Return on Farm Investment (ROI)

As Farm Consultants, we regularly get asked on assessing whether an investment is worth making or helping a farmer prioritise where any spare capital should be spent on farm to get the best and quickest return.  To ascertain the best return, we calculate the return on the investment (ROI) or sometimes known as return on asset (ROA).  It assumes no borrowed money.  It is the annual return in income expressed as a percentage of the initial investment.  E.g. a £1k annual return on a £10k investment is a 10% ROI or ROA.  Here are a few examples discussed on farm recently of smaller investments.

Heat Recovery Unit (HRU) – This extracts the heat from the bulk tank condensers and raises water to 60C.  14% ROI, 37% with a grant.

Variable Speed Vacuum Milk Pump – Pump operates only when required on demand rather than constantly.  25% ROI, 42% with a grant.

Increasing Water Storage Reserve – By using water direct from a borehole, there is insufficient pressure and water resulting in a £10k water mains bill.  By installing 60cubic metre storage for cost of £6k, there is a 100% ROI as mains water is no longer required as water is pumped to storage when not being consumed.

Replacing Loose Housed Straw Bedding with Portable Cubicles – Assumes existing building has correct dimensions to fit the cubicles in.  20% ROI but as cubicles are portable, they retain their value.  All the above are cost effective but the water storage investment would be done first as a priority!  All the above benefit the environment and the farms carbon emissions but most importantly benefit the farmers pocket.

Contact Gerard at gerardfinnan@fcgagric.com or your local FCG office, to help you prioritise investment decisions so that you can spend the least of your spare cash and get the biggest relative return.

Posted in Business Management, Sherborne.