With the ongoing popularity of our Water & Drought Management and Labor & Worker Safety series, we’re excited to announce our next two-month series of blog features about Marketing & Sales.
This new series will be a mix of practical resources created by our partners combined with farmer stories and useful tips. We are pulling information from branding experts, food safety and value-added food specialists, experienced vegetable and livestock farmers, and farms of all sizes developing their marketing and sales strategy.
To kick things off, we’re discussing the importance of choosing the right mix of sales channels for your operation. There are many issues to consider and many different channels to get your product to the final end-consumer.
Read on as we help you think about your strategy, how to choose the channels that will work for you, and – most importantly – maximize your profit!
Balancing Multiple Channels
In general, selling direct-to-consumers is the most profitable channel because you keep the entire final purchase price. However, the larger your production volume, the more difficult it can be to move all of your product as it is harvested.
Selling through wholesale channels may seem appealing because you can move a lot of product in one transaction, but there are administrative and regulatory costs and hurdles. This can be overwhelming at times, and – in general – smaller farms, that don’t have economies of scale, have profit margins that are much lower and it is often unsustainable.
Below is a graph created by the Sacramento Area Council of Governments (SACOG), which illustrates the balancing act farmers go through in choosing the best mix of sales: direct-to-consumer, high-end wholesalers, or conventional wholesalers.
SACOG: Regional Planning in the Sacramento Region, 2012
For 20-acre farms selling:
- 100% direct-to-consumer,
net revenue was $100,000. - 65% direct-to-consumer and 35% to high-end wholesaler,
net revenue was $40,000. - 50% direct-to-consumer, 25% to high-end wholesaler, and 25% to conventional wholesaler,
net revenue was $4,000.
For 60-acre farms selling:
- 100% direct-to-consumer,
net revenue was $300,000. - 65% direct-to-consumer and 35% to high-end wholesaler,
net revenue was $175,000. - 50% direct-to-consumer, 25% to high-end wholesaler, and 25% to conventional wholesaler,
net revenue was $100,000.
Ultimately, choosing the right mix of sales channels (even if only one) should be based on sound financial planning and an understanding of your profit margins from each of your current channels. (For help with this type of planning, refer to the Business & Financial Planning Toolkit.)
On a more basic level, you should also ask yourself some easier questions as a general reality check:
- To whom will I market?
- Why will the market want my product?
- How will the market know I have what it needs?
- What will I market? What do you want to sell that will also make the biggest profit?
- Would it make sense to pool product with neighboring farms to gain access to larger-volume markets?
- Are there already existing local marketing channels (for example, Buy Fresh Buy Local) and/or a cooperative distribution coop I could join?
Below we’ve laid out a quick reference comparison of selling through each of the channels. To see a more detailed chart, including u-pick and agritourism, click the links at the bottom.
Selling from Farm Stands
Common Risks:
- Low customer turn-out
- Liabilities of people on the farm
Prices & Profit:
- Prices vary, but high profit potential
- Location is a big factor in price
Level of Management Required:
- Variable
- Ranges from unstaffed honor system to staffed stores
- Can advertise
Associated Costs:
- Roadside signs and other advertising
- Sales staff optional
- Building, coolers, shelving
Regulations:
- Food retail license
- Commercial kitchen for any processes foods (depending on local Cottage Food Laws)
- Food safety plan (HACCP)
- Other local ordinances may apply
Selling via CSA
Common Risks:
- Farmer commitment upfront
- May be risky for a beginning farmer
Prices & Profit:
- Price similar to wholesale, but profit generally higher
Level of Management Required:
- High
- Must sell memberships, utilize word of mouth networks & facilitate weekly pick-ups
- Less post-harvest labor
Associated Costs:
- Packaging materials
- Advertising
- Brochures
- Recruiting new members
- Labor
Regulations:
- Membership agreement
Selling at Farmers Markets
Common Risks:
- Weather dependent
- Low customer turn out
- Price competition
- Leftover unsold product
Prices & Profit:
- Prices vary
- Profits can be highest among channels
- High labor costs
- Better markets than others
Level of Management Required:
- High
- Long distance may need to be travelled
- Hours dedicated to selling
- Most markets run 3-5 hours
Associated Costs:
- Market fees
- Equipment
- Travel
- Hired labor
Regulations:
- Need certified product sign at POS
- Any processed food requires additional licensing & labeling per state laws
Selling to Restaurants
Common Risks:
- Inconsistent orders
- High expectations
- Buyer back out
- Slow to pay
- Unpaid debts
Prices & Profit:
- Prices vary
- Usually higher than other wholesale prices
- Depends on quality of product
Level of Management Required:
- Variable
- Constant communication typical
- Requires a high level of service for the volume sold
- Multiple deliveries
Associated Costs:
- Washing, cooling & packing equipment for high volume
- Delivery costs
Regulations:
- Some packing standards if enforced by restaurant
- Any processed food requires additional licensing and labeling
Selling to Institutions
Common Risks:
- Inconsistent orders
- Buyer back out
Prices & Profit:
- Price is low to medium
- Many institutions prefer to order through a distributor
Level of Management Required:
- Low: Relatively quick and easy for volume sold
- Can use schools for CSA & farm education programs marketing
Associated Costs:
- Washing, cooling, packing & processing foods for high volume
- Delivery costs
Regulations:
- GAP certification
- Food safety plan (HACCP)
- Product liability insurance
- Packing standards if enforced by institution
- Any processed food requires additional licensing and labeling
Selling to Distributors
Common Risks:
- Distributors call the shots
- Inconsistent orders
- Buyer back-out
Veritable Vegetable warehouse
Prices & Profit:
- Prices are competitive, but generally low
- Producer is a “price taker”
Level of Management Required:
- Low
- Relatively quick and easy for volume sold
- Must meet packing standards
- Very little marketing
Associated Costs:
- Washing, cooling & packing equipment for high volume
- Delivery costs
Regulations:
- GAP certification
- Food safety plan (HACCP)
- Product liability insurance
- Packing standards
- Any processed food requires additional licensing and labeling
Selling to Grocery Stores
Common Risks:
- Inconsistent orders
- Buyer back out
Whole Foods Market produce
Prices & Profit:
- Price is low
- Producer is a “price taker”
- Wholesale prices are typically low
- Know wholesale price before approaching outlet
Level of Management Required:
- Low
- Relatively quick and easy for volume sold
- Must meet packing standards
Associated Costs:
- Washing, cooling & packing equipment for high volume
- Delivery costs
Regulations:
- GAP certification
- Food safety plan (HACCP)
- Product liability insurance
- Packing standards if enforced by store
- Any processed food requires additional licensing and labeling
To view a more detailed chart comparing sales channels, including u-pick and agritourism, visit our Marketing & Sales 101 Info Sheet in the Marketing & Sales Toolkit. In our Toolkit, you’ll find more info sheets, checklists, worksheets and recommended resources to help you develop a marketing and sales strategy.
We’re continuing to expand this toolkit, so stay tuned for more resources!
If you have questions or words of wisdom about your marketing channels, visit FarmsReach Conversations and post a question or comment!
If you have other great resources to share, get in touch!
The markets and revenue graph is very interesting. Can you provide any details on methodology/how data was compiled ? I had a brief look on SACOG website but couldn’t find the source.
Thanks! Jennifer
Hi Jennifer,
Thanks for reading! This graph was provided to us by one of SACOG’s senior planners. You can contact him for more information:
David Shabazian
SUPERVISING SENIOR PLANNER
Phone: 916-340-6231
Email: dshabazian@sacog.org
Hope this helps!
Thanks!!