By Ted LeBow & Elaine Lemmon

We all have two limited resources.  Time and Money.  We get asked regularly if a farm can make more money by selling through another channel. Direct to consumer farms think they should have a wholesale outlet and wholesale farms think they should have a retail outlet; and they both think the other is easier and makes a better return… The grass is not necessarily greener on the other side of the fence. Literally.

Diversifying your sales channels by selling direct to consumer and through wholesale might be a solid way create some “insurance” against any particular sales channel not performing well in a given year. And it might not. Spreading the eggs across many baskets means you need to be prepared to care for of all those baskets. The buyer/seller relationship can be fragile, each requiring special attention and targeted marketing, which comes at a cost of time and money. So how do you decide which sales “baskets” (or as Jen might say, “buckets”) to choose? Basket or bucket, it pays to understand your return on investment (ROI) for each sales channel, and if there is an opportunity to use your time and money elsewhere.

For starters, if you’re gung ho to grow, take time to go through the proper steps so you can make a confident, reality-based decision about a new enterprise.

Steps in Assessing an Enterprise or Opportunity

  1. Create a high level (major costs and revenue) budget for each enterprise you’re considering adding to your farm or food business.
  2. Assess the opportunity using a marketing ROI metric that includes: marketing/sales time and dollars spent; sales; and gross margin.
  3. Once you’ve decided generally which option you are going to pursue THEN make decisions for growth and create detailed enterprise budgets with realistic marketing costs for the sales goals, just to make sure you’re right. It’s a whole lot easier to do this on paper first, instead of running headlong into a brick wall (as some of us have been known to do).

So here’s a simple example of #1 and #2 above, let’s assume you’re a vegetable producer and you currently sell about $200,000 per year through a Summer CSA, a Winter CSA and a few small farmers markets; you have extra capacity in your acreage and your production staff, so you’re thinking about a new marketing channel – at a high level, you can start here:

The Marketing ROI Metric

Option 1 Option 2 Option 3
Add 100 CSA Members Add Wholesale Customers On-Farm Market
Marketing/Sales Time (hours) 180 100 20
Marketing Dollars $2,000 $600 $10,000
Sales $45,000 $45,000 $45,000
Gross Margin 65% 35% 50%
Gross Profit $29,250 $15,750 $22,500
Less Marketing $2,000 $600 $10,000
Gross Incremental Margin $27,250 $15,150 $12,500
Return per Hour $151.39 $151.50 $625.00
Other investment? Minimal Minimal Big


First, set your sales goal – the above example uses $45K across all channels. You don’t need to keep the sales projections the same for this exercise, but you should consider your production capacity relative to your sales projections. To use this metric, you’ll need to estimate the hours spent specifically on marketing and sales for a particular sales channel. This includes hours for creating and cultivating relationships, as well as maintaining those relationships throughout the year. Next, determine the actual dollars that will be spent on collateral – i.e., digital and printed materials directly associated with those marketing and sales activities. Once you have the marketing time and supplies costs estimated, determine the gross margin for each, which is based on your cost of goods sold (COGS). (If you don’t know what COGS are, call us.)

Now you’re ready to do the math:

  1. Sales x Gross Margin = Gross Profit
  2. Gross Profit – Marketing Dollars = Gross Incremental Margin
  3. Gross Incremental Margin / Marketing and Sales Time = Return per Hour

Then you can compare your Return per Hour across all sales channels. Don’t celebrate yet. You still need to think about other investments and impacts sales channels have. In our example, the on-farm market has a huge return per hour on the marketing investment, but infrastructure and labor costs would be considered major investments compared to an increase in CSA membership and development of wholesale sales.  

We could go on and on here, but you get the idea; we’ve given you a tool and a structure to approach understanding the return on your investment of both time and money.

Do you redesign your model to cut labor costs? Do you focus your attention on other direct sales or wholesale with a better return per hour or lower development costs? Or do you do away with a particular enterprise completely? Difficult questions to answer. It could come down to factoring in your lifestyle goals. Would you rather work hard at personally developing relationships with new wholesale buyers or managing all the bits and pieces of direct sales to CSA members?

Ultimately, here’s where you make the call, which is the best part of being the business owner – you get to choose. Hopefully by using a metric and process like this, you’ll choose slightly better… or as Ted says, “you’ll suck less at the process.”

This exercise of using a metric for each enterprise with a benchmark for success will allow you to compare your farm or food business enterprises equally so you can see clearly what is delivering a better ROI. It’s worth a few hours at the desk this winter to figure out your 2018 game plan and get started marketing in a way that will pay off. Not sure of the exact marketing time devoted specifically to each enterprise? That’s okay – give it your best estimate and get to work on this metric. Or call us for help. It’s what we do, and nothing gives us more pride than making your tough farm or food business decisions easier.