Last week, we applied the 80/20 Principle to our Christmas tree farms in order to increase profits. This week, we’ll explore ways to decrease expenses using the principle and how creating a detailed recordkeeping system can assist in an 80/20 analysis.
Decrease Wasteful Spending
Not only does the 80/20 Principle apply to a Christmas tree grower’s profits, the principle also applies to eliminating wasteful costs and expenses.
Just like profits, at least 80% of a grower’s expenses likely come from 20% of activities.
A Christmas tree grower should analyze his major time sinks and if there are any ways to make the activities more efficient.
Many growers spend a lot of time during the spring and summer mowing and controlling weeds. Mowing and controlling weed is necessary; however, some time may be wasted that could be spent on more profitable activities.
Mowing
When I was a new Christmas tree grower, I mowed way too frequently. I’d be out on my mower almost weekly, just to make sure the farm looked nice and the grass didn’t get too long in the rows. At the end of the season, I thought about the 80/20 Principle. I realized I was wasting time, as well as money on gas and mower repairs. Next season, I only mowed every few weeks or once per month. Less frequent mowing did not affect my trees at all, but I had lots more time to spend on important activities and more money in my pocket!
Weed Control
The 80/20 Principle also applies to weed control. It’s tempting to strive for a weed-free farm. However, trying to kill all weeds is likely wasteful and futile. I remember a speaker at a Christmas tree association meeting whose research revealed that only 70% weed control is necessary to grow good trees. Killing more than 70% of the weeds wastes time and money, and does little to improve the quality of the trees.
Advertising
A Christmas tree grower should also perform an 80/20 analysis for advertising expenses. At least 80% of a grower’s customers likely come from one or two sources or types of sources, such as Google Adwords, Facebook advertising, and word-of-mouth. The key is to determine what advertising methods are most effective, spend more money on the most effective methods, and cut spending on the least effective advertising methods.
For example, when I first started my Christmas tree farm, I tried all types of advertising, including Google Adwords and small signs along the road. I discovered that most of my customers discovered my farm by seeing one of my physical signs and very few found my farm through ads on Google. After this discovery, I completely stopped advertising on Google, but continued to place signs in strategic locations. Not only did I spend less money on advertising, but I still had the same amount of customers, if not more!
One way to discover what advertising methods work best is to ask each customer “how did you hear about us?” You can then use enter this information into your recordkeeping system for an 80/20 analysis.
Proper Recordkeeping is Crucial
A robust recordkeeping system is critical to perform 80/20 analysis. The more data a grower has, the better insights he will be able to discover.
One component of a robust recordkeeping system is a customizable, point of sale (POS) system, such as Square. Most POS system can ring up sales while tracking key metrics, such as tree species, height of tree, and customer data.
Another component of a robust recordkeeping system is a good bookkeeping system. In a previous post, I analyzed different bookkeeping systems and recommended Quickbooks for most Christmas tree growers. Regardless of the system used, a grower should have the ability to run detailed reports, such as sales breakdowns and profit-and-loss analyses. Initial setup of a bookkeeping system is critical to creating useful reports.
Accurate, detailed information is also important. It is often difficult to determine profit based on tree species because costs aren’t often broken down that way. However, a grower can keep track of the time he spends on different tasks. A farm task log accompanied by the time spent on each task can help identify inefficient or disproportionately time-consuming activities.
Final Thoughts
Over the past two weeks, I’ve only scratched the surface of all the applications of the 80/20 Principle. If you’re interested in reading more, I recommend the following books that I’ve enjoyed:
Have you applied the 80/20 Principle at your farm? If so, I’d love to hear from you and potentially feature you in a future article! Do you need help performing an 80/20 analysis or setting up an organized bookkeeping system? If so, reach out to me here!
