There are three methods we use to increase profitability on our ranch: 1) decrease overhead expenses, 2) increase turnover (produce more), and 3) increase efficiencies. These are broad methods so let’s break them down and give some examples. Remember our goal is to make a profit.

Decreasing overhead expenses will most often make the most positive impact on your bottom line. There are typically a few large expenses that contribute to overhead including labor, fuel, insurance, and equipment maintenance/repairs. Often with smaller ranch’s you are the labor so that’s a hard one to reduce unless you simply don’t pay yourself. If you don’t pay yourself currently you need to be keeping track of that time so that when your ranch turns a solid profit you can repay those lost wages. Fuel can be reduced with better planning to an extent by having supplies on hand and making less trips to town. Every time you go to town you will spend money so it’s best to avoid those mundane trips to town. Insurance is unfortunately part of our modern life. Shop around for the best, most affordable policies. Often independent agents can get you a better deal than the big brands.

The most simple way to reduce overhead is to get rid of unnecessary equipment. These piles of iron can cost a fortune over their depreciated life. The moment that piece of iron sits on your ground it begins to depreciate (loose money). In addition the maintenance costs and repairs can be huge. You are better off hauling unnecessary equipment to the auction and putting the money in your bank. If you are a livestock producer you don’t really need a big new John Deere tractor, a plow, a planter and so on. I’m not an evangelist when it comes to no equipment. I think there are some things that can make a ranch more efficient, for example a good tractor with a front end-loader, post hole digger, shredder, a good used truck, cattle trailer, ATV and a broadcast seeder. If your in the livestock business you honestly don’t need more than that. Everything else is simply a luxury. You might even be able to do without a shredder, but here in South Texas the brush is so aggressive and chemical is so expensive you have to use something to keep it in check. Honestly I would prefer a good herd of sheep or goats to keep it in check, but I’m not there quite yet.

The second method for increasing profitability is to increase turnover. Simple math can tell us that if we have a certain percent margin on a enterprise then the more that we produce the more money we will put in the bank. This comes down to economies of scale. The reality is you need to scale in order to cover overhead expenses and have some money left over. It doesn’t matter if your producing chickens or cattle, the operation needs to be able to scale up or you will be living in poverty.

Efficiency is the measurable ability to reduce waste. This waste includes materials, money, time, energy and more. For me an efficient ranching operation would be run well, successfully and without waste. There are a myriad of ways to make a ranch more efficient. A fantastic resource for learning about creating efficiencies is Ben Hartman’s The Lean Farm. This book is focused on Ben’s experiences and trials on a vegetable farm, but the principles are equally applicable to livestock producers. He takes the lean principles developed by Toyota in their factories and makes them applicable to farms. Instead of me talking about efficiencies, which I have done a poor job with over the years, get this book and put the principles to use. We are doing a better job at creating efficiencies, but we have a long way to go at Parker Creek Ranch. As one of our clients would say “I see my ranch goals as a marathon, not a sprint to the finish line.”

When thinking about profitability remember these three principles. These are applicable on any scale and can ultimately make or break your business. In order to achieve and increase the profitability of your farm or ranch all three need to be implemented. The ranching business is best run as a system and all three of these principles are part of that overall system. Questions or comments please contact us.