Strategy for Success
March 11, 2020
The Cost of Gain (COG)
April 22, 2020

We are sometimes asked about the economics behind our business model. Sure, we create value just as any other business. As service providers, we are committed to maximizing your profit. But how precisely do we get there?

Let’s start with some crucial terminology: Cost of Gain and Value of Gain.

Value of Gain is defined as the difference between the sales price and the purchase price, divided by the difference between the sales weight and the purchase weight. Since the goal is to maximize the value of gain, you can either manipulate price differences or you can focus on making sure the cattle gains as much weight as possible as soon as possible.

Value of Gain = (Sale Price – Purchase Price)/(Sale Weight – Purchase Weight)

Since prices are set by the market, we at High Choice Feeders focus on improving the quality of the meat to allow you to charge a premium price. This requires high-quality inputs, which brings us to the Cost of Gain.

Cost of Gain is defined as the marginal cost of putting weight on an animal. You want to guarantee every dollar spent on quality inputs results in at least the same amount of gained value. Costs include elements like feed, nutrition, health regimen and yard management. To maximize your profits, we make sure the spread between the Value of Gain and the Cost of Gain is as large as possible.

To answer the initial question: our economic objective is to keep costs down without compromising on quality, and to keep good care of your cattle by investing in sustainable and highly efficient processes. Read more about our specific approach in this blog.

There is certainly much more to it, so please contact us with any questions and explore informative market sources like Beef Market Central, Iowa State University and the University of Illinois for more insights.