Navigating Pricing and Costs Structure For Agribusiness – Case Study

Introduction

At Oak Business Consultant, we specialize in Financial and Business Planning and Management Services, catering to a diverse array of sectors, including the intricate web of the food industry. In this case study, we turn the spotlight on our collaboration with a burgeoning agribusiness startup, where our expertise in financial modeling was crucial in navigating the complexities of pricing and cost analysis specific to the agribusiness sector. Our mission was to arm the client with precise evaluations and pivotal data, aiding their strategic maneuvers in a market that feeds millions and is central to the development of agriculture. This venture was not just about profit margins; it was about contributing to a sustainable ecosystem that supports food animals, advocates for healthy food habits, and aligns with initiatives like the Equitable Food Initiative and the Food and Nutrition Service.

Client Background

Our client, deeply rooted in agricultural communities, operates within the agri-food industry, specializing in the production and sale of canned agricultural crop products. Their commitment to water quality and sustainable agriculture has made them a beacon of hope for rural communities. They have carved a niche for themselves by offering 100% American-grown and -produced foods, emphasizing food security and reducing food waste. Their operations span from growing to processing and canning a myriad of agricultural crops, ensuring the food supply remains fresh and nutrient-rich. Recognizing the importance of food quality and the negative effects of chemical fertilizers, they approached us for a comprehensive analysis. Their primary aim was to gain insights into product pricing and cost structures while optimizing their product portfolio and ensuring they remain competitive and profitable.

Business Objective

The client’s vision was clear: to achieve an actionable understanding of their financial landscape in the agribusiness realm, focusing on pricing and costing analysis. They were keen on leveraging this information for informational purposes, ensuring their food budget aligns with their goals. Given the rising concerns about food insecurities and the cost of food, the client intended to use accurate pricing structures and a detailed breakdown of associated costs to ensure maximum profitability. They aspired to make strategic decisions, factoring in the nuances of their operations, industry standards, and the current food distribution programs.

Our Approach

Our journey with the client began by delving deep into their agribusiness model, goals, and objectives. We initiated multiple discussions with their management team, focusing on understanding their current operations, future plans, and their role in the city region’s food systems. Our primary goal was to get a clear picture of their sources of revenue, main expenses, key metrics, production levels, and future growth ideas. This comprehensive insight became the foundation for crafting our financial model.

Technical Complexity & Challenges

Diverse Cost Structures:

In the agribusiness sector, a key challenge lies in the diversity of expenses. Some costs were fixed, while others varied, demanding distinct analytical methodologies for accurate projections.

Dynamic Pricing Strategies: 

The ever-evolving market conditions, seasonal demands, and shifting competition prices made pricing a complex task.

Gross Margin Dynamics: 

Calculating the gross margin was intricate due to variable material costs, labor rates, and overheads.

Integrating Data Sources: 

Merging multiple data sources into a cohesive unit was technically challenging.

Product Detail Variability: 

Each product had unique cost drivers and market positioning, demanding individual evaluations.

Oak’s Approach

Cost Analysis:

After thoroughly reviewing the client’s data, we embarked on market research to ascertain potential expenses related to packaging and cartons. Moreover, we examined the cost data shared by the client, paying particular attention to the price per carton and the quantity of packages in each carton. There were some inconsistencies and gaps in the primary data that the client shared. To resolve this, our team conducted market research to ascertain possible expenses related to the packaging and cartons. We worked together to complete the cost structure, ensuring all costs associated with cartons were accurate and validated after compiling the client’s data and our research-based insights. 

Pricing Analysis:

We established a starting point for pricing, considering current market rates and direct costs. To ensure the prices set were reasonable and competitive, we examined the current market rates and the direct costs. By interacting with the client, we improved and verified the price list while considering their strategy and insights.

Product Details

We meticulously examined the product information provided by the client, ensuring accuracy. Our team started conducting research to fill in the gaps in the product profiles with comprehensive information. Working with the customer, we ensured that every product specification was correct and true to the real offerings.

KPIs

We integrated our research findings and crafted key performance indicators (KPIs) to track our clients’ agribusiness health. Later on, we started our calculations for Gross Margin using the data. We integrated our research findings where the client’s data was lacking. To track the health of the business based on the compiled data, we developed Key Performance Indicators (KPIs). Providing the client with information about possible profitability, we also calculated the product gross margins using the cost and price lists.

Unit Metrics Analysis

At Oak Business Consultant, we take pride in our innovative Unit Metrics Analysis Dashboard, a solution developed to simplify and enhance the data analysis process for our clients. Our innovative Unit Metrics Analysis Dashboard, tailored for agribusiness, simplified the data analysis process for our clients. This cutting-edge solution enables organizations to connect, view, and analyze their data easily. We keep your data up to date with frequently scheduled imports by merging many data sources into a single, user-friendly Google Sheet. 

This agribusiness model includes a number of critical variables that are critical for business analysis and decision-making. These include calculating Production Costs (the sum of Material, Labor, and Overhead Costs). We also provide information on Production Volume, which is computed by dividing the Total Units Produced by the Total Production Time. Additionally, we assess the On-Time Delivery Rate in percentage terms, EBITDA, Cash Flow, and the FCF Margin, giving a holistic view of your business’s operational efficiency and financial health. With Oak’s Unit Metrics Analysis Dashboard, you’re not just getting numbers; you’re getting a strategic partner dedicated to your business’s growth and success.

Finalization:

After presenting our preliminary findings to the client, we refined our conclusions based on their feedback.

We ensured seamless integration between the costs provided by the client and those driven by research. After receiving the client’s input and any additional information they supplied, we enhanced our conclusions. To ensure accuracy, we meticulously verified all figures with the client for final approval, maintaining a strong alignment between the client’s provided costs and the research-driven ones.

Conclusion

In wrapping up this case study, it’s clear that Oak Business Consultant’s journey with our client was more than a mere financial exercise. Our collaboration was a testament to the power of meticulous financial planning and its role in nurturing industries that touch every aspect of the family life cycle, from the food storage facilities that safeguard our harvest to the fishing communities that harvest the seas’ bounty. This case study is a narrative of how strategic financial insights can empower businesses and entire communities. It’s a narrative that underscores the importance of nurturing agriculture’s development, ensuring agriculture’s availability for future generations, and fostering healthy food habits for all.

What Oak Business Consultant Offers?

Professional and proficient financial and business analysts at Oak Business Consultant are dedicated to supporting you in your financial planning endeavors. We take pride in offering exceptional financial services to all business owners.

Our diverse services include Financial Modeling, Business Plans, Pitch Decks, and more. Additionally, we possess the expertise to assist you in fundraising and developing a comprehensive business plan. Our Business Plans incorporate strategies to target the right market and foster sustainable growth. With our financial models, you can forecast future financials and seamlessly integrate them with your models. Some of the templates can be seen by clicking on the following links; 

• Wheat Farming Excel Financial Model Projection Template
• Botanical Garden Excel Financial Model Projection Template
• Nursery Garden Pitch Deck Template
• Rice Farming Excel Financial Model
• Oil Seed Farming Excel Financial Model

Oak Business provides model-building and dashboard tools like the Unit Metrics Analysis tool for data integration, visualization, and analytics. Our Unit Metrics Analysis Dashboard consolidates data sources into Google Sheets, offering seamless data management. We specialize in services tailored to the food chain and agriculture industry, utilizing insights from the Census of Agriculture. Sustainability and resource availability are central to our approach, aiming to support profitability and food security for future generations.