New England Alpaca Fiber Pool Back to Neafp.com NEAFP-Note April-07

What’s Your Fiber Worth?
NEAFP’s Value Proposition

Spring 2007 is here and everyone is thinking about alpaca shows, birthing and shearing. Spring is also a good time for business planning; reviewing where you planned to be, where you are currently and where you need to go. It is safe to assume, at least in this audience anyway, that fiber sales is a component of your farm’s plan. As you may have guessed, we just finished reviewing our business plan and some of the items we identified in our process were important enough to pass along to you. Business planning (a.k.a. homework), is one of those things you hate to start but are always glad you did it once it’s complete.

NEAFP’s perspective on things tend to be a little different than a farm because we are more focused on manufacturing, logistics and economies of scale. This year, we turned the tables and looked at our plan from the farms perspective to review our value proposition to you, our customers. What follows is an analysis of our products and how much money they make you. We decided to take a price per pound perspective to allow you to compare the amount of fiber you produce to the revenue you can expect to receive.

Planning inventory for a farm store isn’t only about selecting products with the highest profit margins, it is more about selecting items that you know your customers will buy. Lower margins with higher sales volumes can mean higher profits. The table below list some of our products, how much fiber you contribute and the profit per pound made. We were surprised by some of the details. For example, the MASH Hat yields $71.25 per pound. That’s great! Kid’s love this style and if you have a lot of customers buying for kids, this could be a big seller. On the other hand, if your customers are on the, mature side, this may not work for you. Socks are everyone’s bread and butter, but look… they produce some of the lowest profit margins in the table. Everyone knows they make more money from socks than anything else and that’s because their sales volumes are high. The trick is to identify items with high margins and position them in a way to create high sales volumes.

Combine items to yield higher margins.

The table above can be used in many different ways. By selling sets, you can pair popular low margin items with higher margin items to increase your overall return. For example selling hat and scarf sets increases the margin on hats from $43 to $47.33. This only works if you tend to sell fewer scarves than hats. Similarly, alpaca products can be combined with other items such as yarn, knitting needles and a pattern to form a gift set to increase profitability of your yarn. It is more about understanding what appeals to your customer base and pull from where ever you can to increase sales volume and profit.

Wholesale

NEAFP offers wholesale products because as the fiber side of your business develops you will undoubtedly run out of fiber. We didn’t like the choke hold our model presented to successful people, so we decided to offer wholesale (a.k.a. No Fiber Required). Wholesale items have reduced margins but if your volumes are higher than your fiber supports, it’s a great way to increase your revenue and scale your fiber business.

The table below identifies some of our products and their associated profit margins when purchased through wholesale. This table may be a little weird for some because it identifies wholesale cost per pound. In wholesale there is no fiber required, so why is there a cost per pound column? It is only so you can do an accurate price comparison with the table above.

Our current thinking

We think the margins above are really great and can certainly support a business but we want to do better. We take pride in having the highest percentage of alpaca in our socks (94 %). If you start to compare other labels, you’ll see a range of 34 – 80%. At first it was important for us to make the highest percentage of alpaca sock possible. Now that we know what is posible, our goal it to produce the optimal blend. If we can find a fiber to blend with alpaca without impacting the product’s appeal than we can produce more units per pound increasing gross profits.

The qualities of alpaca that must be protected are; softness, light weight, warm, natural color, moisture wicking and eco-friendly. All our manufacturers tell us that the eco-friendly, green market is booming and alpaca is a perfectfit. Many of the qualities that inherently exist in alpaca are in high demand in the echo-friendly market. Alpaca is a naturally renewable clothing source, the animal is environmentally friendly , 22 natural colors do not require dying making the processing eco-friendly as well. Its thermal properties makes great outerwear and because it is made in the U.S.A. buyers do not worry about humans being exploited.

If green is the target then we don’t want to add a synthetic or filler just to increase profits. The first choice on our short list is eco-friendly, U.S. grown cotton. Cotton should add strength, durability and be breathable. Cotton absorbs moisture where alpaca wicks moisture and cotton is nowhere close to as soft, light weight and warm as alpaca. This means we’ll have to be very careful with the blend to meet all theses goals. We have already prototyped socks with various alpaca/cotton blends. We still have some fine tuning to do but we expect to offer an alpaca/cotton blend sock in the fall.

Value of cash flow

A fiber business should not be viewed as an alternative to animal sales but a complement. If you look at other agricultural ventures, farmers tend to do anything to keep the cash flowing. A diversified business is more flexible and resilient and hence more likely to survive and flourish. The fiber component of your business gives it predictability. Anyone who has had a long run on males understands the value of predictability all to well. Animal sales have fantastic margins but also long sales cycles where products have lower margins and much shorter cycles. The optimum blend would be when a farm is sustainable on its fiber and profits from the sale of its offspring. You’ll be in a much better position the next time your in animal negotiations if you don’t have to think about the upcoming hay or vet bill.

Conclusion

If there is one thing that we have learned while running NEAFP is that there is not a one size fits all solution. The industry is very new, demographics are diverse and alpaca still doesn’t have the brand recognition it deserves. This is great news for early adopters. By doing your homework and understanding customer’s need in your niche, a creative approach will emerge.

Our homework tells us that it is not possible for NEAFP to be successful unless the alpaca farms in this country are successful. Hence, it is very important to us to provide the products, information and tools you need to grow the fiber component of your business. If you have an idea you think we may be able to help with, send us an email. We are always eager to listen.