Download 12AB0702_1_Revenue - Environmental Finance Center

Agricultural
Microeconomics
Presentation
Title
Lesson 2: Pricing and Revenue Considerations
“Cattle at Sunset” by Andrew S. Gray Photography, Creative Commons CC BY-NC-SA
http://www.andrewsgray.com/2012/07/cattle-at-sunset/
This
coursedeveloped
developed
by Environmental
The Environmental
at UNC
Chapel
Hill for
The North
of and
Science
This course
by The
FinanceFinance
Center atCenter
UNC Chapel
Hill for
The North
Carolina
School Carolina
of ScienceSchool
and Math
NCDPI
is
licensed
a Creative
Commonsunder
Attribution-NonCommercial-ShareAlike
3.0 Unported License
and
Mathunder
and NCDPI
is licensed
a Creative Commons Attribution-NonCommercial-ShareAlike
3.0 Unported License
Revenue and Pricing
Revenue =
Price per unit x Number of units sold
Profit =
Revenue - Costs
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
The Price is Right
How much would YOU charge
for your product?
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Variations in Pricing
• Cost to produce product
• Competition
• Demand for product exceeds amount
of supply
• Quality of product
• Reputation of farmer
• Product marketing
• Transportation costs
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Piedmont Farm Revenue
Revenue from sale of 30 head of grass
fed beef (total of 10,800 pounds):
Price
($/lb)
Quantity
Sold (lbs)
Total
Revenue
Bulk Sales to
Grocery Store
$7.00
7,560
$52,920
Packaged sales at
farm
$8.00
3,240
$25,920
Product
TOTAL REVENUE:
$78,840
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Important steps in setting price
•
•
•
•
Know your costs
Know your customer
Assess your competition
Review your pricing continuously
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Know Your Customer
What does your customer “want?”
• Are they searching for the best price?
• Do they want to develop a trusted
relationship with you?
• Do they depend on you for a high
quality product?
• Are they willing to pay more for a high
quality product?
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Price Sensitivity
Scenario 1: Customers are VERY price sensitive
Retail price per pound
$7.00
$8.00
Number of pounds sold
100
75
$700
$600
Total Revenue:
Scenario 2: Customers are NOT price sensitive
Retail price per pound
$7.00
$8.00
Number of pounds sold
100
95
$700
$760
Total Revenue:
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Assess Your Competition
How can you differentiate yourself from
others:
• Do you offer a higher quality product?
• Do you offer something that no one
else offers?
• How many other farmers offer the
same (or similar) product?
• How can you be a price maker and
not a price taker?
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Optional Exercise
How much would you PAY?
Photos by: Nancy Ranney, Ranney Ranch. Used with permission
Next Class: Cost and Expense
Presentation Title
Considerations
“Cattle at Sunset” by Andrew S. Gray Photography, Creative Commons CC BY-NC-SA
http://www.andrewsgray.com/2012/07/cattle-at-sunset/
This course developed by The Environmental Finance Center at UNC Chapel Hill for The North Carolina School of Science and Math and NCDPI
is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License