Running a dairy farm is hard work. Natural forces such as rain may reduce your output. Bright sunny days may yield faster production. So how do you measure the success of your dairy farm? How do you know if it’s going well or not? The simple solution is to check that you have some money in the bank (but we all know that doesn’t tell you a lot). Having cash saved away, is certainly no great indicator of whether there will be any left next week, next month or next year.
Smart farmers use KPIs not just to measure their own performance over time but also to compare it to other farms. In the dairy industry, the standard unit to look at is a kilogram of milk solids (kg MS). By knowing your costs, earnings, break-even point and profit per kilo of milk solids, you can compare how well you are doing against other farms. If you’re falling short in one area, you know that’s where you should focus on improving.
Where do you find these numbers?
Your accounting system on its own isn’t going to tell you what you need to know; it’s great for working out your overall profitability, for keeping track of invoices and paying bills, making sure your staff get paid on time. However, you need to add a good reporting tool to get down to the nitty gritty.
The KPI editor in Calxa will help you immensely: you can add Metrics for the non-financial data, create KPIs that will give you charts you can use to monitor your performance against. Then you can add your metrics and KPIs to a Report Bundle and schedule them to arrive in your inbox. Your your reports will appear as simple graphical data that is easy to read and doesn’t require you to have an accounting degree to understand what is going on.
Getting Started with KPIs
For the simplest start, create a Metric for kg Milk Solids – you can expand on that later to create other KPIs based on the number of cattle you have or the area of productive land – but for now start simple.
Put in a monthly budget for your expected production for the year and then, each month, update with what you’ve actually produced.
Creating the KPIs
Now create KPIs for the numbers you want to report. Once you have Account Groups set up for Dairy Revenue and Dairy Costs, the formulas are simple:
Revenue per kg MS
IF ([kg Milk Solids] = 0, null, [Dairy Revenue] ÷ [kg Milk Solids])
Cost per kg MS
IF ([kg Milk Solids] = 0, null, [Dairy Costs] ÷ [kg Milk Solids])
Profit per kg MS
IF ([kg Milk Solids] = 0, null, ([Dairy Revenue] – [Dairy Costs]) ÷ [kg Milk Solids])
Seeing the Results
The KPI Spreadsheet Comparison chart is perfect for this scenario. You can plot the revenue, costs and profit KPIs together on the one chart and it will show you actuals for completed months of the year, budgets for the remainder.
You’ll be able to clearly see the seasonal variations in your income, costs and profit. Wasn’t that simple?
The Finishing Touch
For the final polish to your chart, add in an external benchmark. If you’re in New Zealand, Dairy NZ provide some numbers that will give you a guide to how other farm are doing. Simply add a metric such as Net Milk Income Average, set the actuals and budget to the same amount each month (eg $6.33), and then create a KPI which would simply use that Metric ([Net Milk Income Average]) and add it in to your chart to see how your revenue compares to the industry average.
Now that you know how to create KPIs, find out how to prepare budgets while accounting for unpredictable natural hazards that may influence the performance of your agri-business.