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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