Recently, On Pasture ran an excellent article by Dave Pratt aimed at helping graziers apply the right price tag to commercial prescribed grazing services. Dave’s piece outlined a detailed, step-by-step process one should follow to make sure a hypothetical price will cover all the costs of providing the service and still allow for a meaningful profit.
This should be an early go/no-go test for any potential business. Back in 2012, we decided to launch Goats On The Go® after working through a similar process as Dave’s, albeit a little less structured. It was our “what-do-we-need-to-pocket-to-make-this-all-worth-it” moment. Paired with a thorough consideration of all the costs of providing the service, this moment told us not just the price at which we would break even, but also the price at which such a big undertaking would have a net benefit for our families (“Start with the end in mind,” in Dave’s terms). But, it still didn’t tell us the right price to charge.
Graziers that follow Dave’s process are likely to save themselves a great deal of misery. It forces the grazier to consider all costs, and to draw a line in the sand below which prices will not drop. If it doesn’t appear that a price at or above the line can be consistently demanded, then there is not a prescribed grazing business to be had and the plug must be pulled on the idea. This realization, though disappointing, is much better arrived at before launch than after three years of stagnancy or loss.
But how does one determine whether the line-in-the-sand price can be demanded? Or if, perhaps, an even higher price could be brought? I’d suggest three rules to guide one’s consideration:
1. All enterprises must stand on their own
2. Customers determine prices, not companies
3. The market doesn’t treat everyone the same
All Enterprises Must Stand on Their Own
Much has been written about the enterprise model of farm/ranch management by people far more accomplished than me (see How to Not go Broke Ranching: Things I Learned the Hard Way in Fifty Years of Ranching
First, one shouldn’t underestimate the costs of providing the service just because trucks, trailers, barns, and goats can be borrowed from the associated farm/ranch operation. The prescribed grazing service should be treated as a standalone business, a unique enterprise that must start from scratch as if it has no access to farm assets at all. When a business has no immediate access to the assets it needs, it pays to access them from outside sources.
Can the price you’re thinking of charging cover the real-world cost of renting livestock facilities, hiring haulers, buying business-specific liability insurance, and leasing goats and still provide a meaningful profit? And yes, the prescribed grazing venture should pay for the use of the farm’s goats. Using livestock in a commercial grazing service puts the animals at greater risk, and it may affect the herd’s productivity. This is an expense that must be paid.
You may not like the answer to this question. The separation of enterprises is a hard task master, and you’ll likely have to go with a higher price than you would have guessed when you were planning to mooch off the farm’s resources. But the blow is softened by the knowledge that you’ll be paying most of these expenses to yourself (to your farm/ranch). Still, forcing your new prescribed grazing enterprise to literally pay these costs and succeed or fail on its own keeps the business hungry, and hunger keeps prices real. It’s a mindset thing, not just a bookkeeping thing.
Second, viewing the grazing service as a distinct enterprise helps the operator stay open to opportunities in the market. When the grazing service is viewed only as an add-on to the “real business” of the farm, one can often be too easily contented, anesthetized by a little trickle of revenue that wasn’t there before. We fell into that trap ourselves when we set our first prices for Goats On The Go. “Even a little extra income is great,” we thought. “Anything we make is just icing on the cake of our meat goat operation, anyway.”
The icing-on-the-cake mentality sets artificial bounds on the potential for the prescribed grazing business. Important strategic questions that affect price are never asked or answered, questions like “Who else could we be serving?”, “How are we different than our competitors?”, and “What if the grazing service could be the cake, and not just the icing?” When the grazing service is viewed as a distinct enterprise that must maximize its own profit independent of the farm, the grazier is motivated to better understand the market and charge whatever it will bear.
Customers Determine Prices, Not Companies
To learn what price the market will bear, the grazier must know what kinds of customers make up the market and what problems the customers need solved. This seems simple, right? The customers are people with vegetation, and their problem is too much vegetation.
This kind of thinking is an extension of the icing-on-the-cake mentality, and it’s almost certain to result in the prescribed grazing service settling for a price that is too low. Because any profit at all is deemed adequate, a low price is chosen to appeal to as many potential customers as possible without distinguishing among them, their willingness to pay, or their needs.
Truth is, there are many customer segments, each with their own nuanced vegetation problems that can be solved by the right prescribed grazing service. And, by the way, each customer segment comes with a price that its members are generally willing to pay to have their problem solved. This is why customers determine the price, not companies.
There are at least six market segments that Goats On The Go and its affiliates are well-positioned to serve, and there are several others that we have chosen not to actively pursue because our version of a prescribed grazing service cannot make those segments consistently profitable. Does that mean that we have six different prices? No, but it does mean we understand our segments well enough to know which prices work for which segments, keeping us as busy as we want to be without leaving money on the table. (For more information on market segmentation, see Rosalie Wilson’s excellent article, )
The Market Doesn’t Treat Everyone the Same
As a reader of On Pasture, you’re probably well-versed in commodity agriculture. In fact, you’re probably trying to shake your products free from the commodity label. Because commodities produced by one farm are virtually indistinguishable from those produced by another farm, they are bought and sold at a single, nearly-universal price. Price is out of the hands of the producer. But you want your talent, innovation, and hard work to be reflected in the price you are paid for the products you produce, so you strive to add value and unique characteristics to them.
Prescribed grazing is not a commodity product. Believe it or not, there are dozens of forms that a prescribed grazing service could take, and the market will reward each one according to how well each variation is executed, and how much customers value each iteration.
For example, Goats On The Go does many large-acreage prescribed grazing projects for institutional customers, but our growing family of affiliates also does very small projects with a much different pricing structure and “feel” to them. For these smaller jobs we’ve wagered that our customers don’t really want to “rent goats.” What they really want is a tangible improvement in their vegetation problem coupled with a fun experience, and they want it delivered with tact, professionalism, and a high level of service.
This is not easy to do, which is a good thing. It’s a point of differentiation between Goats On The Go and its competitors, some of which have a completely different flavor of prescribed grazing service and others which have a similar flavor but don’t execute it as well. Thus, while we are informed by the prices of other prescribed grazing services, we are not forced to accept a single “going rate” for ours.
If you’re thinking of launching a prescribed grazing business, an obvious point of differentiation may have already crossed your mind: Be cheaper than everyone else. This is a valid strategy, but it comes with at least a couple of problems.
First, being the “price leader” in any product or service category often comes with a reputation for low or marginal quality (think Wal-Mart) — okay for wiper fluid, garbage bags, and single-summer flip-flops, but not something you want when your business involves live animals in sensitive places.
Second, once you’ve adopted the position of price leader, you have nowhere else to go. If competitors demonstrate that customers will pay significantly higher prices, you can’t join the party because your pricing strategy hinges on being a bargain. And, if your competitors lower their prices you must lower yours or you are no longer different.
No Shortcuts
So where does this leave the grazier searching for the right price for a prescribed grazing service? Certainly one needs to thoughtfully consider all of the costs involved and set that line-in-the-sand price, but that’s just the beginning.
Though the line-in-the-sand price will keep you from losing money, it won’t get you closer to maximizing profit. There’s no way around it…the grazier needs to stay hungry by operating the service as a distinct enterprise, know the service’s customers inside and out, and differentiate from competitors to seek maximum reward from a fickle market.
There’s no straightforward formula that will tell everyone the right price…and thank goodness! If there was, prescribed grazing would be just another commodity instead of the ultimate value-added business that it is!
