I often get asked this…
“Is poultry farming profitable?”
The short answer is: yes 🙂
However, a more leading question to ask could be,
“HOW profitable is the poultry farming business?”
Now, you’ve got my attention!
Let me give you a quick breakdown to show you how I see things…
Profitability is a personal measure.
In other words, it is relative.
You might be asking, isn’t profit just profit – no matter who it belongs too.
Not if you factor in ‘opportunity cost’.
Let me clarify by asking…
…what would you do with your time and money if poultry farming wasn’t your choice investment?
- A job?
- Another business?
Why is this important?
Well, because anything you do in life is always at the expense of sacrificing something else.
Depending on what the ‘something else‘ is, you can consider your primary option either profitable or loss-making.
Rewarding or costly.
If you were weighing up putting your poultry start-up funds in the bank instead of kick-starting your venture…
…you would trade-off the cumulative interest (…say over 6 years of running the farm) against potential farm returns.
If your bank projections showed a better outcome (ROI – return on investment) vs your farm idea – then you know what to do.
If your farm plans present greater gains, then roll up your sleeves – for a start-up has landed!
Which code: Broiler or Layer?
Broiler and layer farms have their own profit/loss and cash flow profile.
This really is based on their natural constraints and parameters.
Take the raising of broilers for meat. Market maturity usually occurs within the space of only 6-8 weeks from chick to carcass.
Immediately, your cash flow per batch of chicks is defined to a 1.5-month to 2-month cycle.
The only way of increasing regularity is to run multiple batches side by side.
As for layer farming, eggs are laid and therefore available for market every day potentially. Even with one bird.
This offers a far more consistent cash flow benefit.
As for overall profit, however, both broiler farming and layer farming have their pros vs. cons.
Deep cleaning costs with a broiler farm are for greater than with a layer farm.
Let’s think it through.
A layer hen commercial lifecycle is in the region of about 72 weeks for maximum profitability.
After which – the layer house is thoroughly cleaned out before the receipt of a new batch.
This deep cleaning exercise is an operational cost.
Once every 72 weeks (or a year and a bit).
However, as we said before, broilers come and go on a poultry farm within 6-8 weeks. After which a deep clean is required before a new batch replaces the last.
Within a 12 month cycle – this would amount to about 6 rounds of deep cleaning.
Broiler farming, therefore, carrying 6-times the deep clean cost of an equivalent layer farm.
Contribution profit margin: per egg or chicken
This is a key measure (metric) to have at your fingertips when running or starting a poultry farm.
But, what is contribution profit?
- sales price per unit, minus variable cost per unit.
In plain English…
- “…money left over from each egg or chicken carcass sale after the relative cost of production has been taken away.“
A massively important figure.
The essential building block for assembling a cumulative profit outlook.
In other words,
Want to calculate how much profit you could make with 2,000 layers or maybe 20,000 layers?
Simply take the contribution margin and multiply by the number of units sold.
This is your total farm gross profit.
Sure, your variable costs could always change – and so will your margin. Especially with scale.
[It’s no surprise, your hatchery’s price per chick for a 20,000 layer farm, might be quite different from a 2,000 layer farm.]
In which case your contribution margin would shift depending upon scenario.
Estimating poultry farm EBITDA
When considering the profitability of your poultry farm idea – EBIDTA is a critical factor.
If you’ve ever spent any time in the world of business valuations, mergers & acquisitions or even followed the stock market, you’ll appreciate what I’m saying.
Now, here it is.
Business profits are one thing – but ROI is everything.
It’s the sanity antidote to the vanity of profit margins, sales figures etc.
EBITDA answers the question, “what exactly will I take home when all is said and done?”
EBITDA is the chief figure that anyone with even a little financial understanding will want to know when sizing up the viability of your poultry farm.
It tells them what they could expect to personally benefit from if they were in your shoes.
It immediately confesses real value.
Deciding on the size of poultry farm
There are cumulative benefits related to the size of your poultry farm.
Generally the bigger the operation, the larger the production and likewise the profits/earnings.
Also, it’s no secret that larger businesses enjoy economies of scale…
i.e. things costing less per item bought – why?
Because suppliers offer more favourable terms to bigger buyers to encourage bigger deals.
More money for the same effort.
However, what’s bigger isn’t always better.
Here are some drawbacks which eat away at the size advantage of large farming businesses:
- cost of debt
- cost & risk of complexity
- higher equipment cost and dependence
These are just some of the issues related to large scale farming.
I’ve said it before and I’ll say it again (…& I couldn’t really say it often enough if I tried)
Land acquisition is the single most critical and influential decision for any and every farm business.
But you can get land for your farm in so many ways.
The type of occupancy has so many associated direct and indirect costs.
When calculating the mid to long term profitability of your farm idea on paper, you’ll immediately see that the cost of land totally tips the balance.
This is where many get a great headstart on profit and ROI. By having land already under their hand.
But what if you don’t have enough land for the size of your vision?
You actually don’t need a lot of land to start profitably.
You just need enough to make a start – you can always upgrade or scale up once profits begin.
Value vs. profit
I learned one very important lesson early on in my experience as an SME business consultant.
It goes like this…
Many small business owners value the holding onto money.
Investors see greater value in putting their money to work…letting it go out of their hand…so their money makes more money.
The difference in the thinking of the two schools boils down to their attitude to growth and the future.
The business owner thinks having money in hand secures his future.
The investor knows that the value of money continually decreases with the increasing cost of living.
Investors see their monetary funds – as a general sees his troops.
You win no battles if they stay at home.
For this reason, investors are always on the lookout for new campaigns or vehicles to invest funds into.
For this reason, as a (potential) business owner, you should always have your eyes on a *profitable exit*.
[*And not only making a salary whilst running your farm.]
Why shouldn’t you also benefit from a significant lump sum profit payout after, say, 6 years of ownership – when you exit?
Think long term and make provision for the future.
See money as something to use, rather than something to have.
See your poultry farm as an asset.
A vehicle for converting money generated into more money – if you run the right model.
The money you make from your poultry farm should pay you to run it (revenue) and to leave it (lump sum).
Plan it, do it – prof-it.