Wednesday, January 6, 2016

How we sell chickens (and why we sell chickens this way)

I've raised chickens for sale for 8 years, now, and I think I started out doing that like most folks do.  Chickens are an attractive product for a farm for a variety of reasons.

Running from the pursuing tortilla shell!

1) They're quick to grow if you choose cornish cross - 6 weeks from hatch to slaughter means that you can bring them to market relatively quickly
2) the livestock itself is relatively cheap - $2 or $3 a chick, delivered to your door
3) the equipment required is relatively cheap; a 250 watt bulb, some plastic tubs to brood the chicks, and then pretty simple housing outside.
4) the work required is pretty scalable - it's about as much work to raise 500 chickens as it is to raise 10.  Just bigger feeders, mostly.  And more feed of course.

I think commercial chickens are a gateway farming animal - if people are going to raise animals they look at chickens first, and most of the people I know don't end up keeping chickens as their primary farm focus - they move on to other things.  Why is that?

Lets look at numbers for a chicken

Chick is $2 from the hatchery

Takes about 16lbs of feed to grow it out to 4lb slaughter weight, at $0.25/lb*, so $4 feed
Equipment costs; you'll use one set of equipment for indoor brooding, and one set for
pasturing; but you get to use the equipment as many as 8 times per year... well, not really.

The season is limited,  you'll need more equipment than you think:  Chickens can only be raised outdoors when it's warm enough to put the fledged-chicks out and have the not die from exposure and enough warmth that plants are growing.  In my area that means that I'm limited to the space between March and October, inclusive; so I have 7 months to grow the chickens outdoors; if I'm in a barn or switch to barn production, I have 12 months.   But I'm going to speak to the people who don't have a barn.  7 months is 4 batches of chickens per set of equipment.  So I'm going to assign $1.50 per bird to the equipment for pasture operators as a good working number.

You'll need other things besides feed for the birds:  You'll also have other expenses, mostly bedding.  Yes, you may have to supply bedding to the birds.  Unseasonally cold temps, rain and puddles, are deadly to birds.  So having some dry bedding and applying it will decrease your death loss, so you might as well make it a budge item.  another $1 per bird.

So your cost basis on the bird so far is $2 + $4 + $1.50 + $1 or $8.50

Figure that you'll lose 10% of your chicks for no good reason.  Hey, if you do better than that you make extra money, but if this is a new venture there's also reason to think you'll do worse, so $0.20/bird mortality loss cost

And finally labor.  The first thing I say to new farmers is that they have to have a wage calculated in sufficient to pay someone to do the same job; if they're not making at least that much money they might as well get a paper-hat job somewhere - it pays more!  In this case lets say that it takes 30 minutes to do all of the work related to the chicks each day.  If you're raising 100 chicks, divide by 100.  if you're raising 1,000 chicks, etc.  Obviously the more chicks you can raise per hour of labor the better you'll do, but in this case I'm going to say that your labor is $15/hour * 15 hours a month, or $225.  If you're raising 100 chicks, you're looking at $2.25/bird labor costs to get them to slaughter weight.

So your bird cost basis now is $8.50 + $2.25 + $0.20 or $10.95

To package the birds for sale you've got two issues; regulatory and production.  First you have to figure out what it will take for you to legally kill and process birds in your area.  In washington state it's a $75 license to process up to 1000 birds, but for your 100 birds, that' $0.75 per bird.  This may also require you to get a business license ($60) and/or other licenses or fees, and there's time spent filling out the forms, sending them in and filing your taxes on the business license.  So I'm going to add $0.60/bird for the business license , and I'm going to add $0.30/bird for labor spent filling out the forms and filing them, and then the additional labor required for doing your taxes.

So your bird cost basis now is $10.95 + $0.75 + $0.60 + $0.30 or $12.60

Now to the production - slaughter - costs
Each bird will take you about 15 minutes to kill, pluck, gut and pack.  You'll get faster at this as time goes on, but this is a marathon, not a sprint; and this is a number that I've worked out in my own operations with years of experience to back it.  at $15/hour a quarter hour costs you $3.75.

You'll probably use equipment to process your birds; a tub plucker ($600), a scalder ($300) and some knives and cleaning supplies.  I'm going to add $1.50/bird to cover these costs over time.

Your cost basis for a finished bird is now $12.60 + $3.75 + $1.50 or $17.85

If you sell the bird for $17.85 you get back all of the labor costs and hard costs, but you don't make a profit.  And there's another set of costs involved in selling this bird.

Marketing and customer contact take time.   You have to find the customers and then arrange for their purchase, hopefully selling the product before you grow it, but certainly selling it as soon as its ready would be the goal.  With perishable items storage and long delays in sales means losses due to spoilage.  Marketing costs will typically be higher at the start of a business - you have to work hard to establish a customer base, and hopefully lower on a per-sale basis later.  So I'm going to add a dollar a bird to the cost for marketing and labor related to taking and filling customer orders, but your own costs might be higher or lower.

The final cost of the bird is now $17.85 + $1, or $18.85

Normal retail markup called "keystone" is 100% of the cost of the item.   So in this case you'd have to sell your birds for $37.00 each to have what a retail store considers to be a reasonable markup.  And remember that even with that markup retail stores go out of business all the time.

This seems like a completely outrageous price for chicken, right?  Unbelievably expensive!  Why you can get a chicken at costco, cooked, for $4.99!

Well, at 4lbs or so, a $37 bird is  $9.40/lb - and there are places selling it for that very price right now.   So it can be done, and people are paying that price, but that's only if you sell it to the customer directly; which means a website and more advertising and retail-related costs.

I've done this math many times, and yes, you can get more efficient - you can raise a lot more than 100 chickens with the same labor time.  You can automate your slaughter a little -- like a lung vaccuum or a processing line (more costs too, by the way) and reduce that a little.  You can work hard at reducing your feed costs; maybe grow some yourself ,  

Or you can go a different road.  I've found that there are a group of customers that will happily buy a live chicken at my farm and process it themselves.  They prefer it, actually.  Usually recent immigrants, but not always, they're used to picking their live bird and like the fact that you can have the whole bird.  they want the feed, the liver, the gizzard and everything in between.

I don't do any advertising of my chickens (other than the link on my blog at top right), and I also don't spend a lot of (or any time) with the customers except when I'm handing them their birds and collecting the money.  I sell whole, live birds for $15-20 each at the farm gate, depending on size.

My cost basis for the birds is about $11, so I make a $9 gross profit on the birds, and I really don't have any other costs.  I do supply them access to my processing equipment, but I charge them $10 for that, which covers the cost of cleaning it and sharpening the knives after they leave so that it's all set for the next group.

So at any point I've got a flock of 30 to 50 chickens that roam around the barns, and they mostly eat what the pigs spill from the feeders; I do put food out from them, and I do lose a few here or there because the pigs eat them, but I don't lose many, and I much prefer that the chickens clean up the spills vs leaving the crumbs for rats.

I did buy an incubator a few years ago, and I hatch my own eggs; when I'm selling birds for food I preferencially sell the roosters - which suits the meat buyers as they're usually a little bigger, and I sell the hens to folks who want a started laying hen - at a premium.  Usually get $25 for a nice hen at point-of-lay.

This sort of system made selling chickens profitable for me; the conventional sell-processed-chickens to-comsumers could have been profitable, but honestly I didn't want to be in the business of convincing people that $9 a lb chicken was actually a reasonable price.

* I am ignoring things like the cost of going and getting the feed, but instead raising the cost
of the feed by a few cents a pound.  You may be able to get chicken feed for less than this, but remember the transport costs, spoilage/wastage costs and other stuff and trust me on the $0.25/lb number

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