Farmer Marketing

Simple, inventive ways to increase the value of farm fresh products through direct marketing, internet marketing, and creativity.

Monday, January 23, 2006

Product Selection vs. Profit Pools

An important decision that will soon face most farmers with spring coming is what to grow this year. Many will think of what grew well last year, what people liked, who else was growing certain items, etc. I propose the following analysis as one of the most important.

Profit Pools

Imagine the last time you visited a gas station while traveling far away from home. You chose the cheapest station you could see (even if the difference was only like 2 cents a gallon) and filled up. You then stepped into the convenience store and spent $2.50 for a drink and candy bar. Where do you think the gas station makes the most profit on your visit? I'll tell you that they probably made more profit on a drink and candy bar than a full tank of gas. Why? Because they recognize their profit pools.

Certain items are by nature very price competitive. If you are in the Midwest in June/July, corn is cheap and plentiful. Because of the price competition farmers have to sell a lot of corn to make a decent profit. However, a farmer with Japanese eggplant doesn't need to sell a lot to make a good return. Why? Because eggplant are easy to grow and you usually can't find Japanese eggplant in grocery stores. You usually find those big lightbulb-shaped monsters.

The lesson here is to recognize what items you can grow and how profitable those items are to you. If cabbage doesn't make you a lot of profit, replace it with something that does make a lot of profit. Seems simple right? I suggest that you need to answer the following question before proceeding.

Product Selection

One of the main ideas in marketing is to get your existing customers to spend more because getting new customers is much more difficult. The usual method is to broaden the product offering to include complimentary goods that go with what they are already purchasing. This is where the balance must be made. Do you limit your product selection to focus on highly profitable items, or do you broaden your product selection to get more dollars from your existing customers?

No single answer exists and you need to answer for yourself, but here are my suggestions:

-If you have limited space, I suggest focusing on high profit products.
-If you have plenty of space, maybe you just need to expand.
-Whatever you do, make sure that you are consistent enough to retain customer loyalty. Customer loyalty will always pay off whereas profit pools are always shifting.

In summary, look at your costs and revenues to find your profit pools. If your numbers aren't that good then use your intuition. Most farmers' market vendors have an inate feel for what they should do. Trust yourself and get your feet wet in the profit pool.