I’ve never been one for the annual Black Friday shopping mayhem that attracts bargain hunters like moths to the commercial flame. But a couple years ago, I was convinced that we needed a new laptop computer, and what better time to purchase one than on the day when prices are seemingly at their lowest.
Considering I spent more than $2,000 on my first PC in 2001, I remember feeling like we got a great deal. But I also understood that the retailer was savvy enough to retain our business with an annual anti-virus and maintenance package that we renew every year.
This same retail model is emerging — albeit slowly — in precision farming. Many dealerships have built their precision business on selling hardware, and while this approach has been a profitable one, it’s not necessarily sustainable today, according to Arlin Sorensen, founder of HTS Ag, a precision farming dealership in Harlan, Iowa.
Sorensen spent more than 25 years in the IT industry and sees precision ag profitability transitioning the same way — from a product-focused business — to one rooted in service.
The primary driver is shrinking margins on precision hardware, as was the case in the IT industry as it matured. The longer a product is on the market and as more options emerge for consumers, the cheaper it’s going to be to purchase.
Dealers today are challenged to create a service model to go along with the sale of a product to sustain profitability. Pre-paid support packages and remote service are two trends being adopted from the IT industry and tailored for precision ag.
But Sorensen noted that dealers won’t be able to make the transition on their own, when we caught up with him at HTS Ag’s 20th anniversary event in September. Precision manufacturers need to work with their dealers on transitioning to a more service-based business model, or retailers risk “extinction,” Sorensen says.
“In IT today, most of the companies are making more than 50% of their profitability off of services,” he says. “In a lot of cases, for the highly profitable ones, it’s more like 70-80% for service profitability.”
Those are percentages that precision dealers should be striving for in the future and where the mindset for many has to evolve. Another key element for dealers’ transition, will be changing the mindset of farm customers. While not an easy sell for those used to free service, Sorensen says it’s a profitable path the IT industry took and one precision ag needs to follow as well.
For me, I know that the annual cost for protection and upkeep of our laptop has long surpassed the purchase price. But if for no other reason than peace of mind, it’s been a worthwhile investment.
No doubt, precision dealers can instill the same sense of security and confidence in their farm customers, while also creating a sustainable source of revenue.