5 Strategies to Increase your Farm’s Profit Margin

Currently, the cost of running an agribusiness in Kenya is becoming significantly high. The good news is; successful agribusiness is still possible even during these tough times.

This article aims to give hope to agripreneurs by highlighting very practical strategies that they can employ to increase their profit margins.

For starters, a farmer needs to be well aware of their business’ profit drivers.

The most basic profit drivers for any business include;

• price,
• costs (fixed and variable) and
• sales.

To increase profits, farmers must either increase production, attract higher prices and/or lower the costs of running their business. Putting tactical management plans in place for your agribusiness is also key to ensuring that you maximize profit.

Whilst individually price may be the most impactful driver of profit, making a lot of small changes across your farming business may cumulatively have a huge impact on the overall profit.

Below are 5 strategies that farmers can use to increase their profit margin;

• Sell your commodities to the local market

Selling to local community markets or attracting buyers to come and buy your commodities at the gates of your farm can help you cut down on transportation costs which includes fuel cost, insuarance, depreciation and repairs of the delivery vehicle and labor cost for the driver/delivery person. This move will eventually increase your profit margin.

• Increase your revenue streams

In business, having just one revenue stream may not be enough, and it comes with risks because if that one stream fails, the entire business venture goes down with it. The good thing is that agribusiness is quite versatile as one can explore more than one revenue stream in the same business venture. For example if you are a poultry farmer, you can sell eggs, chicken, manure from the chicken droppings, egg shells from broken eggs and feather from the culled birds. This farmer could also opt to manufacture their own feeds instead of buying ready-made, and sell part of the feeds to other poultry farmers. These strategies increase the amount of revenue that the farmer makes, translating to higher profit margins for the business.

• Invest in farm equipment

Investing in efficient equipment is definitely a good move to increasing a farmer’s profit margins. Farm equipment such as tractors, harvesters and grain separators could help a farmer reduce their running costs in the long run and lead to increased profits. The farmer will incur some heavy costs to purchase more energy-efficient equipment, but the savings that the farmer makes in reducing fuel and maintenance costs over time will outpace those up-front expenditures.

Purchasing capital assets that are intended to earn more revenue for the business also allows a farmer to recoup the amount spent to purchase the equipment, over time.

• Invest in alternative sources of energy

Energy is quite essential in running a farming business especially if you are using machinery. On the other hand, running energy-powered machinery can be quite cost intensive in Kenya. The solution to lowering such costs and increasing profit is to invest in alternative sources of energy including solar, wind power or biogas to power farm equipment. The good thing with Kenya is that we are blessed to favorable weather conditions to generate solar energy and well as use wind power. Using biogas in a farm is also quite ideal because biogas can be generated from animal waste.

• Access to information

Information is power! As an agripreneur, you must constantly keep yourself in the know of what happens in the agricultural sector because it affects your business one way or another. For example, farmers should regularly seek information on market prices for their commodities so as to adjust accordingly to avoid making loses, missing on a profit making opportunity or losing customers to other sellers all together. Other information that a farmer may need to know is the current trends in the industry and innovative technology that may make their work easier or increase production, which translates to a higher profit. Keep it at Kilimo Insight for all your agri-related information.