Hope all of you had a Merry Christmas and a Happy New Year. January is a great time to go over your production and marketing plans for the coming year. Calculate your prices; know your cost of production in as much detail as you can, then add the profit you need.

“I want to sell it cheap, so I can sell lots of produce,” says Mr. Bountiful. A good rule of thumb is that if you lower your price 20%, you need to increase sales 400% to have the same net profit. What else can help determine your sale price?

Seasonality of demand: For instance, most buyers want young (day-old) chickens in the spring, not going into winter which would require extra heat and extra care—so price chicks higher in the spring. Mature birds ready to lay in the winter bring a higher price than young birds in the fall.

Breed: The breed can make a difference in price. For chickens, layers of brown eggs are currently more in demand than layers of white.

Packaging: Small square bales are in demand by horse and dairy people. Get your hay tested and sell it on the protein content.

These are the cosmetics of pricing, but what else goes into it? Many farmers and small business people only consider variable costs in their prices; variable costs are seed, fertilizer, feed, labor, etc. To make a profit, your price must also cover your fixed costs.

The biggest fixed cost a farm has is the land, of course. A mortgage is a fixed cost. If your farm payment is $8,000 a year and you have 80 acres, for easy figuring your fixed cost is $100 per acre. If you only use 40 acres for production, your fixed cost is $200 per acre. If you just live on the farm and produce only a handful of tomatoes, your fixed cost is still $8,000 that must come from somewhere, be it the farm or an off-farm job.

Equipment like tractors and plows are fixed costs; the only way to cheapen this cost is to use the equipment on more acres. Variable costs for equipment are fuel, oil, repairs, and labor to operate and maintain. Your time spent on field labor, bookkeeping, purchasing, and planning is also part of the variable cost, and should be assessed at a fair value. Do not remove this cost because, “I would have done it anyway.” It is not fair to other people selling similar products, nor is it fair to you and your farm. Cover all your costs.

Your price must include fixed and variable costs—and some profit. This is true if you are a full-time farmer, part-time farmer, hobby farmer, or retired farmer. If you do not mean to make a living from your farmÑif your fixed and variable costs are not covered—your job, pension, or savings have to make up the difference. If your farm income does not cover all your costs, then your farm is not sustainable.

Some people at farmers’ markets have low prices on their products that do not cover their costs. As I said, this is unfair to the other farmers at the market—and ultimately, unfair to the seller, too. I love agriculture and I think it is the best of all worlds, but I am also a realist. You have to make it pay, no matter what angle you approach it from. You must be sustainable, which means you must have a price that covers your costs.

The angel in “It’s a Wonderful Life” said to Jimmy Stewart, “There’s no need for money in heaven.”

Jimmy replied, “It sure comes in handy down here, bud.”

Making money and watching your business grow is exciting. I wish you a profitable year ahead.