As a contractor, getting costings right is crucial to your business. But this task can be daunting and many are put off. Emily Padfield looks at a software system that could make it easier.
Calculating what a job costs is something usually done on the back of a fag packet, or now, with fewer people smoking, the back of an envelope housing the latest bill from your local ag-merchant.
There are countless farm software programmes that entail entering vast amounts of figures to work out costs. But one online cost comparison programme has been designed to make the job quicker, easier and more accurate.
Shropshire agronomist and ex-farm manager Mike Rigby launched Farming4Prophet four years ago alongside former NFU combinable crops chairman Arthur Hill.
“Initially, the software was developed for farmers looking to break down the unit cost of production,” explains Mr Rigby.
“As the importance of machinery costings became evident, we sought the advice of independent machinery consultant and ex-Adas guru, Bill Basford, to develop this side of the software.”
Contracting can be a far higher-risk business than farming, acknowledges Mr Rigby. “Ultimately, if you’re charging a rate that doesn’t even break even, then the business is going to struggle. It’s easy for an outsider to say it, but if a job doesn’t pay then don’t do it.”
Mobile costing service
All Prophet software is internet-based, and can be accessed via the office computer, your smartphone or tablet. Once users are registered (there’s a one-off fee depending on your business), there are more than 30 pieces of software that can be accessed and used, each open to every subscriber.
Every user gets a unique ID and password that gives access to the website, which consists of four sections. The market prices area is particularly useful because it gives up-to-date fertiliser and spray prices from Nidera. “We wanted to create transparency for the industry, giving subscribers access to real-time prices all in one place.”
Although fertiliser prices can vary from different suppliers, spray prices should have a recommended price, which is listed and updated on the site, he explains. “These are easy winners for the farmers and contractors, giving them a sound base to work upon.”
Other technical software, such as crop rotation planners, stock guides and home-mix rationing is also included.
Compare to compete
It is the compare to compete section that contractors will find the most beneficial to their business.
Whereas, costs for each machine usually have to be worked out separately depending on machinery repairs or depreciation, the Prophet system makes it relatively quick and easy.
First, the software will ask you to enter the interest rate, typical labour cost and an up-to-date fuel price. “Then it will ask you to enter your acreage. For contractors, this will be the rough acreage they will be dealing with each year.”
Then it’s a case of entering each of your tractors, combines, foragers or other powered machines.
“For example, if you have a 200hp New Holland, which you paid £130,000 and you intend to keep it for seven years, enter all this information in the boxes supplied. Then enter how many hours you intend to do with it, or have done with it if it’s an older machine.”
A rough guide of maintenance and repairs is 3% of the total value, but this can be altered accordingly. Then it comes to depreciation, which you will know from your accounts, but an example is 15%. There’s also a box to choose between heavy and light fuel use.
You only have to enter this information once, but can alter it any time. Once established, the database works out what it costs an hour to run each machine.
Next, it’s time to enter your implements and other machinery. This involves entering a working width, typical forward speed and number of hectares it will be doing, on an operational basis.
“Now, you have two separate databases, one with powered units and one with implements or machines.”
Putting it all together
“To establish the cost of doing an operation, select the powered unit you will be using, and then add the implement, whether it’s a baler, plough, subsoiler or whatever,” says Mr Rigby.
This adds both costs together over the specified acreage. “Now, what would have been an afternoon’s exercise becomes a case of less than 15 minutes spent entering key pieces of information.”
Real costs can be entered if and when a user has them. For example, if you know exactly how much fuel has been used then this can be entered instead, Mr Rigby explains.
The system is particularly helpful if you’re comparing farming systems, such as considering a change to min-till from ploughing.
“A section of the software allows you to enter a proposed system alongside the existing and then you will have both to compare between. This has particular benefit when quoting for stubble-to-stubble contracts,” he adds.
“It’s also useful if you’re considering buying a new tractor, or are perhaps thinking of hiring or buying second-hand. By entering the price and terms of each, users will be able to compare the cost an acre of each option and have a financial foundation to work from when making a decision.”
Costing courses on offer
The NAAC has secured 70% Rural Development Programme for England funding for all contractors wishing to attend machinery costing workshops, and a further discount is available for members. Courses start in mid-October and run throughout the winter. Visit the NAAC website for more details: www.naac.co.uk. Visit www.farming4prophet.co.uk for more information.
Jack and Bay Watson, Warwickshire: ‘It’s the total job cost that matters’
Former Farmers Weekly Awards Contractor of the Year winners, brothers Jack and Bay Watson, believe although the actual cost of doing a job must remain paramount to establishing charges, a mix of common-sense, practicality and locality has to come into it as well.
“Every contractor has competition in their area that may not charge enough. But the worst thing you can do is get into a price war, you have to be ready to support your charges and so you have to know the true cost.”
Spreadsheets such as Microsoft Excel are a great tool and give you a good idea of break-even points, says Jack. “But because they’re theoretical they don’t take into account all the practical costs associated with running a machine.
“It wasn’t until we took on employees that we learnt to value labour properly. Then, as the business has grown, there are the vehicles that run everyone about, the bowsers, the time taken to value jobs and the general running costs of the yard to think about, too.”
Jobs you offer have to fit in the system, too, he adds. “Although we started by offering round baling, it got to the point that it just didn’t pay. You’d be going out to do 10 acres and it would take a whole afternoon.
“Luckily most of our large customers have been converted to square, but it’s an example of structuring the business to make it viable.
“At the end of the day, it’s not necessarily what it costs an hour or acre, it’s what it costs to actually do a job in its entirety.
“A wise farmer is going to pay more for the contractor that’s there half the time and does a better job.”
The brothers bought half of an existing foraging business in the spring, and now operate this business under the name Watson and Brown. This required the shared purchase of a Claas 860 forager.
“When we costed our half of the forager we did it over five years, budgeting on a 10% increase in acreage each year.”
The pair knew that this was a conservative estimate, as the foraging side of the business hadn’t been expanded fully in that area. “We worked out that it would have paid for itself well-within five years, and we would have an asset at the end of it.”
As for operational charges such as fuel and things such as string and wrap, it’s important to keep an eye on these throughout the year, but as a business you have to stomach a bit of fluctuation, he believes. “You can’t necessarily go to a customer in the middle of the year and up charges because fuel has gone up.”
“Some jobs may well be loss leaders, but this is where we try to upsell other services that could be more profitable. You don’t go into Burger King and not get offered a meal when you ask for a burger.”