Local Business Models Can Be Profitable

While going global is often the mantra of small businesses looking to grow, staying local can be a profitable route, too.

New research from Penn State University examined the farming industry and found that farmers can make a profit by selling locally, as long as they don't let possible the costs associated with selling locally weaken their commitment to selling directly to local merchants.

"We found that the farmers who really made a conscious decision to sell local and who made more of a commitment tended to do better than those who are just testing the waters with local direct selling," said Amit Sharma, one of the study's co-authors and associate professor at Penn State.

The researchers found that while farmers face a number of new financial obligations, including additional marketing, transportation and delivery costs, when they sell to local restaurants and shops, there are ways to manage the additional expenses.

"For some farmers, it may seem like making a website, for example, is a monumental task," Sharma said. "But, it actually may be easy to make a website, or even hire someone to create one for very little money."

The study found that farmers can make up those additional costs through higher prices, since consumers have shown a willingness to a pay a premium for local products.

"Farmers may find that their margins may be higher when they sell locally," Sharma said. "They are cutting out the middleman."

The researchers came to their conclusions after interviewing 10 farmers, who were selling food to the local market, about the direct and indirect costs of their operations, including production, storage, packaging, marketing, transportation and delivery.

The study was co-authored by Iowa State University's Catherine Strohbehn, Penn State's Rama Radhakrishna and Allan Ortiz, of the University of Costa Rica. It was recently published in the Journal of Agriculture, Food Systems and Community Development.

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