Where is the line between profit and integrity?

Just for the sake of discussion I often wonder where the line is between production for profit and integrity. Are we just following larger models but still exploiting? How does cost of living figure into our decisions? Who determines your cost of living?

I am examining my family's property (3/4 acre) and planning a planting model for the spring to make some cash mainly so we can cover our cost of fresh produce which I eat a lot of.... my objective is not to go broke or to get rich but to create a balance in what I'm doing and be able to cover the costs of production whilst eating VERY healthy food and being able to share this with my community creating a model for their personal enrichment teaching how to do things in a manner that they might not have thought of before. I dont need money if I can eat; that is just my take on things. Although I love my fast computer and fancy gadgets I realize they are nothing more than another method of personal entrapment if used unwisely.

I find that many people think of the money first and everything else later. Are we trying to impress people with all our 'knowledge' or just trying to be pretentious know betters and do gooders?

just a thought... 

I think that profit and integrity are basically independent of each other.  That is to say you can be enormously profitable with high integrity, or go broke with no integrity, as well as the classic high profit with low integrity and low profit with high integrity. 

To me, integrity is a matter of being truthful to your customers and adhering to your principles.  The question of whether you can make a profit while doing those two things seems to be a matter of marketing skill, niche finding, location, and luck.  However, as long as you aren't forcing people to buy your stuff, and you aren't lying about what it is, I don't think it makes sense to declare that some particular level of profit is good or bad in and of itself.  Profit is merely a combination of your efficiency at production and the desirability of what you are producing.

Stick to your principles, tell the truth about what you have, and make as good a living as possible with your effort.  That's what I'd say anyway.

thanks that was thought provoking and quite well thought out. seems like you have considered these ideas before. i always strive to do the best I can and always want to make sure that i put the quality of my work first before I decide on pricing things which can range on a variety of different factors.... location, people, landscape, etc...

if I were to price many things though.... people would never pay the price I want for I put everything into my work and then I wonder if what I am getting is worth the effort I put in. Then if I put prices high I wonder whether I am providing value for money to the customer.

The balance is the most important to me. I dont like selling things people dont need or that I myself would not buy.

It sounds to me like you have a great attitude about producing quality goods in a responsible way.  Those two things have a lot of value to plenty of people, and they are happy to pay extra for it as a way of contributing to those ideals.  In my own case, I grow some of the things I need on my own property and I'm always trying to increase that proportion, but there are many, many things that I don't have the time, energy, or desire to get involved with.  I'm very grateful that I've found others in my area that *do* have that drive, and I gladly pay a premium for their products.  The alternative to me is to either suffer with low quality or to take on more work than I can handle and still have a rewarding life.  So I am very pleased to contribute to their success because it literally makes my life better.

As far as worrying about pricing things too high or selling stuff people don't need, I don't think you need to worry about it.  Let the customers decide what they need or don't need, and how much they're willing to pay for it.  I've heard that a good rule of thumb is to set your price high enough so that you just barely sell out each time.  If that ends up being too low so you can't sustain it, then it means that something needs to change in production or marketing to bring up the price or reduce the costs.  If you get to where you're comfortable with the money coming in, you can just leave your prices there and call it good.  Nobody says you have to squeeze every last drop of money out of something, but I think it's important to make sure you get compensated for your effort.  Otherwise you'll burn out and it will be a bigger loss for everyone (including customers, who can no longer get your high quality products). 

If you're looking for some solid numbers, Joel Salatin had a method I thought was pretty good.  First figure out all of your costs for whatever it is you're doing (e.g. feed or compost, equipment rental, etc).  Then figure out how much time you spend working on it.  Multiply the time spent on it by whatever hourly wage you think makes it worth doing, then add the costs to the result.  That makes your total cost (materials and labor).  Now just divide that by the amount of stuff you produced, and the end result is the price you have to charge in order to feel like it's worth your time.  I'd consider that a minimum price and go from there.  If you can't make that minimum price with whatever product it is, you might want to either change products or focus on marketing it in a different way.

I forgot to say that I also have a pretty broad definition of "profit" -- I get a lot of satisfaction out of feeling like I'm helping people, so if I see people are made happy by what I'm doing and it's improving their lives, that factors in to my "hourly wage" part of things too. 

Profit = Sales - Costs

Just some numbers to show my thinking process.

It costs you $500 to grow your food.

You grow 1000 lbs of food.  You eat 700 lbs of food.  You sell 300 lbs of food.

$500 divided by 300 lbs of food equals $1.67/lb.  If you sell it all at this price
you break even and your food cost is paid.

If you charge what the local grocery stores charge, you should make a good
profit and not feel bad.

Of course, you have to keep track of your costs.  And have a good idea how much
extra you can produce.

If you're going to farm as a way of life, that is, as a job, you need to be profitable. Period. Otherwise you've got an expensive hobby.  (And if you want a hobby, you should try to make it pay for itself. )
This has nothing to do with ethics or integrity. You should not compromise those values you hold dear for any reason. Period. Thankfully, as was previously stated, the two are not directly related. You put the constraints of your ethics on the enterprise you create, and then try to maximize your profit. That is how you run an ethical and successful business. Imho.

I prefer to determine how much I need to live comfortably, then work back to an hourly rate for that. It usually works out to be around $20-30 an hr. Figure out how much time it takes you for a given crop and how much you can sell it for in your area, then see if you can make the two meet. If you're not profitable, try value adding to the crop (watch your time here). If you can't make it work that way, look for another crop or area. This seems to be the core of Joel Salatin's farm methodology (his starting a small farm book, You Can Farm, is a great tomb of wisdom if anyone's interested).

Note, crop in this instance does not mean you have to have a mono-culture. The reason I started looking at permaculture to begin with was because of how you can maximize your output per acre (with stacking) while minimizing the amount of work you do (by using natural systems) and money that you spend (by doing things efficiently). That is what drew me to this in the first place. Since then I've realized how important it is to grow sustainably, and permaculture design seems to meet both my monetary and ethical criteria.

Anyway, just my $0.02. Thoughts?

Cheers! I am currently reading 'The sheer ecstasy of being a lunatic farmer' by Joel Salatin and I must say that he is brilliant.

I am not expecting to make a huge profit of what I grow at home as I'm looking into doing a larger project with others who are more into the financial mentality. I've never been great at making a good living although I'm really good at growing plants and several other things. I just dont like the energy that money has and the systems I support when I use it. I would rather burn the money!

I just get a bit frustrated when I see individuals who talk the talk and then bottom line their profit margin as the most important thing.

I would like to provide food cheaper than the supermarkets. I think that one of the reasons why people eat so much crap is because it is cheaper to buy much of that processed food in the short term. I say that because in the long term a heart attack, or diabetes or other problems that can come about from abusing one's body are much more expensive than buying high quality food to start with.

I love bartering. That is one of my favorite things. I always get an even trade but what pisses me off about money is that there is no consistency. Some people have to work their butts off to make 20$ whilst others blink and have just made a grand. There is no consistency in the value of a bill that supports a HUGE range of ideals that I understand are extremely ill concocted and redundant at this point in time. So I spose my biggest issue is not the cost of something but the fact that I passionately dislike money and the current financial system that we have all had to deal with. I think it is ridiculous and downright obscene that someone decided that eating was a commodity someone could exploit. I would love it if our human rights included being able to eat and have a place to live instead of all the metaphorical and often whimsical 'rights' we supposedly have.

I guess I have somewhat changed the topic but did not realize initially that I was going to touch on this somewhat touchy subject in my mind.

"Wyoming Senator Alan Simpson" wrote:If a person has integrity, nothing else matters.  If a person doesn't have integrity, nothing else matters.

Integrity is an inner quality for everyone.  For some, it has a price.  For others, no amount of money will alter those closely held convictions.  Do you tell the customer it was grown with organic seed so you can make a quick buck, or do you tell them the seed came from Walmart because the price was better, and in so doing sacrifice a sale?

There are people out there who are earnestly hunting for healthy, clean, wholesome food, free of contaminants, grown naturally with clean water in good soil.  If you are using a municipal water source or storebought compost, these folks want to know about it.  If they choose your goods, then later discover your methods to be different from your claim, you've lost a customer forever, plus everyone they talk to.  If you are upfront, open and honest at all times, you build and preserve your reputation.  Some may even take goods with a slight flaw because its the best they have to choose from.

Turn the situation around and pretend the food is free so money is not in the equation.  Do you keep getting your food from someone you can believe in or from someone who let you down?

TheLight wrote:
If you're going to farm as a way of life, that is, as a job, you need to be profitable. Period.

Personally I would bet that most full-time farmers in the US aren't profitable without help from subsidies.    Very few people in this country make a living from farming, most have another income.  So to demand a permie farmer be profitable would be demanding what few other farmers actually achieve.

It's possible to run a business without profit for years, depending on how you do your book-keeping.  Profit is money over and above expenses.  One can operate a business indefinitely by just breaking even.  Depending on the form of the business, one's personal income is an expense, not a profit.

Hey Ludi, You have a point, but I must respectfully disagree.
If something is not profitable, then by definition, it is unsustainable and therefore, not permaculture.

Second thought is that someone is unlikely to convert from row cropping to permaculture just to lose money like they have been been doing the past twenty years. We must lead the way, and the only way to lead is to do "better" than the row croppers. Otherwise, what's the point?

If you are on a Permaculture path, you should charge what would bring maximum profit, which may mean you have excess to give away to people that actually need the food.  JMHO.

Richard

We seem to be using different definitions of the word "profit" Richard.   To me, "profit" is income beyond expenses.  One can run a business essentially forever by breaking even.  There's no need for profit in business, by this definition.  A business which never makes a profit can be sustainable as long as expenses don't exceed income.

Probably a minor point, but I would stipulate that "breaking even" would absolutely require that one of the business expenses on the balance sheet is a decent salary for the employees.  Without the salary, the business is not sustainable because it takes energy from the employees with no replacement (i.e. it mines the energy resources of the workers without replenishing them with savings).  So, as long as your list of break-even business expenses includes a solid, comfortable salary for all employees, then I'd agree that it can break even indefinitely.  However, if the salary of the employees is considered profit, then any business that neglects it is doomed.

Another point is that depreciation and maintenance also have to be included in the balance sheet, as a way to handle the uneven expenses involved with long-term equipment and resource management investments.  Most years this manifests as apparent profit that gets put in the bank.  However, when it comes time to replace something, that stored profit has to be used to cover a business expense if you don't want to go into the red.  If you have to take on debt to maintain your infrastructure, then you suddenly have interest payments on top of your usual expenses, and your business that has been holding steady is now declining.

Finally, I don't think it's possible to expand a business without profit.  In the case of permaculture businesses and the products they provide, I truly believe they are superior and highly beneficial, and should reach the widest possible customer base.  The only way to do that is to grow and develop, which requires profit. 

Ludi -- I think you are right about the subsidies issue (at least in the US), and I believe that is one of the primary reasons that agriculture here has gone the way it has, with massive monocultures and a corn and soy based diet for all.  That's what the subsidies pay for, so that's what the farmers try to grow.  That money is a "sure thing," which is a strong incentive in a business as unpredictable as agriculture.  I would argue that one of the primary responsibilities of permaculture is to transcend the subsidy economy and demonstrate that agriculture can be done in a way that is ecologically, socially, and economically sustainable.  I will never seek a cent of tax-derived money on my farm for that reason. If people want what I'm selling, they will buy it of their own free will. Otherwise I'll have to find something else to do.  I don't mean to say that all permaculturists have to take my view on that, just that I don't believe subsidies themselves are sustainable and that a business model that depends on them will eventually fail.

Things you mention like employee salaries, maintenance and depreciation and debt, are all expenses.  As long as income covers expenses, no profit is required, depending on how the business is structured.  In a sole proprietorship, income over expenses not including salary for the owner is considered "profit" - this profit is taken as the salary of the owner and becomes taxable personal income. 

Exactly -- I just wanted to make sure that the owner's salary was included in the mix, as the owner is at least as much an employee as anyone else (I'm not talking tax or legal definitions here, just practical terms).  If all of those things are covered, then I think holding steady seems like a sustainable track for a business.  By that definition, my goal is actually to show no "profit", as I'm attempting to reinvest any proceeds above those expenses back into the business so I can serve more people and get the word out more effectively about permaculture.  So far, income in excess of expenses is a long way from becoming an issue though... 

Countryside and Small Stock magazine had an excellent article addressing this problem: Basically, a good business makes everybody successfull.

If a farmer sells produce at a good price, then he earns money and the customer gets the needed food at a good price. The consumer eas better and the farmer has made a needed profit.

An unsuccessfull business would leave the customer feeling taken advantage of, *OR* the farmer would not earn enough to stay in business.

With a successful business everybody is better off: with an unsuccessful business somebody leaves feeling taken advantage of.

    The line between integrity and profit is probably much like the one between oatmeal porridge and calculus.  Not necessarily related but given enough time I might be able to somehow relate the two. I think that's what has happened with those who see profit as a bad thing.  The other person's gains are coveted which leads us to question how their success came about rather than looking at how we might emulate their success.    Not a particularly healthy pastime.

Repairs are an expense, utilities are an expense.  As long as expenses are met and income is not exceeded, a profit is not required.  Profit is income beyond expenses.  If you end up using income on repairs and utilities, etc, it is not profit, by definition.  It is expense.


<<<<<< has owned a business since 1996

I'd hardly say what I'm referring to is a perfect world!    I'm talking about the difference between profit and expense.  If a business owner can't distinguish between profit and expense, they probably aren't going to be able to operate their business very long. 

I hope that these forums provide a breeding ground for how folks can use permaculture to work up huge profits with huge integrity. 

If there are folks that want to pursue a path with less profit and keep integrity huge, that sounds really great too. 

If you go into business not planning to profit you will likely succeed at that.

There are dozens of views on what constitutes "profit". 
Millions of views on what constitutes "integrity".

pubwvj wrote:
If you go into business not planning to profit you will likely succeed at that.

It might depend on what you mean by "profit." 

H Ludi Tyler wrote:It might depend on what you mean by "profit." 

Yet if you don't intend to you'll probably not. Doesn't matter what your definition.

It amuses me that some people feel it is wrong to make a 'profit'. They profit every time they breath. Every time they eat. They work at changing the chaos into order. That is essential profit. The things they define as 'bad profits' tend to be things they're not succeeding at. Watch closely.

Profit is fine, although it can be defined or interpreted in several ways, money being one of them. I wouldn't be interested in farming if I didn't think I could accomplish many goals at one time, profit being among them. There doesn't need to be a conflict between profit and integrity, IMO.

I think permaculture offers many opportunities to turn a potential expense into a potential profit.  Waste management is an expense for a lot of businesses, but it seems to me a well-designed permaculture has little if no waste and so those materials can be used to offset other costs (such as feed, fertilizer and fuel), reducing total expenses and so resulting in larger profits.  At least I like to think so.   

H Ludi Tyler wrote:
I think permaculture offers many opportunities to turn a potential expense into a potential profit.  Waste management is an expense for a lot of businesses, but it seems to me a well-designed permaculture has little if no waste and so those materials can be used to offset other costs (such as feed, fertilizer and fuel), reducing total expenses and so resulting in larger profits.   At least I like to think so.      

I agree.

So Ludi,
are you trying to say that it is wrong to have a bumper crop and somehow cover all your expenses and have $10,000 more in the bank than you did in the prior year? Or are you saying that "As long as you don't lose money, you can stay in business?"

I am intrigued by the idea that making a Profit, where one has risked their own capital as well as a lot of their own time might in fact be "bad."

From that "Profit" one might engage in making further investments. Not just upkeep, or repair, but actual investments. You might buy the neighboring few acres, or plant some additional acreage, put in a pond or build a barn. Who knows what you might do. You might even save it for that year when the rains don't come, like this one, eh Ludi, so that one has a buffer to fall back on when times are bad.

I fear the the word has been smeared by those with their own agenda to mean "Ill gotten gains on the backs of the workers, man!"
I think a profit is awesome. A profit created by rigging the game is not (See Monsanto) . If you force someone to eat your product, that is bad (Most school lunch programs) . However, if you sell such an awesome product that people are willing to pay handsomely for it, and you make bunches of cash, that is great!
Then with that cash, you can do MORE awesome stuff.

Richard Hasting wrote:
if you sell such an awesome product that people are willing to pay handsomely for it, and you make bunches of cash, that is great!
Then with that cash, you can do MORE awesome stuff.

It is great because not only does the consumer have better food - which they obviously value more than the money they spent- but the farmer benefits as well. Everybody wins!

Richard Hasting wrote:
So Ludi,
are you trying to say that it is wrong to have a bumper crop and somehow cover all your expenses and have $10,000 more in the bank than you did in the prior year? Or are you saying that "As long as you don't lose money, you can stay in business?"

I'm saying "as long as your expenses don't exceed your income, you can stay in business" so yes, another way to say that is "as long as you don't lose money, you can stay in business."  I've not said anything about the rightness or wrongness of making money or of making a profit, merely pointing out that making a profit is not necessarily required to stay in business, depending on how the business is structured. 

As far as my personal opinion about profit, I have already posted about it:

H Ludi Tyler wrote:
I think permaculture offers many opportunities to turn a potential expense into a potential profit.  Waste management is an expense for a lot of businesses, but it seems to me a well-designed permaculture has little if no waste and so those materials can be used to offset other costs (such as feed, fertilizer and fuel), reducing total expenses and so resulting in larger profits.   At least I like to think so.      

Ah, thanks for clearing that up Ludi.

My main concern, bumping along the bottom like that, is one bad year and you won't stay in business for long.

I hope you make a great profit in your endeavors!

Thank you! 

Please note I'm not advising anyone not make a profit, just that it's possible to break even for years before making a profit, even indefinitely.  Not advisable, just possible.  And that people shouldn't confuse income with profit, as they are two different things.  One could double one's income and not make a dime in profit, it's all in the book-keeping, budgeting, and how the business is structured.