"It’s not the figures that matter, it’s what you do with them." – FOA Benchmark Analyst 
 
If you’re running a farm business, there’s a good chance someone’s told you to use Gross Margins to decide which enterprises are most profitable. 

It’s a common approach in farm consulting. 
 
But here’s the problem: gross margin analysis is dangerously incomplete. It leads many farmers to make suboptimal decisions — or worse, to persist with enterprises that are dragging down the performance of the whole business. 
 
And it’s why at Farm Owners Academy, we’re so passionate about benchmarking — not just at the whole-farm level, but at the enterprise level. 
 
Because when you have clear, accurate, fully allocated numbers for each enterprise in your business, you can make better decisions. Smarter decisions. More profitable ones. 
 
Let me show you why it matters. 
 
What is Gross Margin? 
 
Let’s quickly define it: 
Gross Margin = Net Income From Trading – Direct Costs 
Where: 

• Net Income From Trading = Sales – Purchases + Change in Inventory Value 

• Direct Costs = The costs that vary with production: 

• Livestock: animal health, feed, preg-testing, selling costs 

• Cropping: seed, sprays, fertiliser, chemical, etc. 

 
At FOA, we benchmark Direct Costs with a KPI of 35% of Net Income from Trading. 
 
So if your Net Income from Trading is $1,000/ha, your Direct Costs should be less than $350/ha. 
 
But here’s what’s missing — and why it matters so much. 
 
What Gross Margin Leaves Out 
 
Gross Margin doesn’t account for your Overhead Costs — the expenses that keep the business running, no matter how much you produce. 
 
These include: 

• Administration 

• Utilities 

• Repairs & Maintenance 

• Labour 

• Depreciation 

 
And critically, Gross Margin excludes Finance Costs — the interest and lease payments you make to access land and capital. 
 
We benchmark Overhead Costs at 35% of Net Income from Trading, just like Direct Costs. 
 
Let’s Look at a Real Example 
 
Here’s a snapshot from a benchmarking report done by one of our Platinum Mastermind members. 
 
They run a mixed enterprise in a high rainfall zone: cropping and dual-purpose merinos. Every year, they complete an enterprise-level benchmark to guide decisions. 
 
Here’s what the numbers showed: 

 
What do these results tell us? 

• Cropping delivers 50% more Net Income from Trading per hectare 

• Cropping has 70% higher Gross Margin per hectare 

 
If you stopped there — as many advisors and farmers do — you’d assume cropping is the stronger enterprise. 
 
But go deeper, and the picture shifts: 

• Sheep farming generate 17% more Net Profit per hectare 

• Sheep farming generate 21% more Business Profit per hectare 

 
It’s a classic case of misleading metrics. 
 
The key things that are missing from Gross Margin analysis are Labour Costs and Plant Ownership Costs (Depreciation + Repairs & Maintenance). 

In a cropping enterprise, these two overhead costs can be as high as 25–35% of the Net Income From Trading. That’s a big chunk — and it adds up fast. 
 
While sheep enterprises do have similar labour demands, the plant ownership costs are typically nowhere near the same as in cropping. That difference alone can be the margin between a profitable enterprise and a breakeven one. 
 
The Power of Enterprise Benchmarking 
This is why fully allocated, enterprise-specific benchmarking is essential. 
It gives you: 

• A clear view of where your profits are really coming from 

• Confidence to invest more (or less) in specific enterprises 

• The ability to align your operations with long-term profitability — not just production volume 

And it’s why we place such a strong emphasis on benchmarking inside our Platinum Mastermind Program. Because without these insights, you’re flying blind. 
 
Ready to Build a More Profitable Farm Business? 

The next Top Producers Workshop is the best place to start. 

🗓 June 23–24, 2025 
📍 Melbourne Convention Centre or join us virtually 

Spend two days working on your business (not just in it), alongside like-minded farmers who want more profit, more control, and more freedom. 

You’ll walk away with: 

• ✅ A clear enterprise-specific action plan 

• ✅ The key numbers top producers track — and how to use them 

• ✅ A supportive community of farm owners on the same journey 

“It’s the best two days you’ll spend on your farm business all year.” 
 
🎟 Early Bird Special: 2 tickets for $795 (normally $995 each) 
👉 Click here to secure your spot.
 
🚨Final call! Early Bird deal ends 23 May - if you’ve been thinking about it, now’s the time to lock it in. This is your last chance to grab tickets at this special rate.  

We hope to see you there – it'll be worth it. 
 
Regards 
 
Sam Johnsson 
CEO, Farm Owners Academy 

P.S. This is the final Top Producers Workshop in 2025.  If you're ready to understand your numbers and take the guesswork out of big decisions, this is your moment. Book your spot today and let’s build something great — together.