Developing and Using a Marketing Plan
Alvin E. Wade, Agricultural Economics Specialist
Tennessee State University



Farmers are quite good at developing and using plans in the production aspect of their businesses. They have good pest control, fertilization, tillage and harvest programs in crop production and have good animal husbandry programs. Over time, they are able to modify production plans as growing conditions change.

Many farmers take a different approach to marketing. Marketing plans are often oversimplified or non-existent. When questioned about marketing plans, farmers often reply that they are too busy farming to think about marketing. In today's farm business environment, marketing is at least as important as production, if not more so. Production provides the tangible or physical fruits of the farmer's labor but marketing provides the money to pay the bills.

Over the past few years many top-notch producers have gone out of business. One contributing factor has been the inability to sell at profitable prices. Planned marketing will improve the odds of selling hard-earned production at prices that ensure the survival of the farm business.

Why Develop a Marketing Plan?

There are many misconceptions about a marketing plan. Many farmers feel that future prices are so difficult to predict that planned marketing is a futile exercise. The inability to predict the future with certainty is why planned marketing is important.

Market planning is not a one-time task. It must be a continuous flow operation. The plan must be flexible because factors affecting farm output and market prices will change continuously over time.

A marketing plan is the management strategy for realizing the full potential profit from farming. Farmers must also have a plan for the task of profitably marketing their products if they are to be successful in the long run. A plan allows a farmer to market his products, not just sell them. The plan must be based upon the objectives of the business.

Elements of a Marketing Plan

There are four main factors that go into developing a viable marketing plan. They are based on the following questions:

Developing a pricing plan involves several steps:

Assessing Business Objectives

The objective of many farmers is to manage a growing farm business. Most farmers also place a high priority on farming as a way of life; however, farmers must generate enough income to support the business that provides that way of life.

Farming consists of many enterprises and activities. The farmer must perform a wide variety of tasks and must have a wide variety of skills. One necessary skill is the ability to establish realistic objectives for the farm and set goals for the individual elements that make up the farm business. Deciding what is wanted from the business and its individual parts is an important, but often overlooked, task of the farmer. As the old saying goes, "If you don't know where you are going, you won't know if you have arrived." Once objectives and goals for the business are established, the farmer can develop a strategy to reach them.

Personal Evaluation

The first step in assessing the objectives of the business is to evaluate your current situation. You should consider your personal feelings and attitudes about marketing and the financial needs of the business. Individual feelings and desires form the base for determining your objectives and goals. An evaluation of decision-making ability is also needed. Developing a marketing plan involves considerable decision making.

Because marketing is not an exact science, it is a difficult problem to deal with on a daily basis. No single plan will work every year or for every farmer. Market information can be ambiguous or contradictory. Success in marketing depends on the ability to make decisions in an uncertain environment.

A fundamental decision to be made is whether to operate like a speculator or a businessman. The speculator sets the goal of selling at the high price of the year and focuses on planning for the short term. The businessman sets the goal of making a profit and focuses on long-term survival and growth of the business.

The marketing plan must be designed for the temperament of the individual. You must have a plan you are comfortable using.

Financial Considerations

If the overall objective of the farm business is to accumulate capital and foster growth, develop the pricing plan to accomplish that goal. The financial considerations are to sell at a price that will cover cash commitments and general fixed costs, and contribute to growth in net worth. A positive cash flow means that enough cash flows into the business to meet cash expenditures. Find the price needed to cover cash expenditures by dividing cash expenses for the commodity by the amount produced.

The selling price must also provide enough income to cover the general fixed costs of farming. Fixed costs may be hard to identify for a specific commodity. They include insurance, taxes, depreciation, repairs and family living expenses. Failure to cover these costs will result in a reduction in net worth over time.

The pricing plan must recognize the risk-bearing ability of the business. The farmer's net worth determines his ability to handle risk. Net worth is the portion of the business that is owned by the farmer. The bigger the net worth, the greater is the ability to handle risk.

Determining Pricing Goals

Production Cost
Unless you have a reasonable estimate of how much money will be tied up in producing your product, there is no way of knowing what price will be needed to make it a profitable enterprise. Estimating production costs is essential to planned marketing. Individual enterprise budgets can assist in the estimation of most of the costs to be considered. Sample budgets are available through the local Cooperative Extension Service and are helpful when developing a budget for the individual farm.


Good record keeping is essential when developing budgets because records provide a picture of the past performance of each enterprise. You can modify records of previous performance to reflect current input costs, changes in production practices and develop selling price goals by using good cost estimates.

There are several ways to classify costs. The cost of family living, variable costs and fixed costs (cash and non-cash). The cost of family living is the starting point. Family living expenses are an important yet often overlooked cost of farming. A primary objective of any business is to generate income to live on and farming is no exception.

Variable or "out-of-pocket" costs are those cash costs directly attributable to each enterprise. These costs result in direct cash outlays during the production period. Most of these items are termed "variable costs" because they vary with output.

The last category of cost that needs to be determined is fixed cost. Fixed cost should be broken into cash and noncash categories for market planning. These costs do not vary with the level of output, and are fixed regardless of whether anything is produced in any given year. Examples of fixed cash commitments are mortgage payments, insurance, taxes, and loan payments on general use equipment such as tractors or vehicles. Examples of fixed noncash cost are depreciation on general use equipment and buildings and opportunity cost interest on equity.

Price Goals Based Upon Farm Objectives

The first group of expenses to consider are those which the whole farm must incur. List family living expenses first to emphasize that they are a cost of farming and fixed cash commitments. They include payments toward which the whole farm is expected to contribute.

Next, consider the kind of growth expected. Ideally, long-run net worth growth goals may be specified for the farm. The yearly net worth growth which the farm can expect must be considered in terms of the particular income year the producer faces.

Next, allocate the whole farm's cash needs to the various enterprises. First, determine the variable cash commitment for each enterprise. Variable costs must be covered before there is anything to contribute to fixed costs or other income objectives.

Next determine what proportion of the farm's total fixed cash needs each enterprise is expected to carry. One possible method is to assign the load by the proportion of the variable cost of an enterprise to the farm's total variable costs. Another method for crop farmers to assign the fixed commitments is based upon acreage. Each acre, regardless of the crop, would be expected to carry the same fixed commitment. Another method could be based upon the labor requirements of the enterprise. Another, perhaps preferable, method is to assign the fixed cash commitments in proportion to the management time spent on each enterprise. You can experiment to determine which technique works best.

Making the Decision and Following Through with the Plan

Making the pricing decision is the hardest part of planning a strategy. Most successful pricing plans do not rely on one strategy, but are combinations of strategies. Each plan should include a "backup" or contingency plan in case prices do not reach specified levels. Once a decision is made, the producer should execute it. It is likely the outcome will be as planned.

Evaluation

When the action is completed it is time to evaluate the results of the plan. Did the plan meet the objectives? Were the objectives relevant? Was the decision based on current knowledge? Has any new knowledge surfaced since the decision that could have changed the decision? What did I learn from this experience? What should I have done differently? These questions should be asked each year to improve marketing plans.

Mailing address for the author: Tennessee State University Cooperative Extension Program, Agriculture Research and Extension Facility, 3500 John A. Merritt Boulevard, Nashville, TN 37209-1561

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