We often get the question, Why do you need to spend time preparing a cost projection as part of your marketing plans?

I think we get the question so much because the cost projection holds such a prominent place in the plan books. It is front and center. The first page of every plan is dedicated to the cost of production in a form we call a margin projection. We spend several half day sessions getting the numbers for the margin projection. Some will say, Cost of production does not matter. The market does not care what your production costs are. You know what. I agree that the market does not care if you are a high cost producer. But you should care about your cost of production.

It does matter what your costs are and here is the number one reason why. You could be giving away profit. Not by spending too much, although that could be happening. I am really concerned more about making good decisions and how to get to those decisions. At the top of the list of reasons to have a good margin projection is to avoid inaction when it matters most. What causes this inaction? Statements that start with, I do not know.  I am sure you can fill the blank. I do not know what fertilizer will cost. I do not know what my yield will be. And the list goes on and on.

With a margin projection, we have a framework for decisions. We have a gauge to measure outcomes against. We do not have a crystal ball and do not know what the future hold but we need to have a framework to make decisions when the opportunities present themselves. A margin projection can be a great tool for dealing with   I do not know.



Ron

ron@marshallag.com