# Gross margins and choosing enterprises A free short course from Farm CFO by Clunes Rural. 5 lessons, about 25 minutes in all. No sign-up. Work out a gross margin per head, per DSE and per hectare, use the NSW DPIRD budgets, and compare pigs, cattle and sheep with care. Who it's for: Farmers weighing up which livestock enterprises to run, or whether to change the mix, and anyone new to reading gross margin budgets. You'll be able to: - Explain what a gross margin is and what it leaves out - Work out a gross margin per head, per DSE and per hectare - Start from a NSW DPIRD budget and change it to suit your farm - Know the limits of gross margins before you change enterprises ## Lesson 1: What a gross margin is A gross margin is the most common way to measure how one part of a farm is doing. It's also one of the most misunderstood. ## The definition [NSW DPIRD](https://www.dpird.nsw.gov.au/agriculture/budgets/about) defines a gross margin as "the gross income from an enterprise less the variable costs incurred in achieving it". Let's unpack that. - **An enterprise** is one part of the farm business. A breeding herd, a mob of trade steers, a first-cross ewe flock or a piggery are each an enterprise. - **Gross income** is all the money the enterprise brings in. For livestock, that's mostly stock sales and wool. - **Variable costs** are the costs that go up or down with the size of the enterprise. Run twice as many ewes, and you roughly double the drench and shearing bill. ## What's in, what's out Typical variable costs for livestock are: - animal health, such as drench, vaccines and vet bills - feed and pasture costs - shearing and crutching - replacement stock, such as rams and bulls - selling costs, such as commission, freight and levies. DPI says a gross margin "does not include fixed or overhead costs such as depreciation, interest payments, rates, or permanent labour". Fixed or overhead costs are the ones you pay whatever the size of the enterprise. Depreciation is the wear on your gear, spread over the years you use it. ## So it isn't profit Because overheads are left out, a gross margin is not profit. A farm can have healthy gross margins and still make a loss once overheads and interest are paid. ## What it's good for Gross margins are useful because overheads mostly stay the same whichever enterprise you run. So the gross margin shows what each enterprise adds towards paying those overheads. It lets you: - compare one enterprise with another - compare your figures with published budgets - test what a change in price or weaning rate does. Weaning rate means the number of calves or lambs weaned for every female joined, as a percentage. Our guide to [your first farm budget](https://farmcfo.com.au/guides/first-farm-budget) shows a gross margin built line by line. The [sheep gross margin calculator](https://farmcfo.com.au/tools/sheep-gross-margin) does the sums for you. ### Worked example This is an invented 80-cow breeding herd, and the figures are illustrative. The cows wean 72 calves, which is 90%. Twelve heifers are kept, and the rest are sold with 12 cull cows. | Income | Sum | Amount | |---|---|---| | Steer weaners | 34 × 250 kg × $4.00/kg | $34,000 | | Heifer weaners | 26 × 220 kg × $3.60/kg | $20,592 | | Cull cows | 12 × 520 kg × $3.00/kg | $18,720 | | **Total income** | | **$73,312** | | Variable costs | Amount | |---|---| | One bull | $7,000 | | Animal health, 80 × $25 | $2,000 | | Feed | $4,000 | | Pasture | $6,000 | | Selling costs, 72 head × $50 | $3,600 | | **Total** | **$22,600** | The gross margin is $73,312 less $22,600, which is $50,712. Try the sheep gross margin calculator: https://farmcfo.com.au/tools/sheep-gross-margin ### Check your understanding 1. Which cost is left out of a gross margin? Answer: Interest on the farm loan. Interest is an overhead, paid whatever the size of the enterprise. NSW DPIRD leaves it out of gross margins. 2. A farm has good gross margins but makes a loss. How can that be? Answer: Overheads and interest are bigger than the total gross margin. A gross margin is what's left before overheads. If overheads and interest are bigger, the farm still makes a loss. 3. What makes a cost a variable cost? Answer: It goes up or down with the size of the enterprise. Variable costs move with the number of stock you run, like drench and shearing. Rates don't. ## Lesson 2: Per head, per DSE and per hectare A total gross margin depends on the size of the enterprise. To compare one with another, you need to divide it by something. There are three common ways. ## Per head Divide the gross margin by the number of breeding animals. For a sheep flock, that's per ewe. For a breeding herd, it's per cow. For a piggery, it's per sow. Per head is easy to understand. But it doesn't help you compare a cow with a ewe, because a cow eats far more. ## Per DSE DSE means dry sheep equivalent. [NSW DPIRD](https://www.dpird.nsw.gov.au/agriculture/budgets/livestock/sheep-gross-margins-april-september-2022/background/dse) says a 50 kg wether kept at a constant weight has a rating of 1 DSE. Animals that need more feed get a higher rating. A wether is a castrated male sheep. The [NSW DPIRD inland weaner budget](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0008/1674440/Beef-enterprise-inland-weaners-gross-margin-June-2026.pdf) for June 2026 rates a cow and her calf at 15.25 DSE. It notes this is an average and varies during the year. Gross margin per DSE tells you what each unit of feed earns. That's the fairest way to compare cattle and sheep on the same country, because feed is usually what limits how many stock you can run. ## Per hectare Divide the gross margin by the hectares the enterprise uses. This helps you compare livestock with cropping, or one block with another. Per hectare depends heavily on how many stock the land carries. DPI notes that its sheep budgets assume improved country carrying 10 DSE per hectare. If your country carries less, your gross margin per hectare will be lower. Work out your own carrying capacity before you compare. ## The DPIRD figures Here's how the three look in the [2025 DPIRD first-cross ewe budget](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0011/1674461/1st-Cross-ewe-Terminal-Ram-1000-Ewes.pdf). That's 1,000 ewes on 299 ha: - $160.62 per ewe - $53.72 per DSE - $537.19 per hectare. ## Which one to use Use all three, for different questions. - **Per head** to check your own flock or herd against a budget. - **Per DSE** to compare grazing enterprises on the same feed. - **Per hectare** to compare land uses, or blocks with different carrying capacity. Download the [enterprise gross margins spreadsheet](https://farmcfo.com.au/downloads/farm-cfo-enterprise-gross-margins.xlsx) to work out all three for your own enterprises. ### Worked example This continues the invented 80-cow herd from lesson 1. The gross margin is $50,712, and the herd runs on 300 ha. Using the DPIRD rating of 15.25 DSE per cow and calf, the herd is 1,220 DSE. | Measure | Sum | Result | |---|---|---| | Per cow | $50,712 ÷ 80 | $633.90 | | Per DSE | $50,712 ÷ 1,220 | $41.57 | | Per hectare | $50,712 ÷ 300 | $169.04 | | Stocking rate | 1,220 DSE ÷ 300 ha | 4.07 DSE/ha | The per DSE figure is the one to compare with a sheep flock on the same farm. The per hectare figure is low because the country carries only about 4 DSE a hectare. Download the enterprise gross margins spreadsheet: https://farmcfo.com.au/downloads/farm-cfo-enterprise-gross-margins.xlsx ### Check your understanding 1. Why is gross margin per DSE useful for comparing cattle and sheep? Answer: It measures what each unit of feed earns, and feed usually limits stock numbers. A cow eats far more than a ewe. Per DSE puts them on the same footing by measuring what each unit of feed returns. 2. What is 1 DSE, according to NSW DPIRD? Answer: The feed a 50 kg wether needs to hold its weight. A 50 kg wether kept at constant weight is rated at 1 DSE. Other stock are rated against it. 3. Your country carries 5 DSE a hectare, but the budget assumes 10. What happens to your gross margin per hectare? Answer: It's likely to be lower than the budget's. Fewer stock per hectare means less gross margin from each hectare. Use your own carrying capacity before comparing. ## Lesson 3: Comparing pigs, cattle and sheep Gross margins let you compare enterprises. But you have to compare them fairly, and pigs, cattle and sheep don't fit the same measures. ## Cattle and sheep: use per DSE Cattle and sheep both turn pasture into money. Feed is usually what limits how many you can run. So gross margin per DSE is the fairest way to compare them on the same country. Here are some NSW DPIRD figures to show the range. The [June 2026 beef summary](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0006/1674438/Beef-enterprise-gross-margins-summary-June-2026.pdf) gives inland weaners at $62.92 per DSE and steers grown out to feedlot weights at $76.89 per DSE. The [2025 first-cross ewe budget](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0011/1674461/1st-Cross-ewe-Terminal-Ram-1000-Ewes.pdf) gives $53.72 per DSE. These are budgets built on set prices and set assumptions. They show how to compare, not which enterprise will win on your farm. ## Take care in dry country [NSW DPIRD](https://www.dpird.nsw.gov.au/agriculture/budgets/livestock/sheep-gross-margins-april-september-2022/background/dse) warns that in drought or on dry country, comparing livestock on a DSE basis may be inaccurate. Sheep and goats can forage better than cattle in dry times. Cattle and sheep also graze in different ways and pick different plants. So a per DSE comparison is a starting point, not the final answer. ## Pigs: a different yardstick A piggery doesn't graze. The pigs eat bought or home-grown grain in sheds. So per DSE and per hectare don't tell you much. For pigs, compare: - gross margin per sow per year - margin over feed per kg of carcase, which is the price less the feed cost for each kilogram - the return on the money tied up in sheds and stock. When we checked in October 2026, the [NSW DPIRD livestock budget page](https://www.dpird.nsw.gov.au/agriculture/budgets/livestock) listed beef and sheep budgets but none for pigs. So piggeries need to build their own from herd records. Our [piggery budget guide](https://farmcfo.com.au/guides/piggery-budget) shows how. ## Comparing across all three If you're thinking of adding pigs to a grazing farm, or the other way round, a gross margin alone won't settle it. The two use very different resources: capital, labour, power and grain versus land and pasture. DPI says gross margins should be compared mainly between enterprises that use similar resources. Lesson 5 covers what else to weigh up. Try the [cattle trading margin calculator](https://farmcfo.com.au/tools/cattle-trading-margin), the [sheep gross margin calculator](https://farmcfo.com.au/tools/sheep-gross-margin) or the [piggery feed margin calculator](https://farmcfo.com.au/tools/piggery-feed-margin). ### Worked example This is an invented farm, and it uses the DPIRD per DSE figures as if they fitted this farm, which real figures rarely do. The farm carries 2,400 DSE of feed. The owner compares inland weaners with first-cross ewes. | Enterprise | Sum | Gross margin | |---|---|---| | Inland weaners | 2,400 DSE × $62.92 | $151,008 | | First-cross ewes | 2,400 DSE × $53.72 | $128,928 | | Difference | $151,008 less $128,928 | $22,080 | On these figures, weaners come out $22,080 ahead. But the farm is on dry country, where DPI says DSE comparisons may be inaccurate. The owner also checks labour, yards and what each enterprise would do in a drought before deciding. Try the piggery feed margin calculator: https://farmcfo.com.au/tools/piggery-feed-margin ### Check your understanding 1. Why isn't gross margin per DSE a good measure for a piggery? Answer: Pigs don't graze, so feed per DSE and land per hectare don't measure what limits them. Piggeries run on grain, sheds and capital, not pasture. Measures like per sow and margin over feed fit better. 2. What does NSW DPIRD warn about comparing cattle and sheep per DSE in dry country? Answer: The comparison may be inaccurate, because sheep can forage better than cattle in dry times. DPI notes that sheep and goats can forage better than cattle in dry times, so DSE comparisons may mislead in drought. 3. A DPIRD budget shows one enterprise earning more per DSE. What should you do next? Answer: Rework it with your own prices, stocking rate and costs before deciding. Published budgets use set prices and assumptions. Your own farm's numbers decide which enterprise really earns more. ## Lesson 4: Using the NSW DPIRD budgets NSW DPIRD publishes free gross margin budgets for beef and sheep. They're one of the best starting points for your own budget, as long as you use them the right way. ## Where to find them They're on the [NSW DPIRD livestock budgets page](https://www.dpird.nsw.gov.au/agriculture/budgets/livestock). When we checked in October 2026, it had two sets of beef budgets, from June 2026 and July 2025. It also had sheep budgets from July 2025, updated in July 2026. Pick the one closest to what you run, or plan to run. ## What's in a budget Each budget has the same parts. - **Assumptions.** The farm the budget is built on: the number of stock, the hectares, weaning rate, deaths, sale weights and prices. - **Income.** Every sale line, with the number sold and the price. - **Variable costs.** Animal health, feed, pasture, shearing, replacement stock and selling costs. - **The gross margin.** Usually shown in total, per head, per DSE and per hectare. For example, the [2025 first-cross ewe budget](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0011/1674461/1st-Cross-ewe-Terminal-Ram-1000-Ewes.pdf) assumes 1,000 ewes on 299 ha at 10 DSE a hectare, with 118% of lambs weaned. It prices replacement ewes at $248 a head. ## Treat it as a guide [NSW DPIRD](https://www.dpird.nsw.gov.au/agriculture/budgets/about) strongly recommends treating its budgets as a guide only. Change them for current prices, the season and your own farm. ## How to make it yours Work through the budget line by line and change anything that doesn't match your place. 1. **Stock numbers.** Scale the budget to your flock or herd size. 2. **Weaning rate.** Use your own average over three years, not your best year. 3. **Sale weights and prices.** Use your own sale dockets and what your agent expects. Lean a bit low. 4. **Costs.** Check each one against your invoices. Freight, for example, depends a lot on how far you are from the saleyards. 5. **Anything missing.** Add any costs you have that the budget doesn't. Then compare your answer with the original. If yours is very different, find out which lines cause the gap. That's often where the opportunity is. ## Keep the original Keep a copy of the DPIRD budget next to your own. It's a handy check. If a lender asks why your figures differ, you can show them line by line. The [enterprise gross margins spreadsheet](https://farmcfo.com.au/downloads/farm-cfo-enterprise-gross-margins.xlsx) is set out so you can enter your own figures beside a published budget. Our guide to [sheep budgets for wool and lamb](https://farmcfo.com.au/guides/sheep-budget-wool-lamb) works through a full flock. ### Worked example This is an invented flock, and the changes are illustrative. Lee runs 400 first-cross ewes and starts from the DPIRD 2025 budget figure of $160.62 per ewe. | Line | Amount | |---|---| | DPIRD gross margin, 400 × $160.62 | $64,248 | | Lee's lambs sell $20 a head below the budget price, 472 lambs × $20 | $9,440 less | | Lee's place is further from the saleyards, extra freight | $3,000 less | | **Lee's gross margin** | **$51,808** | | Per ewe, $51,808 ÷ 400 | $129.52 | The 472 lambs come from the budget's 118% weaning rate on 400 ewes. Lee's gross margin is about $31 a ewe lower than the budget. Lee now knows the two lines to work on. Download the enterprise gross margins spreadsheet: https://farmcfo.com.au/downloads/farm-cfo-enterprise-gross-margins.xlsx ### Check your understanding 1. How does NSW DPIRD say its budgets should be used? Answer: As a guide only, changed for current prices, the season and your farm. DPI strongly recommends treating them as a guide. Your own prices, costs and stocking rate will differ. 2. Which weaning rate should you use when you change a budget? Answer: Your own average over about three years. An average over several years gives a fair picture. A budget built on your best year will often disappoint. 3. Your gross margin comes out well below the DPIRD budget. What's the most useful next step? Answer: Find which lines cause the gap. Comparing line by line shows where you differ, such as price or freight. Those lines are where to look for improvement. ## Lesson 5: The limits of gross margins Gross margins are a great tool. But they don't tell you everything, and choosing an enterprise on gross margin alone can go wrong. [NSW DPIRD](https://www.dpird.nsw.gov.au/agriculture/budgets/about) says gross margins "should be by no means the sole determinant of enterprise mix". Here's what else to weigh up. ## Overheads A gross margin leaves out overheads. That works when a change doesn't add any. But some changes do. A new enterprise might need new yards, a shed, more fencing, a bigger ute or more insurance. Add these to the comparison. ## Labour Permanent labour is left out of a gross margin too. Some enterprises take far more work than others. Lambing, shearing and a piggery's daily routine all take time. If you'd need to hire help, that's a real cost. If you'd do it yourself, ask whether you have the hours. ## Capital Capital is the money tied up in the business, such as stock, sheds and gear. Two enterprises can have similar gross margins but need very different amounts of capital. The one that needs less ties up less money, so there's less interest to pay. DPI suggests checking the return on any extra capital before a big change. ## Risk Some enterprises swing more than others. Trade cattle depend on the gap between the buying and selling price. A piggery depends heavily on grain prices. A gross margin built on one set of prices hides that. Test each option at lower prices and in a dry year. Ask what you'd do if feed ran out. ## Time and cashflow A new enterprise can take years to reach full production. A breeding herd built from scratch won't sell its first weaners for well over a year. Meanwhile the costs keep coming. DPI also lists cashflow and the time to reach steady production as things to check before a major change. ## A simple checklist Before you change your enterprise mix, ask: 1. Does it add any overheads? 2. Who will do the extra work, and what will it cost? 3. How much capital does it tie up, and at what interest? 4. What happens in a dry year or at lower prices? 5. How long before it pays, and can the cashflow carry it? Our [new enterprise go or no-go checklist](https://farmcfo.com.au/templates/new-enterprise-go-or-no-go) takes you through these questions. Our guide to [adding a new enterprise](https://farmcfo.com.au/guides/adding-a-new-enterprise) goes into more detail. This is general information, not advice for your situation. Talk to your accountant about any tax effects before you make a change. ### Worked example This is an invented farm, and the figures are illustrative. Alex is choosing between two options that use the same land. | Line | Trade cattle | First-cross ewes | |---|---|---| | Gross margin | $40,000 | $48,000 | | Extra labour to hire | $0 | $15,000 | | Capital needed | $150,000 in stock | $90,000 in ewes plus $30,000 for yards and fencing | | Interest at 8% on capital | $12,000 | $9,600 | | **Left after labour and interest** | **$28,000** | **$23,400** | The ewes have the higher gross margin by $8,000. But once Alex counts hired labour and interest, the cattle come out $4,600 ahead. Alex still tests both in a dry year before deciding. Get the new enterprise go or no-go checklist: https://farmcfo.com.au/templates/new-enterprise-go-or-no-go ### Check your understanding 1. In Alex's example, why do the cattle come out ahead despite a lower gross margin? Answer: The ewes need hired labour and extra capital, which the gross margin leaves out. Gross margins leave out permanent labour and interest. Once those are counted, the ewes leave less money than the cattle. 2. Which of these does a gross margin not show? Answer: How much the result swings with prices and seasons. A gross margin is built on one set of prices. You need to test lower prices and a dry year to see the risk. 3. You're starting a breeding herd from scratch. Why does cashflow matter so much? Answer: It may be well over a year before the first weaners are sold, while costs keep coming. New enterprises take time to reach full production. The cashflow shows whether you can carry the costs until sales start. ## Next step Farm Health Check: https://farmcfo.com.au/health-check ## Sources - [NSW DPIRD, About gross margin budgets](https://www.dpird.nsw.gov.au/agriculture/budgets/about) - [NSW DPIRD, Using DSEs and carrying capacities to compare sheep enterprises](https://www.dpird.nsw.gov.au/agriculture/budgets/livestock/sheep-gross-margins-april-september-2022/background/dse) - [NSW DPIRD, Livestock gross margin budgets](https://www.dpird.nsw.gov.au/agriculture/budgets/livestock) - [NSW DPIRD, 1st cross ewes, terminal meat rams, farm enterprise budget 2025 (1,000 ewes)](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0011/1674461/1st-Cross-ewe-Terminal-Ram-1000-Ewes.pdf) - [NSW DPIRD, Beef gross margins summary, June 2026](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0006/1674438/Beef-enterprise-gross-margins-summary-June-2026.pdf) - [NSW DPIRD, Inland weaners gross margin budget, June 2026](https://www.dpird.nsw.gov.au/__data/assets/pdf_file/0008/1674440/Beef-enterprise-inland-weaners-gross-margin-June-2026.pdf) General information only, not financial, tax, legal or credit advice. These courses are not nationally accredited training.