How do you determine if your crop or livestock enterprise is profitable and sustainable?

1 Calculate your gross margin

The first step to determine your profitability is to calculate your gross margin. This is the difference between your income and your variable costs for each enterprise. Variable costs are those that change with the level of production, such as seed, fertilizer, feed, veterinary, and marketing expenses. Income is the revenue you generate from selling your products or services. To calculate your gross margin, use this formula: Gross margin = Income - Variable costs Your gross margin tells you how much money you have left to cover your fixed costs, such as land, machinery, labor, and interest payments. A positive gross margin means that your enterprise is generating enough income to pay for its variable costs and contribute to your fixed costs. A negative gross margin means that your enterprise is losing money and needs to be revised or replaced.

2 Compare your benchmarks

The second step to determine your profitability is to compare your gross margin with the benchmarks for your industry or region. Benchmarks are the average or typical values of key indicators for similar enterprises. They help you to assess your performance relative to others and identify areas of improvement or opportunity. You can find benchmarks from various sources, such as extension services, industry associations, research reports, or online tools. For example, you can use the AgriProfit$ program in Alberta, Canada, to compare your gross margin with the provincial average for different crop and livestock enterprises.

3 Analyze your sustainability

The third step to determine your sustainability is to analyze your environmental, social, and economic impacts. Sustainability is the ability to meet the needs of the present without compromising the needs of future generations. To analyze your sustainability, you can use tools and methods such as the Environmental Farm Plan (EFP) program, the Sustainable Agriculture Initiative (SAI) platform, and Triple Bottom Line (TBL) accounting. These tools help identify environmental risks and opportunities, provide principles and practices for sustainable agriculture, and measure performance in terms of profit, people, and planet. By analyzing your sustainability, you can improve resource efficiency, reduce your environmental footprint, enhance social responsibility, and increase profitability.

4 Implement your action plan

The fourth step to determine your profitability and sustainability is to implement your action plan. This set of actions should be SMART: specific, measurable, achievable, relevant, and time-bound. For instance, you could adopt a new crop rotation or grazing system to improve soil health and productivity, invest in technology or equipment to reduce energy consumption and emissions, create a new product or service to diversify income and meet customer demand, or join a certification or accreditation scheme to demonstrate sustainability and quality standards. Through implementing your action plan, you can reach your profitability and sustainability goals while also ensuring enterprise success and resilience.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?