Understanding Profit Margins on the Farm
- Joshua Brock
- 3 days ago
- 5 min read
This is the fifth in a series of articles expanding on the original, “From Seed to Success: How KPIs Can Transform Your Market Garden”. With each article in the “Farm KPIs” series, we dive deeper into a specific metric (crops, livestock, financial, etc.) by defining what it is, why it’s important, how to track it, and how to put the data into practical use on your farm.
The other articles in the series include:
Understanding the Cost of Production for Farmers: Key Factors and Strategies for Managing Expenses
Why Measuring Input Efficiency Should Be a Top Priority for Every Farm
Yield Per Acre: The KPI Every Farmer Should Track (But Many Don’t)
Why Profit Margins Matter
For many farmers, profit margins can feel like an abstract concept, reserved for accountants or financial advisors. Yet, knowing and understanding your margins may be one of the most powerful tools you have in steering your farm toward long-term success. It’s not just about whether you’re “making money.” It’s about how efficiently your farm turns the resources you put into land, labor, feed, seed, and equipment, and turns that into income.
What Exactly Are Profit Margins?
At its core, a profit margin is the percentage of revenue that remains as profit after all expenses are deducted. Think of it as a window into how much of each dollar you earn actually stays in your pocket once you’ve paid for everything it takes to run your farm.
For example, if you sell a bushel of corn for $6 but it costs you $5 to grow and bring that bushel to market, your profit is $1. Your margin is about 16.7%; one-sixth of the selling price. Multiply that across your entire harvest, and you can see how important it is to know whether your margins are wide or razor-thin.
There are a few different types of margins worth noting:
Gross profit margin: Revenue minus direct production costs (seed, feed, fertilizer, fuel, etc.). This shows how efficient your farm is at turning inputs into products.
Operating profit margin: Revenue minus both production costs and operating expenses like labor, repairs, insurance, and utilities. This provides a clearer view of your overall business performance.
Net profit margin: Revenue minus all expenses, including loan payments, taxes, and depreciation. This is your bottom line—the true profitability of your farm.
How Farmbrite Can Help
Farmbrite’s Profit and Loss Statement, located in the Farm Accounting section of the reports, is available across a user's entire account/operation, but also individually for fields, crops, equipment, and animals. The date range can be adjusted as needed and will show a breakdown of income, expenses, and profit for the selected time period.
Why Tracking Profit Margins Matters
Profit margins are more than just numbers on a spreadsheet. They are decision-making tools that can help you evaluate whether you’re pricing your products correctly, using your resources efficiently, and positioning your farm for growth.
For new farmers, tracking margins from the start creates good financial habits and prevents surprises at the end of the year. For more experienced farmers, analyzing margins can uncover hidden opportunities for improvement. Perhaps your yield per acre is strong, but the cost of inputs is eroding your profits. Or maybe your margins are solid on direct-to-consumer sales but much thinner when selling through wholesale channels.
Margins also help you compare crops or lines of business side by side. If raising broilers has a 20% margin but your hay sales only yield 5%, you’ll have a clearer sense of where to invest time and money. That doesn’t mean you abandon low-margin lines of business immediately, but it gives you the knowledge to make intentional choices rather than relying solely on gut instinct.
Most importantly, understanding your profit margins builds resilience. In agriculture, where markets and weather are unpredictable, margins are the financial cushion that allows you to withstand volatility. If your farm is operating on thin margins, even a small increase in fuel prices or a dip in market demand can push you into the red. Stronger margins give you breathing room.
How to Track Profit Margins on the Farm
Tracking margins doesn’t have to be overwhelming. The key is consistency and breaking the process into manageable steps.
Record Your Revenue Accurately
Capture every dollar that comes into your farm, whether from selling produce at a farmers’ market, delivering CSA shares, or shipping grain to a buyer. Separate revenue streams by enterprise (e.g., crops, dairy, poultry) so you can see which ones perform better.
How Farmbrite Can Help
Farmbrite, farm management software, can help track your margins. This farm accounting article gives you a great overview of the processes involved with tracking and categorizing all of your income and expenses for your operation. The Farmbrite Farm Accounting Dashboard gives both an at-a-glance view of the financial health of their operation, but also allows users to record transactions directly from that screen.
Know Your Costs
This is where many farmers struggle, because costs aren’t always obvious. Track both direct costs (seeds, fertilizer, feed, veterinary care) and indirect costs (repairs, insurance, fuel, wages, utilities). Don’t forget to include depreciation on equipment and buildings—it may not show up as a monthly bill, but it’s a real cost of doing business.
Do the Math
Gross Margin = (Revenue – Direct Costs) ÷ Revenue × 100
Operating Margin = (Revenue – Operating Costs) ÷ Revenue × 100
Net Margin = (Revenue – All Costs) ÷ Revenue × 100
Even a basic spreadsheet can help you organize these numbers. Over time, you’ll see patterns—like whether margins are shrinking, holding steady, or growing.
Review Regularly, Not Just at Year-End
Too often, farmers only look at profitability when tax season rolls around. By then, it’s too late to make changes that affect the current year. Reviewing your margins monthly or quarterly helps you make adjustments in real time, whether that’s renegotiating input costs, adjusting prices, or shifting your marketing strategy.
Putting Profit Margins Into Action
Once you have a handle on your margins, you can use them to guide decisions that directly impact your bottom line. For example:
Pricing: If your margins are consistently low, it may be a sign that you need to raise prices—or cut costs.
Lines of Business Selection: Margins can reveal which lines of business deserve expansion and which may require reevaluation.
Efficiency Improvements: Tracking costs tied to specific activities (like irrigation, harvesting, or feed management) helps identify where efficiency gains can widen your margins.
Remember, the goal isn’t just to grow bigger or sell more; it’s to become more profitable. A farm with modest output but strong margins may be healthier and more sustainable than one with high yields but razor-thin profitability.
The Bigger Picture
Profit margins are often overlooked because they feel like accounting jargon, but on the farm, they translate into something very tangible: security, sustainability, and growth. Understanding them gives you the power to weather tough years, invest in new opportunities, and ensure your farm remains viable for future generations.
We've shared a few examples in this article and others in the KPI Series as to how Farmbrite can help you not only with the day-to-day operations of your farm but also with the critical need to track and oversee its financial health. At the end of the day, farming is both a way of life and a business. By keeping an eye on your profit margins, you protect both the livelihood you’ve built and the land and animals entrusted to your care. We encourage you to try our comprehensive farm management system and see firsthand how it can benefit you. Give Farmbrite a try for free for 14 days. Should you have any questions, we invite you to reach out to us - we’re here to help!
Joshua, his wife Jenn, and their dog Rooster live in PA. Joshua is the owner and operator of Hoffman Appalachian Farm, where they grow Certified Naturally Grown hops. Joshua has over twelve years of experience in growing crops, including growing in an organic system. In his spare time, he enjoys trail running, backpacking, and cycling.
