In my last Blog, I promised to address the importance of knowing your “Why,” and I assure you that I will cover that topic next time. However, I wanted to share a great debate/discussion that I heard just recently. I will cover the “Why” topic next time.
This discussion occurred when two people were discussing what expense areas really matter. The accountant suggested that all expenses are important, and the Nutritionist countered that the only one that really matters is feed expense, since it makes up 50-60% of a dairy’s operating costs. He justified his opinion by pointing out that reducing this cost by just 5% would yield $0.50-0.75/cwt cost savings! He went on to laugh at the producer who was busy saving 5% on the drugs used on his dairy. Heck, he pointed out, that only amounts to $0.02/cwt.
Our Accountant, on the other hand, quickly replied that every cost savings is beneficial. He was adamant in pointing out that 5% savings on all the other expenses a dairy pays can also yield $0.40-0.60/cwt. So, who was right?
Actually, they both were correct. With feed representing 50-60% of your expenses, any savings here can be crucial to your bottom line. This is even more significant if the savings come from reducing “feed shrink,” since this savings is close to free! It usually just requires better management of your feed program and its inputs.
If the cost of other items, including drugs used, exceeds your margin over feed cost, you will undoubtedly have a cash flow challenge. Thus, the Accountant was correct, too. What to do?
The answer is to monitor all of your costs. At the same time work to minimize all feed shrink, especially with high priced commodities and expensive silages. Finally, do make a point of measuring all of your costs. As I discussed in a prior blog, you need to know these cost numbers to make a profit. Visit my website at www.success-strategies.com to learn more. Anytime your expenses exceed the break-even level for your operation, you need to start studying them very closely. Your future depends on it!