Chapter 1.3 Calculate your cost of production per kilogram of meat or wool
Background information
In the grazing industries, knowing your cost of production ($ spent to produce a kilogram of meat or wool) is a key piece of financial information you can use to assess your enterprise performance. Comparing your performance against other like businesses (Chapter 1.4) will be more powerful if you know your costs per kilogram.
Making sense of prices and marketing (see Chapter 2.3 in MMFS Module 2 Market Focused Wool Production, and Chapter 3.1 in MMFS Module 3 Market Focused Lamb and Sheepmeat Production) is also much easier when you know your costs per kilogram.
Knowing your cost of production allows you to set profitable target average sale prices which assists in budgeting and planning expenditure and shows the likelihood of being able to meet your overhead costs, interest expenses and taxation liabilities. This will drive a profitable business outcome.
Analysing your cost of production will lead to a deeper financial understanding of your business. This is a high value process that can assist in a critical review of your business and boost productivity.
At a glance
- Peter Drucker famously said, “If you can't measure it, you can't manage it.” Knowing your cost of production is essential to analyse and improve enterprise performance.
- High cost of production is a trigger to review variable costs and your management approach. Dip deeper into your figures to identify focus areas for improvement.
Determine your cost of production
Calculating cost of production is an important step in analysing business performance. A specific set of tools is included with this module. These include:
- Tool 1.7 MLA cost of production calculator for sheep, beef and goat enterprises
- Tool 1.8 AWI cost of production calculator for wool enterprises
- Tool 1.9 MMFS cost of production calculator
SIGNPOSTS
A producer case study outlining the benefit of calculating your cost of production to improve your understanding of where to focus spending for the best return.
Hitting a range of key production and financial benchmarks can more than double prime lamb profits. Knowing what these benchmarks are, the targets for each and the management strategies to achieve them is fundamental to strong, long-term profitability.
An overview of the financial performance of wool flocks and how it compares to other competing land use activities, findings of a deeper analysis of the performance of eight top performing wool flocks over five years, and key financial and production benchmarks suitable for setting wool business strategy in a range of regions.
Learn why knowing your cost of production can help you make improvements in your business and how other producers have benefited.
Tips and advice for using analysing and interpreting the results from the calculator to identify the changes you may need to improve your profitability and which aspects of your business are running well or need tweaks.
A selection of webinars aimed to cover the key practices to improve business and sheep performance.
Various webinars on animal health, pasture and cashflows to drive productivity in your business.
Stories from NSW’s best and brightest young farmers and fishers. Each episode is a candid conversation about the business of primary production.
Recent droughts across Australia have demonstrated the dramatic effects that climate variability can have on farm businesses and households. Here ABARES provides some insight into these issues by examining the effects of recent climate variability on Australian farms.
The resources within this guide can assist with your goal setting, provide business plan templates, and help guide you to prepare your own business plan.
A manual to assist producers with their skills to manage a successful business.
A guide to build your own comprehensive business plan, which identifies strengths, weaknesses and key performance indicators (KPIs).
How to balance intuition and logic in your business strategy.
A fact sheet to create simple and effective strategic plans for your growing business, focusing on establishing goals and actions to ensure farming businesses develop and prosper.
NSW Central West, NSW South West Slopes, Northern Victoria, Southern Victoria, Tasmania, SA Mallee and upper Eyre Peninsula, SA Mid North and lower Eyre Peninsula, WA low rainfall, WA medium rainfall,
A tool to help you determine your cost of production for wool and compare performance annually.
A tool to help you determine your cost of production for sheep, beef and goats, and compare performance annually.
MMFS Cost of Production Calculator For sheep producers wanting to improve the performance of their enterprises, a good understanding of the current operating efficiency of the business is essential. Cost of production is a key factor affecting the profitability of sheep enterprises and calculating your cost of production is one of the important steps in assessing flock performance and a first step to making improvements.
Leadership programs and services to support people in all stages of their leadership journey. Participants will be exposed to local leadership activities in the community and relevant businesses and industries to highlight networking and relationship building and how challenges have been met with solutions.
A national program for young people in all facets of the wool industry which develops their leadership and professional skills.
A two-day financial and business management training workshop for all livestock producers. The aim is to enhance producer knowledge and skills in basic financial and business management to improve business efficiency and profitability.
Rabobank has designed the Executive Development Program and Farm Managers Program to grow business skills, strengthen networks and improve strategic management ability.
