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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