Establishing rates for the various custom harvest chores he carries out for 30-plus customers is a blend of art and science for Larry Krepline, Reedsville, WI.
“It's tricky,” says Krepline. “You want to make sure that rates are competitive with other operators in your area, that you're being fair to the farmers you're doing the work for and that you end up with a return on investment that makes being in this business worth your while.”
To set a baseline for calculating rates, Krepline carefully tracks costs on each job during the season. Individual items include acreage, yield, equipment used, time and labor, fuel, insurance and taxes. In late January/early February, he meets with an advisor from the farm management program at a local technical college to go over the numbers.
“We start by generating a spreadsheet, then push the pencil hard to calculate our break-even costs,” he says.
Along with corn silage and haylage chopping, Krepline also does custom tillage, planting, hay baling (large square bales), combining and hay marketing.
“The advisor has benchmarks for all the categories based on records for all the other farmers in the program. If one of our costs is out of line compared to a benchmark, we can take a closer look and then figure out what we need to do to adjust.”
For most of the services he offers, Krepline works on a per-acre basis. Chopping corn silage is an exception. For that, he gives customers the option of paying by the ton, acre or hour.
“It really boils down to what the customer is comfortable with,” he says. “Some think it's to their advantage to pay by the hour. But others think that an hourly rate complicates things. (Is the chopper operator driving as fast as he can? Does the meter keep running if there's a breakdown?) They'd rather pay by the ton or the acre and be done with it. From our standpoint, the final bill works out pretty much the same each way, so why not let them choose?”
Even with all the legwork Krepline does on the front end, unexpected developments during the season can mandate rate adjustments. Last year's skyrocketing fuel prices are an example.
“We didn't really want to add a fuel surcharge line on the invoice because we didn't know how customers would react,” he says. “Instead we added a set charge to our base rate. It worked out fine. Most of our customers understood that we had to pass along the higher costs.”
Krepline also adjusts rates when working outside of an established geographic area.
“About 90% of the work we do is within 10 miles of home and we cover that in our base rates,” he says. “If we go farther than that, we'll add a trip charge to cover additional fuel and labor costs associated with moving the equipment.”
Up to this point, Krepline hasn't added a “difficult job” charge to his standard rate sheet.
“We've heard of other people doing that and it makes a lot of sense,” he says. “Field size and field conditions (high weed pressure, rough terrain, etc.) have a lot to do with whether or not a job is profitable.”