Stop leaving money in the field. Learn the 5% rule
What is the 5% rule?
The 5% rule says that the best way to improve an operation’s bottom line is to improve many aspects of it by just 5% – rather than striving to improve only some by 50% or 100%. The 5% rule tells you not you chase unicorns. Keep it real. Keep it attainable.
The inevitable baseball analogy
Do you know what the difference is between a player with a .250 batting average and one with a .300 batting average? One answer is many, many millions of dollars in salary for the .300 hitter. In terms of performance, the .300 hitter – someone like Hall of Famer Derek Jeter – hits one more ball out of every 20 times he is at bat, versus the .250 hitter. That’s all 5% is. That small improvement is the difference between a Hall of Famer and an average player. One out of 20 pitches.
The canola case for the 5% rule
Now, none of us are trying to bat .300 in the majors (that would be chasing unicorns) so let’s bring it back home and see how the 5% rule can work for canola growers. Using rough terms, to a canola farmer a 5% improvement could mean growing two more bushels per acre, selling it for $0.50 more per bushel and tightening costs by $17 per acre. Sounds attainable, right?
Now, let’s see the effect of those incremental changes. Our base case is canola at 40 bu/acre at $10/bu giving you a total return of $400/acre. Suppose your fixed costs (labour, power machinery) are $170/acre and your inputs (fertilizer, seed and chemicals) are $180/acre. That leaves you with a net income of $50/acre. Here’s how 5% improvements will affect that number:
- Cut costs by $17.50/acre and you’re making $67.50/acre
- Increase your yield by 2 bu/acre or get $0.50 more per bushel. Now you’re at $70/acre
- Increase yield and get that higher price and you’re making $91.00/acre
- Put them all together and you’re making $108.50/acre – more than double your income
Now multiply by it by the size of your farm. At 10,000 acres and that’s $585,000 more revenue per year.
Still not convinced? Your partner might have a thing to say about it
But maybe you’re happy with $50/acre? Well, try this: roll over every morning and tell your partner that your friend down the road who also farms 10,000 acres bought into this “5% thing” and now he’s making $585,000 more than you… per year. How many mornings do you think you can tell that story about leaving over half a million dollars in the field without it becoming a serious point of discussion?
Okay, but how do I make 5% improvements?
The first thing you should know is that you shouldn’t have to work harder, just smarter. Here are five suggestions:
- Don’t simply cut inputs. Get the right amount in the right place. On our farm that means variable rate nitrogen and potash. And we use sectional control on all our implements.
- Grid soil test every 4 acres. That way you know we’re maximizing yield while controlling costs.
- Running 24-hour shifts can save you $6 – $7/acre. Don’t think you can do it? Get organized! We’ve been running 24/7 during seeding for X years and my team actually looks forward to it.
- Time your fills for the seed drill to keep them under 30 minutes. Get your pit crew to fill the drill, grease the conveyor and fuel up while the operator takes a break.
- Get your combine settings right and you’ll save a few bucks an acre. And last year I found out that ProDrive can beat an average operator’s time by 20 to 25 acres per day in wheat.
Want more ideas? Talk to your crew. They’re often the best source of ideas for improvement. And make sure they’re talking to each other – a climate of open communication could lead to the next 5% improvement. And the next one.
Still think you can’t find ways to improve your operation by even 5%? Take a closer look! My motto is, “If it ain’t broke, you’re not looking hard enough.”
The 5% rule is a game changer
You’re up to bat! You’ve got a game plan for making small improvements that will make a big difference, follow it and you might just start feeling like a Hall of Famer.
You can watch my 5% presentation online at https://www.youtube.com/watch?v=YdNjsdwWDg8