The well-known RCS Profit Probe benchmarking system now sits within a fully redeveloped platform called FarmEye. FarmEye is a comprehensive, internet-based business analysis and benchmarking platform that offers significant advances in agribusiness management, accounting, and decision-making support. One of these key benefits is to analyse your business on a rolling 12-month basis instead of being stuck in a financial year paradigm. So, each quarter you can look back on the past 12 months and analyse your performance and trends.
Each newsletter, we’ll put one metric under the spotlight and Probe into it a little.
The metric this edition is one of the ‘Three Secrets of Profit’, the Overhead Ratio.
The overhead ratio shows us what percentage our total overheads make up of business gross product (the value of production after accounting for cash and non-cash movements).
For the January-December 2024 year, the average OH ratio was 57% whilst the Top 20% had an OH ratio of 35%. NB. The Top 20% metrics are the characteristics of those 20% of businesses with the highest profit measured via return on assets, not the best OH ratio.
What this tells us is that the average business spent $0.57 on overheads for each $1.00 in value generated (gross product). By comparison, the most profitable 20% spent only $0.35 per dollar generated.
History clearly shows in the following graph that the more profitable businesses (shown in green) consistently have a lower overhead ratio. This reinforces how this metric is a strong driver of profit in an agribusiness.
Now, a low overhead ratio does not necessarily mean the lowest total spend on overheads. What this ratio shows us is the relationship between total overheads required to run the business compared to the value the business can generate. It indicates the cost-effectiveness strategies of a business.
As with any benchmarking, it is vital to know your results and which way you are trending. Our March and July 2025 benchmarks will be published soon and available to all FarmEye subscribers.
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