HOME
Profitability
Optimising vs Maximising

Profitability

Maximising margin and increasing profitability from better management on farm. This should include understanding the supply chain and how to utilise it more effectively including marketing stock to ensure greater profitability.

Optimising vs Maximising

Livestock production is a challenging sector and at the best of times returns are modest. A critical element of understanding your place in this supply chain is understanding how you can optimise productivity on farm.

As previously outlined it is entirely possible to optimise productivity to maximise margins by better understanding your cost of production.

To take this a step further and to combine it with our understanding of the supply chain and where your business fits within it, a useful exercise for any farm business is examining the difference between optimising and maximising.

Maximising

A business that is maximising its productivity is one that would be best known as a ‘high-input, high-output’ system. These are the businesses that maximise profit by increasing the top line.

These businesses will typically appear at the top of sale reports or will achieve a significant return at the point of sale whether private, processor, or market. When market conditions allow, this model tends to generate the greatest income, however there is a greater degree of risk in a production system that relies on a high level of inputs.

Optimising

An optimised production system or a ‘lower-input, lower-output’ system is one which tries to maximise profit by reducing costs as much as possible. By reducing costs, a business can be more resilient and able to endure challenging market prices more effectively (see ‘Cost of Production’ section). However, when market conditions favour maximising returns (e.g when heavier cattle are in demand) there may be less opportunity for an optimised production system to exploit this.

Optimised v Maximised Systems

An example of how optimised systems versus maximised systems are placed on a very simplistic scale.

The natural productivity of a farm allows for a limited level of production without cost (Light blue).

The addition of inputs (Red) i.e. feeds, fertiliser, etc. allows for increased productivity (Green), but the net margin, the gap between red and green, progressively decreases.

A Maximised system will receive higher income but will generally have a smaller margin as shown in the example.

While an optimised system may have a lower income, the margin will generally be bigger, meaning more profit, as shown in the example.

To learn more about the difference between optimised and maximised farm production listen to some of the work done by the Monitor Farm Scotland Programme on Maximum Sustainable Output (MSO):

https://qmscotland.co.uk/news/new-series-of-field-talk-podcast-dives-into-on-farm-innovation-and-expert-insight