Top 5 Dairy Farm KPIs to Cultivate a Profitable Business
Posted on 23rd June 2017 in KPIs
Written by Freya Hughes
There are a huge amount of things going on within a farming environment, especially when you’re keeping livestock on a dairy farm. To keep things simple, we’re focusing on the most important Key Performance Indicators (KPIs) that will have an impact on dairy farming. Your cows are the most important part of your business, so use these KPIs as a springboard so you can get back to caring for them.
Each farm and farm manager has individual needs and factors that require attention at any given time. One way to get started on knowing your dairy farm KPIs is to consider six main areas:
- Daily output
- Nutrition program
- Animal reproduction
- Heifer rearing
- Animal health and disease
- Genetics and Marketing
You’re not getting up at the crack of dawn for no reason. You’re working around the clock to make a profit, which is achievable through good management and efficiency. KPIs are the easiest way to track what impacts on your revenue, so they’re an important concept to understand and enforce. It’s not always easy to turn farm management into farm profit, so identify your weaknesses to improve them.
While you’re here, take a visit to our KPI Library. It’s open all hours and fully stocked with KPI examples, and ways to calculate your metrics.
1. Dairy farm KPI: Average milk yield
Measuring your average milk yield KPI is a must, and a high yield is desired. This is an important dairy farm KPI to be watching as the more you can produce, the more you can sell. Your yield is your stock so it’s important to keep a good volume of it accessible for sales at all times. Ensuring you have enough cows to milk will mean your stock levels will maintain a healthy average. Find out how to calculate this average here.
If this figure is looking low, you have to ask yourself what you can change to keep your business running. Are you in a position to invest in more cows? Can you reduce the amount you’re selling and shift to a different way of operating? Perhaps smaller yields will be of better quality so you can charge more; or perhaps you can pump out more stock for less. Calculate which will benefit your bottom line the best and make your decisions from there. Try out FUTRLI’s scenario planning to give yourself confidence in your decision making. You’re able to run through the results of each option and see which is going to be best for you.
2. Dairy farm KPI: Milk profit margin
So once you’ve calculated how much milk you’re producing on your dairy farm, you need to work out how much cash you’ll be generating from it. Calculate and monitor this dairy farm KPI so you know the value of your stock. Checking your own results against benchmarking data in your industry will show you how well you’re doing and if you’re pricing everything out correctly.
You’re aiming for a high margin. This will mean you’re working efficiently, and pricing your stock properly. If this margin is low, you need to produce more milk to achieve the same level of profit as a high margin. Learn how to calculate this here.
3. Dairy farm KPI: Land investment
Signing a big deal with a supermarket for your milk to be sold in will warrant the need for more space for additional cows. Can you afford to take on another field or cattle shed right now? If not, how are you going to plan effectively to be able to? Get a financial forecast for your data, and see how it could affect your day-to-day. This dairy farm KPI could be what accelerates your business’ growth, so it’s imperative to be careful at this stage. Without proper planning, you could end up taking on more land than you can manage with your current team, meaning you’re likely to start making a loss as you can’t keep up with the sales volume.
4. Dairy farm KPI: Productive cows percentage
This dairy farm KPI indicates your operational efficiency, by measuring the number of milking cows against the total number of cows within the herd. You’re aiming for a high percentage, as cows which aren’t producing milk are a drain on your resources. Caring for unprofitable cows will eat into your overall revenue, as you’re not gaining anything from them. Consider slimming down your herd by selling those cows on for other means. Ensuring you have a manageable number of cows at any one time will allow you to maintain this dairy farm KPI effectively. Overbuying cows is irresponsible as you do have a duty of care for these animals. Make informed decisions and maintain your percentage using this formula.
5. Break even milk price
This KPI is critical to your business. It allows you to grow your profitability, therefore cash flow. It measures the lowest price you can accept per quantity of milk in order to break even. Once you know this figure, pricing out your produce will become easier, as you’ll have a figure to work from. The lower this figure is, the more efficiently you’re running your farm. It’ll protect you from the rise and fall of prices and interest in the industry, so implement measures to maintain this figure.
Invest in more efficient working processes to reduce your overheads and costs, and you should be able to keep this figure low. Learn to calculate your break even milk price here.