The 3 Secrets For Increasing Profit™

by Dave Pratt

There are three, and only three, ways to increase profit in any business. Stan Parsons called them The 3 Secrets For Increasing Profit™ and introduced them to Ranching For Profit students in 1980. Lately I’ve seen more and more articles by industry pundits that incorporate the 3 secrets in articles and conference proceedings. They rarely if ever acknowledge the source. Worse yet, they don’t always get them right. I’m going to use this ProfitTips to go back to basics and explain the 3 Secrets.

There is a common belief that profit is a function of weather and prices PERIOD. But weather and prices are, for the most part, beyond our control. If we believe that profit is determined by things beyond our control, it becomes easy to see ourselves as helpless victims.

In Ranching For Profit we don’t accept for one moment that we are helpless. Even if we can’t influence the market or make it rain, we can create and structure enterprises to fit this uncertain and volatile environment.  In selecting our enterprises and building our business for profit we need to understand the 3 Secrets:

  1. Reduce overhead costs
  2. Improve the gross margin per unit
  3. Increase turnover

Secret #1: Reducing Overhead Costs

Overhead costs include land and labor costs. Land and labor are broad categories. Land includes rent and the cost of maintaining fences, pipelines, building and anything else attached to the land. Labor costs include salaries & benefits, vehicles, equipment, horses, dogs and anything else that does work.

 

Overhead costs tend not to change much as the units of production (e.g. cows, steers, ewes) change.  Think about increasing a cow herd from 400 to 500 cows. That’s an increase of 25%. Would the interest, insurance or depreciation on our pickup increase by 25%? Of course not. As much as our hired hand might want a 25% raise, raising 500 cows is not 25% more work than raising 400 cows. Sorry Charlie, no raise.

Of course, anyone with a BLM or Forest Service grazing permit pays for land on a per-head basis. It doesn’t matter. While it may not behave like other overheads, rent is always an overhead.  The video at the end of this article explains why.

Reducing depreciation on our truck, or refinancing it to pay less interest will not impact the number of cows we run, the productivity of those cows or the price I get for my calves. But it will increase our profit. That’s why reducing overheads is the first secret.

Secret #2: Improving Gross Margin per Unit

Gross margin per unit measures the economic efficiency of cows, steers, sheep or whatever our units are. The higher the gross margin, the greater the efficiency. When gross margin per unit increases it means that each animal makes a bigger contribution to covering our overheads and making a profit.

To calculate gross margin we have to know two things; gross product and direct costs. Gross product is the value an enterprise produces. It’s simple to calculate:

Gross Product = (Closing Inventory Value + Sales) – (Opening Inventory Value + Purchases)

Direct costs are costs that go up and down as the number of animals in the herd goes up and down. Direct costs include supplement and substitute feed, health and breeding related costs, trucking, marketing commissions and interest on the livestock note.

To calculate gross margin just subtract direct costs from gross product. Then we divide by the number of units in the enterprise to figure gross margin per unit.

We can use different units. In livestock enterprises we usually start by calculating gross margin per animal unit.  Gross margin per animal unit is an effective way to compare the efficiency of a stocker enterprise to a cow-calf enterprise, or any other livestock enterprise. Gross margin per acre is a useful tool for comparing the efficiency of grazing enterprises to farming operations.

The ranch with the highest production per unit rarely has the best gross margin/unit. Smaller cows weaning lighter calves, but requiring fewer inputs, generally have a much higher gross margin per unit than larger cows.  Whatever the enterprise, improving gross margin per unit is the second secret to increasing profit.

Secret # 3: Increasing Turnover

We may have a productive cow with a great gross margin, but one cow won’t be enough to cover our overheads. We need more cows … at least we need more something!

Turnover refers to the number of units in an enterprise (e.g. the number of cows or steers that we have). A business can increase turnover by increasing the scale of an enterprise or by adding enterprises. Increasing turnover, provided that the gross margin per unit is healthy, is the third secret for increasing profit.

There are three, and only three ways to increase profit in your business. All three are in play in your business all the time, but only one of them is the most important right now. Do you know which of the three secrets is your biggest problem and which offers you the greatest opportunity? If you are ranching for profit you’d better find out!

Finding Your Deadwood will show you how to tell which of the three secrets you should focus on now. To hear how one RFP graduate applied the three secrets to increase profit watch John’s Story.

WESTERN LIVESTOCK & GRASS

The Legacy of the Ranch…

Where do you see your ranching enterprise in 1 year, 5 years, 10 years 100 years. The actions you take today will basically – dictate to what your ranch will be in the future.

  • More Brains put together to find more Ideas to create more Solutions.

By Utilizing the cumulative Brains around you – You will have the resources to create a reality of where your operations are at and where you would like it to be.

Working hand in hand with our resources – we will create a vision and work to fulfill it through a focused effort. Your land will become a healthy vibrant ecosystem capable of sustaining wildlife and livestock beyond expectations.

You are an Investor – The land that you own will appreciate as it is – 1% to 3% per year. There will be some bumps along the way, but your investment will continue to grow Even if you do absolutely Nothing with it.

  • What if you make a commitment to make it better – Increase the grasses and the waters. What if your Land can be developed to KEEP more of the moisture in it and have less runoff.

Partnerships – We offer to run your ranch land in this manner. Through Planned Timed Management Grazing and strategic placement of Water and Fences – Your Investment will have the opportunity to grow beyond your expectations.

Long Term Focused Commitment – is the Key to your operation being successful. We will enter into an agreement to LEASE your ranch and run it as if it were our own – To Grow and develop it to achieve optimal production by utilizing the Sunlight and Water along with professional stockmanship. This will develop more Grass which results in more Water staying on the place resulting in healthier soils and productive plants.

A Board of the best and brightest will be asked to make recommendations and be a part of developing the overall plan for the Land. Grass specialists and Master Stockmen will give input, as to how to operate the enterprise.

– Full Circle –

As Western Livestock & Grows grows – we are going to take on the next challenge.

  • The Next Generation of Ranchers – Our Youth.

Getting into (and getting out of) the ranching business is a challenge. Our average operator age is getting up to where most people are retiring. In addition, the capital cost of getting into ranching far exceeds the financial resources that a ranch can provide.

How do we work to overcome these obstacles?

Western Livestock & Grass – will take on the challenge of finding qualified young persons to take on the LEGACY of your ranch. As we lease more ranches, we will become the mentor that is needed to develop our young ranchers.

  • We will take on the responsibility of making sure your ranch is being run right.
  • We will also take on the responsibility that the next generation of ranchers is being prepared to take on the challenges of this industry.

IF THIS IS something that you would like to take part in. Give me a call. We can cover the details and determine a plan that will work for ALL of us.

Give me a call – 307.331.0357
Email – kit@ranchersedge.com

A Professional Ranch Leasing Service

Warmest Regards

signature

Kit West – CEO Western Livestock & Grass

Meanings in Conversations

CREDIT

That’s not what I said.

That’s not what I meant.

You took it the wrong way.

Why can’t you see things from my point of view?

What I was trying to say was…

In any meaningful conversation, where what’s said and what’s heard is equally important on all sides, the truth is rarely heard simply as stated. Usually, there’s what someone says and then there’s what someone hears. It’s a miracle that we don’t miscommunicate more.

In all honesty, language and conversation is something we take for granted. But in these turbulent, divisive and also promising times, communication is of vital importance. Those who can engage someone empathetically, showing an ability to understand and share the feelings of another, can create bridges that sow divides and create thriving communities.

But you have to care.

You have to believe in something bigger than yourself or any one person or thing.

The vision and meaning of togetherness must carry greater purpose and prominence collectively…for all.

The difference between utterance and discernment, after all these centuries of communicating with one another, still leaves much to be desired. Dialogue is so much more complicated than speaking and listening. The distance between the two is separated by an incredible array of everyday obstructions: cognitive biases, experiences, emotions, and self-centeredness on every side.

The art and science of language and communication are just that…art and science. Expression and significance are often left to the senses of the beholder, regardless of intent.

Let’s appreciate that the coalescence of thoughts, ideas, and purpose create a complex stream that’s truly unique to each person. Someone has to take the first step. Someone has to see the bigger picture. Someone has to understand the other…first.

Regardless of what is or what should be and why, most times, other people aren’t going to take the first step. But that’s the true opportunity for empathetic leadership.

Don’t just try to get closer.
Don’t just listen.
Don’t just repeat what you head back to someone.
Don’t just feel sorry for someone…that’s sympathy, not empathy.

Empathetic leadership is just that…leading the way by taking steps toward someone and somewhere else. Become a bridgebuilder.

Listen and commit your undivided attention to the conversation.
Ask questions.
Refrain from judgment and assumptions.
Consider different perspectives and angles.
Seek common ground.
Acknowledge another’s feelings and show emotional support (EQ=emotional intelligence)
Relate – show care and concern.
Mirror someone’s form of communication and nonverbal signals.

Empathetic leadership is a skill and a competitive advantage. In a world seemingly rife with divisiveness, fear, and confusion, this is exactly what the world needs more of right now…engagement, harmony, and community.

Take the first step.

The Learning/Doing Gap

Seth Godin

Our society separates them. Somewhere along the way, we decided that one interfered with the other.

Go to school for 8 years to become a doctor–most of that time, you’re learning about doctoring, not actually doing doctoring.

Go to work as a copywriter. Most of the time, you’re doing writing, not learning about new ways to write.

The thing we usually seek to label as ‘learning’ is actually more about ‘education’. It revolves around compliance, rankings and “will this be on the test?”

Being good at school is not the same as learning something.

One reason that we don’t incorporate doing into education is that it takes the authority away from those that would seek to lecture and instruct.

There are 56 million people in K-12 (compulsory education) in the US right now. Most of them do nothing all day but school, failing to bring real-life activity, experimentation and interaction into the things that they are being taught.

And there are more than a hundred million people going to their jobs every day in the US, but few of them read books or take lessons regularly about how to do their work better. That’s considered a distraction or, at best, inconvenient or simply wasted time.

The gap is real. It often takes a decade or more for a profession to accept and learn a new approach. It took gastroenterologists a generation before they fully accepted that most ulcers were caused by bacteria and changed their approach. It has taken our justice system more than thirty years to take a hard look at sentencing and corrections.

It could be because we’re confusing learning with education. That education (someone else is in charge and I might fail) is a power shift from doing, so I’d rather be doing, thank you very much.

What happens if the learning we do is accomplished by always engaging in it in conjunction with our doing?

And what happens if we take a hard look at our doing and spend the time to actually learn something from it?

When police departments invest time in studying their numbers and investigating new approaches, they discover that efficacy and productivity goes up, safety improves and so does job satisfaction.

When science students devise and operate their own lab tests, their understanding of the work dramatically improves.

Education (the compliance-based system that all of us went through) is undergoing a massive shift, as big as the ones that have hit the other industries that have been rebuilt by the connection and leverage the internet brings. And yet, too much of the new work is simply coming up with a slightly more efficient way to deliver lectures plus tests.

I see this every day. People show up at Akimbo expecting lifetime access to secret videos, instead of the hard but useful work of engagement.

The alternative? Learning. Learning that embraces doing. The doing of speaking up, reviewing and be reviewed. The learning of relevant projects and peer engagement. Learning and doing together, at the same time, each producing the other.

If you want to learn marketing, do marketing. If you want to do marketing, it helps to learn marketing.

That same symmetric property applies to just about everything we care about.

To quote the ancient rockers, “We don’t need no… education.”

But we could probably benefit from some learning.

In the middle of all this doing, this constant doing, we might benefit from learning to do it better.

Marketing the Ranch

Marketing – The process of creating excitement about your product/service.
Sales – The process of actually selling your product/service.

Sales of the product on the Ranch – You have that figured out. Sales barns, video, and internet, they all get the job done very well with the largest number of potential buyers.

But – Marketing, that has been left up to the barns/video/internet sales facilitators. And how do they go about doing that. – The Sale Bill. The consignment list they post in publications and websites.

That’s IT!!!!!!

Why should you take an interest in “Marketing your Livestock”
Picture this – If there are 2 more bidders at the sale to BID on your livestock. 50,000 lbs at $1.10 = $55,000.
With 2 more bidders you could get say .05 +/- cents more?
50,000 lbs at $1.15 = $57,500.
$2500 More….

What can you do to “Market your Livestock”?
Website – $500 a year.
Print Media – $500 a year.
Social Media – $100 a year.

  • Take lots of pictures
  • Write down what you do.
  • Write down your genetics
  • Ad pictures to everything.

The more visual you are the more your pictures will sell your Calves.

Build upon the reputation that you already have.
By Investing $1.00 in your Marketing – You can get $2.00 back.

I can HELP – call 307.331.0357