Lots of farms scrambled to set up home delivery and online sales at the beginning of the pandemic last spring. Even if they didn’t have all the details sorted out, farmers focused on getting the new offerings up and running so they could keep serving customers.
Now that farms and consumers have had a growing season to settle into a new normal, it’s a good time for farmers to review how their new marketing channels are working and to make sure they can be permanent drivers of sales.
“If people aren’t coming on farm in the current environment, can you afford not to deliver?” said John Wodehouse, a Penn State Extension business management educator.
Wodehouse and his Extension colleagues discussed ways for farmers to evaluate their operations during a Feb. 9 session of the virtual Mid-Atlantic Fruit and Vegetable Convention.
The biggest challenge is tracking the numerous and sometimes hidden costs associated with delivery and online sales.
A farm will need worker hours to assemble and deliver orders, appropriate packaging, and fuel for delivery vehicles. It will have to pay a web platform subscription, credit card fees, and if they buy a new vehicle for delivery, licensing and insurance costs.
Growers should ask themselves whether they can add delivery and still keep the cost of goods sold under 30% of the price, Wodehouse said.
Farmers should look for and log the easy-to-overlook costs and plan ahead for them. Vehicle service costs can be factored into the delivery fees, for instance.
Growers can save money by organizing central pickup areas for their customers or even the members of multiple CSAs.
As always, farmers will want to determine a breakeven point for their products. They should include the cost of raw materials, labor and other inputs, come up with a unit price, and see how their price compares to similar products from other businesses.
Breakeven spreadsheets can be detailed, but the more information that can be calculated, the greater clarity a farmer will have about the point at which the business will be profitable, Extension educator Maria Graziani said.
This analysis will also help the farm weed out unprofitable products and get a loan or refinancing.
Farms should compare their options for delivery and shipping. Buying a cheap vehicle might be the answer, but be sure to factor in future repair costs. Food delivery companies like DoorDash have relevant experience but entail delivery fees and service charges.
Farms may even be able to outsource delivery to a third-party driver, but they need to check with the IRS and their insurance company to see if the person would be classified as an independent contractor or farm employee.
“No matter how your product reaches your customer, it will affect you,” said Lynn Kime, a senior Extension associate.
Distance is another big factor. Farms should consider how far their produce is shipped or trucked. The longer the distance, the greater the refrigeration and packaging costs will be.
“Any movement increases your potential for damage,” Kime said.
The pandemic has allowed online food shopping to become an entrenched practice. As many as 10% of grocery consumers are looking for online options, said Extension educator Anne Miller.
Completely avoiding online sales could take a bite out of sales, but farms should still feel comfortable adjusting and trimming services that just aren’t working for the business, the workers or the owners.
“We make decisions based on our lifestyles and how we want to live,” Miller said.
To keep the new services manageable, farms can limit what types of items they ship, or set day and time windows for delivery.
As farmers evaluate their websites and online listings, they should make sure they have the correct address, contact information and hours of operation. Errors on these basics can leave a lasting impression with consumers.
Optimizing online sales — the platform, products, pricing and fees — will take some time. Do-it-yourself tools are available — Google Analytics can help assess what is working for a website and what isn’t, and Google business listings are free.
Some farmers may find website management too laborious and turn the job over to someone else. In any case, Miller said, having an online presence is necessary for the long-term viability of a business.
“If your customers cannot find you, you aren’t going to sell your product,” she said.