of the best ways to do this is to identify a need in your community, or find a certain angle, especially one that protects you from copycats. Opening an on-farm store checked each of these boxes for me.

It’s always tempting to think that location is the biggest limiting factor when it comes to marketing. I’m located near Washington, D.C., a sizable metro area, but I also happen to live in a fertile agricultural region, which means there are hundreds of other farmers offering similar products all around me.

There’s no easy recipe for any of us. It’s your duty to adapt, transforming where you live into your unique advantage instead of a liability. If your farm is located so far away from customers that there’s no practical way to access local markets, perhaps a regional co-op or a wholesale distributor might be the best marketing path, combined with mail-order shipping of products to promote the farm’s brand. The internet and social media have radically changed the playing field.

Prioritize Your Prospects

So now you’ve made a very thorough and creative list, and are all geared up to go knocking on doors, make cold calls, or fill out vendor paperwork. Not so fast, farmer. Now’s the time to prioritize your list, factoring in distance, transportation, delivery scheduling, volume, and overhead costs. In other words, you need to rank each of your options with pragmatic considerations as to how they best fit into your system. Making the right choices here is often the difference between sleeping well at night and waking up in a cold sweat.

Sometimes, you might identify a big opportunity that seems almost perfect. Early in my career, I nearly had a deal with a local university cafeteria. They wanted to purchase 500 pounds of hamburger a week — the equivalent of five cattle each month. This would have been a substantial order for me, and I tried very hard to make it work. We went back and forth for several months, trying to work out the logistics. In the end, though, the absolute lowest price I could offer was $4 a pound, and the highest they could offer was $3.75.

The math was black-and-white to me, but the purchasing agent was flabbergasted that I wouldn’t lower my price 25 more cents. They were accustomed to dealing with wholesale meat from the commodity market, not a farmer who was trying to account for his full cost of production. Between operations costs, processing, storage, and delivery, there was simply no way I could sell my product at less than $4.

I would’ve grossed nearly $100,000 a year, but I wouldn’t have made a penny of profit for all the extra work and expenses.

Not only did this arrangement fall through, but I had been so focused on this deal that I’d never taken the time to create a list of additional sales channels — a marketing Plan B. I soon found myself scrambling for revenue, delivering roasts to restaurants in Columbia, Maryland, then turning around and trucking T-bone steaks to a catering company in Middleburg, Virginia, before dashing off to a tiny health food store in the Shenandoah Valley.

In the end, I realized that to move all of my product reliably — as well as secure a price that worked for our farm — I had to develop a multifaceted strategy. This included retail sales, strategic wholesale deliveries, and all the while, encouraging folks to come out to the farm to shop. In other words, instead of relying on one big client, or running around to dozens of small locations, I needed to sensibly diversify.

Diversify Sales Channels

We should always have diversity in our sales channels. Having several sales channels at once teaches you to be efficient, reveals unexpected opportunities, and sheds light on the strengths and weaknesses of your systems — as well as your personal temperament. When properly balanced, market diversification makes your farm and your balance sheets stronger.

This is what I continue to do to this day, receiving feedback from multiple markets in real time. Some weekends, farmers markets are mysteriously slow, while my on-farm store has a record day. Other times, the restaurant calls and orders double its usual amount, while the home-delivery service takes a pass for two weeks straight. Or, the next week, all vice versa. Having diverse sales channels not only provides multiple streams of revenue (keeping all-important cash flow reliably rolling), but also hedges your bets if one particular market stumbles. Maintaining multiple markets allows you the flexibility to adapt, make corrections, or ride out short-term sales turbulence. And take our word for it: When you wake up on a Monday and face an entire workweek of chores, production, perspiration, and payroll, this economic peace of mind is something close to priceless.

So what’s the optimal mix of diversification? The short answer is that this can only be answered by you — and over a long period of time. But take the initiative to establish multiple channels, even if your sales seem to be humming along perfectly. Markets can change practically overnight. The trick is to find the right blend of options that works for your individual farm, and keep tweaking it toward maximum profitability.

My List of Priorities for Small Farm Profitability

A wise farmer once told me, “You’ve got to kiss a lot of frogs before you find a prince.” Sure, I was sticking to my prices, but I was kissing an awful lot of frogs along the way. Worse yet, I was running myself ragged doing so. I eventually had the good sense to return to my list of marketing priorities and focus on the avenues that provided the clearest path to profit — outlets that offered synergies with my production schedule. After several years of trial and error, my list eventually looked like this:

• Reduce my delivery schedule to only weekends, ensuring steady, on-farm production at least five consecutive days.
• Limit deliveries only to locations more or less within a straight line of where I was already going — in other words, no individual outliers.
• Only take on new clients who place at least $500 per order, or a new farmers market that would generate at least $1,000 in daily revenue.
• Figure out a way to bring more customers out to the farm, reducing the need for deliveries and other marketing overhead.

Excerpted with permission from Start Your Farm: The Authoritative Guide to Becoming a Sustainable 21st-Century Farmer by Forrest Pritchard and Ellen Polishuk, © 2018, published by The Experiment.