University of Kentucky College of Agriculture

Unit: PRIMER

Profitability
The first of the PRIMER factors is Profitability.  Clearly any new or expanded enterprise must add to the overall profits of the farm. 

New enterprises should be budgeted closely with estimates of costs and returns.  Many proponents of new or unique enterprises tend to be overly optimistic about potential returns.
The kind of questions to ask:   (click here to view questions)
     
  • Does this enterprise have promise to deliver large
    enough revenue relative to the investment required?Yes No Maybe
    •  
  • Can I build in special competitive factors that
    can enable profits to be durable over time?Yes No Maybe
    •  
  • Is there a considerable upfront cost to be incurred?Yes No Maybe
    •  
  • Can I set specific, measurable, attainable,
    profit goals for this enterprise?Yes No Maybe

 

Defining Profitability

Profitability can be identified by deduction various kinds of expenses from total estimated revenue. The Profitability Worksheets (found in the reading ahead) begin with estimating a total revenue amount as the total yield times the expected price. The total revenue amount, of course, can vary widely, and will need to be revised when we come to the marketing and risk worksheets. Still, an estimate of total revenue needs to be made using the best information available on what can be expected for yield and price to the farmer.