RANCHING Business


Revenue – Costs = Profi t


Ranchers need information about both factors to get a positive outcome to this basic equation. By Lorie Woodward Cantu


C


ATTLE PRODUCERS’ LONG-TERM SUSTAINABILITY DEPENDS on their ability to manage revenues and costs. The margin resulting from the difference be-


tween revenues and costs is profi t. “Revenue – cost = profi t” is also known as the net margin equation. It determines an operation’s ever-important bottom line. “To strengthen the bottom line, producers should


work to increase revenues through good marketing and reduce costs through good decision-making and good management,” says Dan Childs, senior consultant and agricultural economist with the Noble Foundation.


In the stocker world, when a producer sells a calf


and subtracts all of the expenses, the amount left over is the profi t or operating margin, he says. For the operating margin to truly refl ect the operation’s position, it should include variable costs like feed and pharmaceuticals, along with fi xed costs like deprecia- tion, insurance and property taxes.


Biggest expense — cost of the cattle In a purchased-stocker operation, the biggest ex- pense in the enterprise budget is the cattle. “The fi rst


Editor’s Note: This is the fi fth installment in a 12-part series on “The Realized Value of Management Decisions” that was developed in conjunction with the advisors in the Producer Relations Program of the Agricultural Divi- sion of the Samuel Roberts Noble Foundation. The independent, non-profi t Noble Foundation, headquartered in Ardmore, Okla., assists farmers and ranchers and conducts plant science research and agricultural programs to enhance agricultural productivity regionally, nationally and internationally.


tscra.org May 2015 The Cattleman 51


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