home / marketing / estimating price targets
Marketing consultants often say that once you have a target price on paper,
marketing is easy. For some producers, establishing a realistic and relevant
target price is the most difficult component of marketing their production.
To determine your costs of production, first consult your enterprise records
to determine your breakeven price levels.
If you do not have enterprise records, get them. Iowa State University has
estimated costs of crop production and
estimated costs of livestock production,
but they will not be correct for your farm. You can get a little closer
with current livestock feeding budgets.
But even those are estimates based on an an "average" farm.
If you are having some difficulty seeing how cash flow and economic costs could
be calculated, spend some time with this
costs of production presentation.
I use it in marketing workshops to help explain how to separate costs.
There are many good tools for recordkeeping, and the
Crop Management Database is an excellent tool.
Unfortunately, family living costs are often left out when calculating target prices.
Family living costs need to be spread across production units
(acres, cows, sows, fat cattle, market hogs) in a way that is proportional to
the resources devoted to their production. Iowa State University Extension tracks
estimated family living costs,
and it would be a good idea for you to compare your actual or estimated costs to these survey
results for a reality check.
So far, we have just discussed costs. The profit target still needs to be calculated.
This profit target should be a return for your management. Returns to management vary
across enterprises and operations. Consult the Farm Business Association summaries
for the state level and area level returns to management in their association.
FBA summaries can provide you with a reality check to see how your operation's
financial performance compares with other operations at the area and state level.
You could argue that these costs should either be spread across production units in the
same way as the family living costs are, or that they should be assigned to particular
enterprises based your commitment to the enterprise.
With accurate production and family living cost information, you have a target price. This is
necessary to begin filling out a marketing plan.
The next step is to compare the prices needed to what the market is offering.
