What key performance indicators should I track in my farm business?

Setting and tracking key performance indicators (KPIs) is essential for long-term farm success. After all, you can’t manage what you can’t measure, right? How do you know if you’re on track if you haven’t figured out where you want to go?

Start with defining what success means to you, your farm, family and farm team. Profit and productivity are usually the first things that come to mind. What about health and harmony? Growing the skills and confidence of the team? Positioning the operation for a successful transition?

It’s crucial to choose KPIs that align with your goals. Next, determine the best way to measure success and track your progress toward reaching your goals.

Here are some KPIs you may want to think about for your farm:

• Financial prosperity – cost of production, profitability, liquidity and cash flow, and debt repayment

• Production/productivity – yield, quality, labour, equipment and livestock efficiency, animal health and welfare

• Market growth – customer satisfaction and loyalty, market share, pricing, sales, products sold

• Technology and innovation – use of smart technology, return on investment, new products or processes, operational efficiency

• Risk management – insurance coverage, emergency preparedness, crop/livestock loss, climate and severe weather adaptation, diversification, regulatory compliance, wills and estate planning

• Environmental stewardship – inputs, energy and water usage, soil health, emissions, carbon sequestration, waste management and biodiversity

• Human resource management/personal well-being and growth – effective communication, onboarding, skills development and coaching, mental and physical health, employee turnover, labour efficiency

• Farm transition – retirement planning, tax planning, successor grooming, family and farm team harmony

Bear in mind that some KPIs may overlap; for instance, technology investments, production efficiency and financial performance are interconnected. While production records are often well-kept, financial records can be less thorough, and it may be even harder to track metrics like family and team harmony or if the next generation is prepared for transition.

To begin, gather key farm team members to discuss priorities and agree on what KPIs matter most. Including input from your professional advisors can also add valuable insights. Once you’ve set your KPIs, establish a review schedule with regular check-ins to track your performance.

Setting and regularly reviewing these KPIs will help you make data-driven decisions, improve farm performance and stay resilient within your ever-evolving business environment. It will also help engage everyone on the farm and get them excited about helping drive it toward long-term success.

I’ve been teaching farmers business management for decades, most recently through the mini-MBA-style program Total Excellence in Agricultural Management (CTEAM).

One issue I find with some farm operators who’ve taken my courses is that they don’t have enough focus. The first step in deciding what key performance indicators (KPIs) to track is identifying where you’d like to focus.

A KPI is a key quantifiable indicator of progress toward a specific objective. So, what are the specific objectives you’d like to work on? Let those be your guide. Every person and every farm will have somewhat different KPIs.

For example, I’ve worked with grain farmers at a stage where the problem is related to either production or marketing. We gauge that by looking at their gross margin ratio (%GM). If the benchmark %GM is 70% and they’re operating at 58%, there’s a problem. The %GM is one KPI that needs to be tracked – that is, the cost inputs per dollar of sales.

Once you’ve identified the weakness, figure out the source. In the above example, hiring an agronomist helped to determine how the %GM could be optimized by applying fertilizer at the ideal rates for the current conditions. KPIs require monitoring and adjusting to reach your goals. Assess if the external environment (like weather) is still what you predicted when setting the plan.

To stay on target, you may need to change your plan if something outside of your control is affecting your KPI. Determining which KPIs to track comes down to having a strategic management process in place. A successful farm operation is about paying attention to detail and responding.

In horticulture, a typical KPI is labour cost as a percentage of sales. I’ve seen farms with labour costs at 60% of revenue – sixty cents of every dollar goes to labour. To improve, operators could either reduce labour or increase sales strategically. This might mean optimizing marketing, automating tasks or finding innovative ways to increase sales with your labour force.

Regardless, decision-making can feel overwhelming without KPIs in place. KPIs give you focus. I’ve seen farm operators begin to relax when they see how simple it can be to track and adjust. They see that the problem is clear – and tracking KPIs shows them how they can quickly get to the point where a problem feels manageable. They don’t feel overwhelmed or anxious all the time.

Years after the course, we asked some past students about the impact of strategic management planning – including tracking KPIs – on their farm management. Their answers were always similar: “It has helped my family life and confidence.”