The Importance of Projecting Farm Revenue
Now that you have solid goals for your farm (i.e. you want to grow your own food and share it with your community), you're ready to get these financials nailed down.
Keep up that attitude and sit up for the next part of your financial planning: projecting revenue.
The importance of this step cannot be overstated.
These two financials blog posts on projecting revenue and estimating costs serve as that "look" before the "leap;" they will show you whether the jump you're about to make is dangerous, safe, or a gamble.
Remember: building your farming business takes capital, and ultimately, accomplishing your goals will too. (Even if you're super cheap and you thrift half of your equipment, like us.)
In order to launch a successful farm, you're going to need to make most of that money yourself. Will your farm be able to do that?
As you project your revenue there are three questions you need to ask yourself:
- What crops will you sell to whom?
- What prices are you getting for your produce?
- How long is your average production cycle?
Then you can use that information to calculate future revenue.
What crops will you sell to whom?
If you're totally lost on this question, don't worry. Markets and demand are big deciders in the crops you will grow, and that information is easy to observe.
Conduct some basic research on local demand of different crops.
Maybe it turns out that basil is a crop that chefs have a hard time securing consistently. That's a great opportunity for you to sell, since you can deliver fresh basil year-round.
Now that you're thinking of which crops are appropriate to the markets and local demand, you can intensify your focus by thinking about who your customer group will be for this crop.
Would you like to sell mint to bars? Basil to grocery stores? A variety of greens and herbs directly to a customer through a CSA?
All of these options have their pros and cons.
Think about what type of relationship you would like with your customer. For more guidance on these markets, remember we have more detailed info in our Complete Growers Packet Bundle.
What prices are you getting for your produce?
Once you can identify some specific crops within your market, start paying attention to what price these crops are selling at. This might require you to get out of your comfort zone and start talking to chefs, restaurant managers, produce managers, and other potential customers!
The most common pricing method is to price by weight (ounce or pound). You may have the opportunity to sell produce by the container as well. The important thing is to estimate the money you can make per tower.
Once you have that information, you can estimate cycle length.
How long is your average production cycle?
In other words, how long between harvests?
Most greens are harvested every 5 or 6 weeks. Other crops may be harvested multiple time or have increasing yield over time.
Production may be affected by seasonal lighting and temperature changes, as well as by the type and amount of supplemental lighting. Consider how your production might vary seasonally, and estimate an average cycle time.
On average, we use a 4 week production cycle time. If you are in an area of the world with more seasonal light variation (The further away from the equator, the more seasonal variation you will see) you are looking at a 5-6 week cycle time in the winter. If you are using supplemental lighting, or are in a equatorial part of the world you can estimate a 3-4 week production cycle time.
The production cycle time doesn't factor in the time it takes for your seeds to germinate and grow to a transplant-able size.
Make the most of your space by growing your seedlings in your trays 2-3 weeks before transplanting them.
Combine the answers to estimate revenue
So how do all of these factor work together?
Let's say you want to sell mint to bars and you are in the south so you have an average of a 4 week production time.
If you have 100 towers, you can sell your mint at $1.50/oz, and have a harvest of 3 lbs you can project total revenue of $93,600.
(100/4)*3*16*1.5*52 = $93,600
It's easy to get excited about the potential revenue but make sure you account for all your expenses.
Stay posted for a post on calculating expenses!