Lower Farm Overhead Costs: 3 Expert Strategies

Generally speaking, there are three major ways to grow a direct-to-consumer (DTC) farm business:

1. Reducing overhead costs
2. Improving gross profit and production per animal or acre of land
3. Boosting turnover and scale

For many farm businesses, especially new ones, getting a handle on overhead costs is what they struggle with most. Let’s talk about it.

When it comes to DTC meat sales, 80% of the value comes from the last stages of the production cycle (i.e., getting the processed meat to the customer). Yet, nine times out of 10, farm businesses struggle because the majority of their working capital is tied up in production instead of direct marketing.

In this article, we’ll cover why you should tackle operating expenses first (especially production-related ones), plus some practical tips for lowering your farm operating costs.

Let’s get into it.

Why You Should Tackle Operating Expenses First

When new farms see a disappointing gross margin per acre, per bushel, or per animal, their instinct is to scale up. To do more of the same. After all, more production means more product and more sales, right? Not always.

If you don’t address the high farm overhead costs at the root of your processes, you’ll multiply the same mistakes as you grow.

High operating costs at your farm are a drain on both your financial resources and your time. Many farmers end up taking off-farm jobs just to cover their expenses, which takes even more time away from growing their business. And it’s a hard cycle to break.

Ideally, you want to devote over 50% of your working capital toward direct marketing, not production.

Related Read: How To Increase Farm Store Profits: 10 Tips & Tools

How Seven Sons Shaved $1 Million per Year off Their Operating Costs

Like most farmers, when Brooks and Blaine Hitzfelt (GrazeCart founders and co-owners of Seven Sons Farms) started their business, they did a lot of the work themselves.

This isn’t surprising. Most people who get into regenerative farming businesses do so because they love farming. But as they grew, they found they were sinking millions of dollars and countless hours into production. It was hurting their growth.

From its humble beginnings, Seven Sons is now hugely successful — cutting overhead costs was by far the biggest early growth lever for their business. It allowed them to free up around $1M in working capital per year.

How did they do it? Here are three examples:

1. Instead of doing it themselves, they partnered with cow-calf producers to raise calves. This reduced overhead costs by about $300,000 to $400,000 since they paid less for expenses like feed and land rental.
2. They stopped growing their own grain and feed, which once required over $140,000 worth of equipment. They now source non-GMO feed from a specialty producer.
3. Excess frozen inventory storage is now outsourced to a nearby cold storage facility, saving them money on on-site freezers and the associated electricity and maintenance costs.

Obviously, the cuts you make will be highly individual to your farming business. But if you’re serious about growing your DTC sales, finding areas to make cuts is a must.

3 Ways To Lower Farm Operating Costs: Explained

Before you start lowering your operating costs, you need an accurate view of them. Keep a record of your expenses — everything from production costs like feed and land rent to operational ones like marketing and shipping materials.

This gives you a baseline for how your money is spent month over month.

There are three key ways you can lower your farm operating costs:

1. Eliminating
2. Reducing
3. Optimizing

Here are some details (and examples) of all three.

1. Eliminate: Downsizing or Subcontracting Operations

When it comes to slashing overheads, don’t think about trimming little twigs off the tree — hack off entire dead branches.

One way to reduce costs is to downsize. Certain things, like farm insurance, real estate tax, land rental costs, and utilities, will always go up. It’s worth considering whether all of your acres are going towards activities that grow your business.

Following regenerative farming practices, you might find that certain aspects of traditional farming simply aren’t needed (e.g., chemical fertilizers, hormones, etc.).

When you decide to stop doing certain elements of production yourself, there will be knock-on effects that reduce other costs down the line.

For example:

• Work with perennials instead of year-round crops and use animals to seed them. This eliminates land usage and allows you to sell your combine.
• Eliminate hay from animal diets so you don’t have to spend time and maintain special equipment to harvest, bale, and store it.

Another way to eliminate overhead costs is to subcontract it to a third party. For example:

• Subcontract your calf or pig production instead of doing it on-site. This cuts the amount of land use and labor hours. (In some cases, you might be in a position to pay passionate producers more than they’d get on the commodity market.)
• Import grain and feed from a dedicated producer instead of growing it yourself, which cascades into reduced overhead spent on land, equipment, and fertilizer.
• Rent freezer space so you don’t have to buy and maintain on-site freezers (though having some on-site storage is still highly recommended).

When you plan to add a new expense or contract part of production, we recommend getting at least three quotes. Almost always, one of those quotes is a better value. (Remember: Best value does not always equal lowest price).

2. Reduce: Improving Processes and Delegating Tasks

Not everything makes sense to eliminate from your operation. Also, the more you contract, the more you lose control over certain aspects of your business.

Once you’ve figured out what processes you can safely eliminate, it’s time to take a hard look at the work your farm is doing so you can make it more efficient. One of the most impactful areas to reduce costs is labor.

Cutting labor costs isn’t the same as simply paying people less — it’s about delegating different types of work and paying each worker what they’re worth. In other words, instead of hiring one person to do 10 different jobs of 10 different skill levels, think about fractional hires (e.g., low-cost, part-time labor to collect eggs vs. high-skill, higher-salaried people to pack and prepare orders).

The more people specialize, the more valuable they are to your operation over time — and finding technology that helps these employees reduce tedious tasks (e.g., data entry or item lookup) lets you get even more value from their labor.

3. Optimize: Consolidating and Automating

In the corporate world, “optimization” and “automation” often sneakily refer to using technology to lay off workers. Successful farming businesses are built on great people — it’s what makes you stand out from big-box competitors.

Ideally, your technology should handle tasks that aren’t improved by a human touch. Can one of your valuable warehouse employees spend days updating a spreadsheet of your frozen inventory? Yes. Should they? Absolutely not.

On the other hand, technology shouldn’t replace what makes your business special. You’d do more harm to your business’ output and reputation if you try to replace humans when packing expensive orders, strategizing promotions, or communicating with customers.

To start, break your business out into different areas, like:

• Storage and inventory
• Admin and data entry
• Packing and fulfilment
• Customer service and marketing

Use farm reporting tools to track key performance metrics (KPIs) within each area. These metrics help you pinpoint which parts of the process run smoothly and which need help.

Note: The metrics you track will be different for each area.

For instance, in your warehouse, you might track the number of orders packed per hour or order accuracy. On the marketing side, you might check email open rate, order frequency, and average basket size. If there are outliers or areas you want to improve, start talking with workers to figure out where the slowdowns are happening.

Marketing is one area where automation truly shines. Taking time to set up customer groups, creating automated marketing messages, writing blog content, updating the website — these are tedious to do at first, but they will pay off in the long run. Once you have great content and marketing processes in place, you can reuse and refine.

Follow Your Gut When Reducing Your Farm Operating Costs

Many of the examples given in this post are based on the experiences at Seven Sons — but what worked for them won’t necessarily work for you. No one knows your business and is more qualified to make important decisions than you.

So, while we hope the above examples were helpful, you’ll know what’s best for your business. Here’s some more general parting advice:

1. If your goal is growth, think about which parts of your business directly contribute to that growth and which are inherited from traditional farming and old ways of doing things.
2. Consider subcontracting parts of your production process and get multiple quotes. The cost savings may surprise you.
3. Leverage technology built for farms to identify opportunities and automate processes to be more efficient.

While we might not be experts on your farm, we are experts on the technology that helps farms find DTC success.

GrazeCart gives family farms a powerful and affordable path towards building a DTC food business online or in person. Unlike other DTC farm platforms that take control from you, GrazeCart gives you a collection of user-friendly tools to spin up a website, manage catch-weight inventory, and scale your business.

Schedule a personalized demo today to see why farm stores and farm e-commerce businesses trust GrazeCart.