The Five Percent Rule for Farm Profitability

Tim Hammerich

News Reporter

Improving farm profitability is no easy task, but farmer and consultant Kristjan Hebert says that small changes that improve an operation by 5% can add up big in the end. In speeches he has provided the following example of a canola farmer.

Hebert… “If you have a good business, There's a whole bunch of little changes you can make to make astronomical differences in your bottom line. A 5% change, you know, in a 40 bushel canola crop is two bushels. So do you think you can find a way to grow two more bushels? Can you find a way to sell your canola for 50 cents more? We'd say, could you find a way to save 5% in fixed costs and you know, back then it calculated that that wasn't what a $16 or $17 an acre savings. But if you grew two more bushels and sold it for 50 cents more and dropped $17 off your fixed costs, your profit actually went from $50 to $107. So it was north of a hundred percent change in your profitability. If you can find little changes on how to grow revenue and reduce fixed costs, it compounds over every acre. And when you compound and multiply it, like I said, you can take three 5% changes that some people would say should only change my business by 15%. And it was north of a hundred percent change in your profitability.”

Hebert calls this the five percent rule, and said he learned about it at The Executive Program for Agricultural Producers (TEPAP).