We're seeing unique parallels between running a precision ag and an IT company. In this segment from Ag Equipment Intelligence's On The Record newscast, Arlin Sorenson, founder of HTS Ag, discusses what he sees as a necessary shift from running a precision ag business as product-focused to one rooted in service. This shift is largely driven by shrinking margins on precision hardware.
Jack Zemlicka, technology editor with Precision Farming Dealer, spoke with Sorenson at HTS Ag's 20th anniversary event earlier in September.
The foundation of precision farming revenue for dealers has always been selling hardware. This approach has been a profitable one, but not necessarily sustainable, long-term, says 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 evolving in the same way, moving from a product-focused business to one rooted in service. This is being driven by shrinking margins on precision hardware — as was the case in the IT industry as it matured.
Dealers are now 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 says 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 earlier this month.
“Vendors have to help us be successful here or we’ll become extinct, basically because there’s just got to be a transition to service revenue as a key part of profitability. In IT today, most of the companies are making more than 50% of their profitability off of services. In a lot of cases, the highly profitable ones, it’s more like 70-80% for service profitability. That’s where the revenue has got to shift. So we’ve got to have this major shift occur and unless the vendors help us with that transition, it’s going to be a tough go.”
In addition to gaining manufacturer support, another key element for dealers’ transition to more service-based revenue, 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.