Set a Margin Goal
Feb 07, 2012
In the last blog we discussed the importance of "Stress Testing" your margins. Understanding how particular risks can impact your business is only half the battle. The other side of the equation includes understanding profit opportunities. Knowing what these profit opportunities are and being disciplined enough to take advantage of them are two different things. For example, it's easy to make this statement; "If corn gets to $6.50, I'm definitely going to sell some corn." Or "I’d be willing to sell to my insurance level, if corn hits $6.50." The problem with these statements is that once we receive the opportunity, we may not take advantage of it. We can all come up with excuses as to why we should wait for the price to climb a little more! Without a predetermined plan of action, it's almost impossible to make a sound business decision.
Let's take a look at a couple processes which can hopefully improve your confidence, accuracy, and discipline as you manage margin opportunities.
Goal Setting is the best place to start. How do you structure goals for your operation now?
Here are five essential components to keep in mind as you structure goals.
1. Specific
2. Measurable
3. Attainable
4. Rewarding
5. Timely
By applying your goals into a written plan and utilizing these five guidelines, you'll significantly improve your chances for success!
Margin Goals are the most effective goals for your farm. While setting individual goals for yields, market prices, and input costs are important, always keep your primary focus on margin opportunity!
Here's an example of the tool I shared in the last blog, which not only analyzes stress tolerance but can also help you to structure goals which meet the criteria listed above.
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Margin Goals
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Margin Analysis
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Acres
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1000
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Total Production
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175,000
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Yield
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175
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Total Expenses
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$845,000.00
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Price
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$5.75
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Total Income
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$1,006,250.00
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Cost of Prod. Per/ac.
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$845.00
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Expense Per / ac.
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$845.00
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Income Per / ac.
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$1,006.25
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Total Net Income
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$161,250.00
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Net Income / ac.
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$161.25
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ROI / Margin
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19.1%
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This type of tool can help you remove the emotions which sabotage discipline. It's very likely we'll see significant volatility in the coming years. Having the capacity to manage your margins as conditions rapidly change will be an absolute necessity in achieving your goals for success!
If you'd like a copy of this tool for structuring margin goals in 2012 send me your request.
