I spoke about this at our Future Grains Seminar last month, but for those of you not able to attend, I’ll share again.
There are two ‘games’ you can play to drive profit:
- Improve efficiency. This comes through streamlining operations to reduce inputs to generate the same level of output. Some of you are using variable rate technology for your fertiliser, which is a good example of this, making your fertiliser investment more efficient.
- Drive gross revenue. Which is obvious as we’re all trying to improve revenues through higher production and higher sales prices.
That second point is much more complex however, and something that is the basis for financial sustainability. I often annoy those close to me talking about the difference between linear and non linear relationships, and this is a perfect example of the two.
A simple way to think of it is; every dollar saved in your business has a linear impact on profit (efficiency), but every additional dollar earned has a non-linear impact on profit. That is because differing proportions of that additional dollar contribute towards variable and fixed costs, and profit. The more you earn, the less fixed costs need to be paid by that dollar, and the more profit achieved.
Eric Schmidt, the former CEO of Google, is famous for believing his 70:20:10 rule is a major contributor to the business’ success. That is, 70% of time and efforts should be spent on current and urgent operations, 20% on medium term projects (6 months to a year), and 10% on way out, like 10-year time frame projects.
In farming, I don’t think this exact ratio fits, but the basic idea still does. Most of our efforts should be focused on doing things that need doing now, and while doing them we can strive for efficiency improvements to drive profitability. Some time should be spent forward planning to ensure everything is ready to go when the next part of the season rolls around. Then, a little bit of time and effort should be spent on the big picture and far reaching stuff.
I think we can get complacent by thinking that other parts of the industry are focusing their attention in those big yield/revenue jumps (plant breeders, machinery manufacturers, bulk handlers etc), but I believe there is much more to be learnt from first hand strategy and experimentation. This is why trials are so important.
We’re putting together a project that will run over the next 3 to 5 years that I’m very excited about.
The point is, improvements in gross revenue don’t occur overnight, and they don’t occur by improving efficiency. Being efficient is important, and striving to be more efficient is very important; but it’s a different game and different rules to disrupting the status quo and striving for something more. No till, for example, would never have been adopted by solely focused on the efficiency game.