Tuesday, August 6, 2013

Another Way of Looking at This!

If you've read my blog for the last year or so, you know that I've been struggling with questions of scale and economic viability.  Even with a part-time job, I'm finding that the income from my current operation isn't adequate to meeting my family's reasonably modest financial needs.  Last February, I looked at scale from a different direction (see http://flyingmule.blogspot.com/2013/02/by-numbers-looking-at-scale-from.html).  In this analysis, I determined that I needed to run approximately 500 ewes to be able to pay myself an annual salary of $35,000, pay for my family's health insurance, and put some money aside for retirement.

Recently, as I was analyzing the prices I charge for our grass-fed lamb and mutton, I realized that there is another way of looking at these numbers!  If my goal is to pay myself the average Placer County wage ($35,000/year) and maintain our sheep operation at it's current scale (150 +/- ewes), why don't I simply raise my prices?!  Our current average retail price for lamb is approximately $11 per pound.  Some cuts, like rack of lamb and loin chops, are more expensive.  Other cuts, like shoulder roasts and leg of lamb, are less per pound.

Here's what I found: Instead of tripling the scale of our operation, I can simply triple our retail prices!  This would mean that we'd charge $58 per pound for rack of lamb and $30 per pound for a butterflied leg of lamb!  I didn't realize that making a living wage was a simple as tripling our prices!

In all seriousness, any business is far more complex than these numbers - and farm businesses are more complex than most.  Obviously, tripling my prices won't result in more income - I wouldn't pay that much for lamb, and I know my customers wouldn't either!  This analysis does suggest, however, that achieving the right balance between scale, pricing, and business management is critical to the success of a farm - or any business, for that matter.

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