Direct marketing channels for farm operators include farmers markets, Community Supported Agriculture (CSA) and farm stands. But opportunities are not limited to these outlets. Farm operators also sell directly to restaurants, grocery stores and institutions like hospitals and schools.
Farmers may sell goods directly to customers to receive a better price than typically received in commodity markets. For many, direct marketing can be a profitable part of their business plan.
Like any enterprise, direct marketing takes management and attention to detail as producers take on some roles of retailing.
There are many different ways to start a farm business. You may be thinking about direct marketing some steers as quarters instead of sending all of them to auction. Or you may be a beginning farmer interested in growing produce on a city lot for sale at an urban farmers market.
No matter your situation, the process for investigating opportunities and selling directly to customers is the same. When you direct market, you are taking on the role of a retailer, and the standard marketing issues of market research, customer identification, pricing and competitive analysis all need attention.
Selling directly to customers
If you are interested in exploring direct marketing or assessing your current direct marketing efforts, take the time to strategically think about where you fit within the market.
Marketing includes advertising and promotional efforts as well as identifying a product to sell and getting that product from your operation to the end customer.
The most important component of direct marketing is understanding your potential customer. Whether you are selling at a small town farmers market or to an urban restaurant, your customer can have dramatically different needs. Your job is to identify which customers may be a good fit for what you can supply well at this time in your business development.
Initial customer research can be simple and shouldn’t be too time-intensive.
If you are looking for a farmers market to sell at, your research may be as simple as strolling through a few markets and observing the traffic flow and types of customers along with which products are being purchased. You could have a casual conversation with a vendor about the quality of the market and what products are missing. If you are completely new to direct marketing, a farmers market may be a great place to start. You can test which products sell and which prices work while building a base of customers.
Formal customer research can include contacting potential customers to discuss their needs. Ask about the pricing and process that will work for them and the details of product requirements such as packing size, quality and type. Many direct-to-retail and direct-to-food service operations look for consistency in ordering and product quality.
Understanding their preferences will inform whether you can succeed in this kind of selling relationship. Once you have a solid sense of these details, you can decide on which products, pricing and customer service standards you are going to use to target these customers.
The market research phase provides you with some insight and strategic direction, but you will only begin building a customer base and learning the skills of direct marketing through practice and implementing your plans.
As a producer, you may have experience focusing on your cost of production. Direct costs such as fertilizer, seed and vet bills certainly have a significant impact on your bottom line. When engaging in direct marketing, however, you must pay as close attention to marketing costs (the cost incurred to sell a product) as production costs.
Regardless of your product—meats, value-added goods or fruits and vegetables—a marketing mix analysis is a useful tool to help you make sound business decisions.
For more details on conducting a market channel analysis for your operation, see the marketing mix analysis page.
Pricing a product is more art than science
You need to cover your costs of production to be profitable, but setting a price and a unit of sale is a strategic decision that can greatly affect how much you sell. You may want a straightforward answer, but you are now dealing with the psychology of buying behavior.
Small differences in price can make a difference between someone at a farmers market looking at your selection and walking away or making a first purchase and becoming a 20-year customer.
Learn more about pricing and begin outlining your own pricing strategy using the Pricing for Profit Workbook.
This basic approach will get you started on a pricing strategy:
- Take some time to learn about pricing strategies and assess your own pricing environment.
- Devise a pricing strategy that considers your local market, competition and individual brand.
- Implement your strategy and observe how customers respond.
- Review your pricing strategy and adjust each season.
Imagine you sell beef at a local farmers market. You know your cost of production and the time and direct costs to transport to and sell at market. Adding a 25-30 percent margin on all cuts may be straightforward, but also far too simple to move enough products to make it worthwhile.
Think first about your sales goals.
If you’re in your first year at a small farmers market, your main goal may be to get some paying customers. Your pricing strategy might include a "gateway product" to get people to make that first purchase such as a competitively-priced bundle with T-bones and ribeye steaks at a higher margin.
But if you’re a 10-year veteran at a huge urban market, your pricing in comparison to others is a major factor. You may decide to set a price higher than the competition to advertise quality or feature a wide range of prices to showcase the breadth of products in comparison.
Relative pricing and cost-plus pricing
Relative pricing means setting your price in relation to others.
The first and most important step is to discover how much your competitors are charging for a comparable product.
- Shop your competition either in person or online.
- Make note of their prices and any quality indicators such as organic or grass-fed and units such as size and packaging.
- Your best comparable products will come from other direct farmer operators, but also check the outlets for the same products in your local market such as local grocery stores, meat markets and specialty shops.
This competitive intelligence gives you the necessary context to set a reasonable price similar to your competition or to differentiate yourself.
For new vegetable operators without any cost of production records by crop, you may adopt the going rate as a good place to start, whereas experienced operators may use this knowledge to adjust in relation to others. Either way, knowing the range of pricing in your local market gives you confidence in your pricing strategy and solid information when talking about your products with customers.
Cost-plus pricing is setting your price based on your break-even cost.
The most important step is to calculate your total cost of production to bring a product to market.
Once you have the total cost per unit such as a pound of apples or a pound of finished meat, you can apply a retail margin. This ranges from 25 to 40 percent depending on the product and the amount of shrinkage or product loss with age.
A product you can inventory and store for a long period may be close to a 25 percent margin, whereas a very short-lived product may need to be at 40 percent to account for a greater portion lost as waste.
This process of setting a price based on your cost of production is easier for some operators than others. If you are buying feeder pigs and purchasing feed to sell one ground pork product at one farmers market, your total costs may be very straightforward. A vegetable operator selling 30 different crops through three market channels is much more complex.
See recordkeeping for specialty crops for some approaches to this task.
Read in detail about cost-plus pricing and other price strategies such as penetration, skim, loss leader, volume and premium pricing in the General Guide to Pricing for Direct Farm Marketers and Value-Added Agricultural Entrepreneurs.
The number of enterprises and approaches to selling any product is limitless. Some farm operators have built a market and sell microgreens profitably, whereas someone else can’t give them away. For others, egg production is a dead end.
Thoroughly investigate the market you want to enter. Published enterprise analyses are a good starting point to inform your investigation into a new enterprise or to benchmark your current enterprise.
The most important action you can take is to build your own enterprise budget with current input costs and an estimate of revenue.
Input costs change often and you must use up-to-date information and the inputs most available to you. One operator may be profitably selling steers fattened on a local source of distillers grains, but the same inexpensive feedstock may not be available to you locally. Likewise, fertilizer costs can shift dramatically and current pricing may make the difference between profitably selling sweet corn at $6 a dozen and not.
Moreover, your access to markets can make a big difference in your ability to reach sales goals and realize a solid price.
Regardless of which enterprise you choose to pursue, the best numbers available to you are your own and recordkeeping is a primary component to accurate financial records. See recordkeeping for specialty crops for some approaches to this task.
Reviewed in 2023