Originally Posted: 4/27/2010
Note: Before reading this you need to know a few things:
– Compared to the average blog post this is long …very long. It’s more like a chapter than a blog post.
– The purpose of this post is not to try and discourage ball python breeders. Quite the opposite, actually. I am enthusiastic about the prospects of this business and I want people who decide to be in it, myself included, to understand the consequences of their choices and adjust their behavior in order to allow an opportunity for profit.
– I am neither an economist nor an accountant. I’m just a guy with a spreadsheet and an opinion; a perspective for your consideration. What should you do with the things I write? Take what you like and throw away the rest.
– There is a sea of variables that can and do change the numbers I present. They only thing certain about them is that they can and should be discussed.
– The specific numbers offered below serve only to be the basis for discussion and/or contemplation. While they seem to illustrate how much money can be lost in the ball python business they are far from being the only possible outcome. Please read this entire post in order to avoid taking any of it out of context.
With that said…
Is it really profitable to breed snakes? Can you get rich or, at the very least, become well-to-do in the reptile husbandry business? If not rich or well-to-do, can you at least make a modest living? How about a nice supplement to your existing income? Is that what it can be? Or, if it’s just a hobby, will it even pay for itself? I have asked these questions many times before. Ask one hundred people and you’re going to get answers across the spectrum. The reason for the diversity of responses is because there is a wide array of possibilities. Almost all of you will use your own situation as the starting frame of reference and that sets the stage for your initial answer to the question. But after several years of casual polling I have come to the conclusion that very few breeders have ever sat down and really crunched the numbers on their capacity for true profit. Young breeders see the prices tags some morphs carry and dive head first into the business without ever calculating whether or not it’s a financially sound investment. The complex calculations on how to make a profit occur in a few short seconds and usually only in their head. Because there is perceived opportunity for windfall profits the practice of doing a structured business analysis is cast aside and money is quickly spent on the acquisition of pythons. More often than not that investment is never recovered.
There is no simple answer to the profitability question. It is obvious to me that some people are making money in this business. The business would not have been around as long as it has (and growing) if that were not the case. However, I believe that making money in the snake breeding business is the exception, not the norm. Most people, “professional breeders” included, still refer to snake husbandry as “the hobby”. That word choice is not lost on me. Many of us are losing money and may not realize it. I do have a few ball python-breeding friends that live in beautiful homes, drive nice cars and enjoy many other luxuries that life offers. They have specially built breeding facilities and the very best in caging and other husbandry tools. By all outward appearances they are successful and making money. I am frequently impressed when I visit their facilities and it keeps me in check on just where I fit in this business. In some respects it gives me a pinnacle to which I can aspire.
And then there is the other end of the spectrum; the small breeder with a handful of animals in one of the rooms in his house. Limited time, money & resources force him to make do with what works; random aquariums, mix-and-match water bowls, space heaters and homemade racks. While the setup is otherwise functional it stands in stark contrast to the relatively organized structure and symmetry enjoyed by the bigger breeders. Limited funds force the small breeder to do without a lot of things he would like to have, including more high-end designer morphs.
So who in the wide range of breeders is making money? The assumption is that the big breeders are cleaning up and outward appearances lead us to believe it’s true. The reality is that big operations have big overhead. Enamored onlooker see only the incredible morphs with equally impressive price tags. Assuming large quantities of high-end animals translates to a successful business they are often blind to the parallel back-end hemorrhaging of money. In many ways the successes and struggles of a reptile breeding operation are merely matters of scale. The guy with 30 snakes, struggling to afford his weekly rodent bill is, by proportion, in the same boat as the guy with 2,000 snakes. This is not always the case, of course. In some ways the larger breeder will get a better return on investment (ROI) than a smaller breeder. Some things need to be purchased regardless of the number of snakes you own.
If you are a breeder reading this thinking, “Colin doesn’t know what he’s talking about because I absolutely make a profit on ball pythons.”, let me ask you this question: Are you really making a profit or do you just have good cash flow? The difference is significant. It is absolutely possible that having good cash flow is obscuring the fact that you are slowly losing money. You cannot judge profitability by how much money is in your pocket after a trade show or on-line sale. Those little bumps of money are enough to keep you high, feeling good and fairly unaware of your real situation. Without realizing it you may be floating along, doing the reptile sales equivalent of check kiting. The money from one sale or trade show carries you along until the next one (and hopefully it arrives in time). If you live paycheck to paycheck in your real life you know exactly what I’m talking about. Are some (or all) of your reptile expenses being paid with money from your day job? Is the business contributing to your personal debt? Continuing to acquire debt without seeing progress toward being in the black is a downward spiral from which you are not likely to emerge. Breeders new to the business should expect that downward spiral for not less than 2-3 years. Can you survive that long a period of time with money going almost exclusively in one direction?
To have a chance at being successful you need to perform a real-world, honest analysis of all the costs that make up your business. But for the smaller breeder many of the costs of snake breeding are co-mingled with regular household bills. This makes the real costs more difficult to calculate. For example, how much of your electric bill is attributed to your snakes? How much dish soap do you use cleaning water bowls versus your regular dishes? How much of the square footage of your house is dedicated to your reptile enterprise? How much does that square footage cost you in rent/mortgage every month? Once you begin to truly account for all of the costs you are likely to find that the wad of 20’s in your pocket at the end of a show doesn’t make for a profitable business.
But we still haven’t answered the question: can you make money breeding ball pythons? In order to get a handle on things I sat down and made a list of every conceivable cost that goes into a start-up a breeding operation. This is not a one-size-fits-all scenario but I had to start somewhere. Each of us has a different set of circumstances. Here is a list of assumptions I made:
- Initial Animal Investment. I began with ten (10) hatchling snakes. These ten snakes form the bulk of the initial investment. To avoid confusion I made up an imaginary morph (the simple recessive “NexGen ball python”) with imaginary prices and set up a breeding plan that started with the acquisition of those animals. Here is the initial animal investment:
- 2.0 NexGen Ball Pythons ($2,500 each)
- 0.2 NexGen Ball Pythons ($2,000 each)
- 0.6 Het NexGen Ball Pythons ($750 each)
- Duration. I anticipated costs over a six-year investment period. This allowed time to raise the animals to adulthood while still having as many as 3 years for egg production.
- Quality of caging & husbandry supplies. I assumed husbandry was done more or less “right”. By that I mean that I assumed the acquisition of quality caging, appropriate supplies, etc. I did not attempt to budget for potential workarounds that could save money. I don’t consider the expenses I listed to be lavish, though. Money can certainly be saved by making do with less. But not having quality caging and supplies leads to increased effort when tending to your animals and that can lead to frustration and inadequate care.
- First Production. I assumed there would be no babies produced until the third year. In years 3 and 4 I assumed that two homozygous females would be held back (two each year). I also anticipated that one of the hold-back babies from year three would produce eggs in year six.
- Price Drops over Time. I made some educated guesses about the rate of decline of NexGen Ball Python prices over a six year window based on what I have seen happen with some other morphs in the past. The current rate of price declines is the single biggest nemesis to profitability.
- Quantity of Eggs. I did not budget for females laying large numbers of eggs. I assumed an average of 5-6 eggs for each female and I did not assume that every female would produce eggs each season. This is closer to real life, long-term results.
- Number of Breeders. The collection of animals was static over the six-year window, with no new animal additions or upgrades of existing breeders. While most of our collections are not really like this I wanted to keep the variables as manageable as possible.
After setting the items above as my starting point I sat back and contemplated every cost. From paper towels to web hosting to trade show fees and occasional broken water bowls, I tried to account for them all. As best I could I listed the costs in the respective years when they would be incurred. After listing all the costs I added them up.
So what was the result? In short, it was bad. Very bad. Over a six-year period the total expenses were $28,189.34. Total revenue was $22,585.00. That’s a loss of $5,604.34 at the end of the six-year window. I have to admit I was surprised by the numbers the first time I saw them. I checked and re-checked, re-worked and revised (the initial loss I calculated was over $7,300). I asked a few other breeders to perform a sanity check on the costs I estimated. They felt they were reasonable.
My base numbers suggest that, without modifying the model, breeding ball pythons is a fantastic way to lose a lot of money. Two facts make this potential loss very scary:
- The loss is a slow leak. Your six-year annualized loss is only $934.06, a mere $78 per month. It is perfectly plausible that you don’t even notice a loss that spread out over time, especially if your reptile income and expenses are co-mingled with your normal household budgeting.
- You already expect to lose money during the first 2-3 years (you have no production capacity during this time) so the disproportionate outpouring of money is both normal and expected. In the later years you are making a profit (compared to annual expenses) so you are even more likely to not realize that the sum total of expenses is still in the red. And let’s be honest, after doing nothing but spend money for the first 2-3 years you are ecstatic to bring in any money when you hatch babies for the first time.
Let me add insult to injury by pointing out that several costs were excluded from my calculations. Each of these has the capacity to increase the loss:
- State and Federal taxes. This is a huge deal. If you’re being honest and paying taxes on your income you can expect to lose 25-30% of your revenue to the tax man. Notice on the spreadsheet provided that you are making a profit in year’s 3, 4 & 5. You are going to have to pay taxes on your profits in these years. In the first two years you operate at a loss and in the sixth year you are close to breaking even. In the years that you are bringing in the most cash you will incur the largest tax burden.
- Interest on Loans. Did you take out a 2nd mortgage to fund this venture? Did you buy snakes using credit cards? How much of your credit card and mortgage loan balances come from things you bought to pay for your reptile business?
- Investors. Did you get financed by an investor to start this business? If so, what type of return are they expecting and on what schedule do they expect it? Most [real] venture capitalists operate on about a 5-year window. Did your investment capital come from a family member? The inability to repay a debt is even more stressful when family is involved.
- Merchant account fees. Do you take credit cards? If you do you are paying 2-3% on each sale and you will usually have a minimum $25-$60 monthly fee. I did include the new PCI DSS annual fee being charged by merchants. I have seen this number as low as $60 and as high as $100 depending on who does your credit card processing. Taking credit cards is expensive. Expensive snakes are frequently bought on credit. If you don’t have a way of accepting credit you will miss out on many sales.
- Facility costs. All of this was done assuming that you were running this operation out of your home. With only 10 ball pythons it didn’t make sense to rent a place or build a separate building on the property.
- Inflation. My calculations assume no increase in rodent prices, mulch prices or other frequently used supplies. It is almost certain that these prices will increase during the six-year window.
- Business Management Costs. Several other values were listed but not assigned dollar values: web site design, liability insurance, compensation for your time, corporation fees, animal permit fees, etc. Costs associated with any of those will increase the loss.
- Veterinary bills. It’s possible that none of your snakes will need to see a vet in a 6-year window but it could hurt (financially) if one of them needed some care. Good reptile vets are expensive. A single visit can easily cost you several hundred dollars. I recently had a bill that exceeded $1,000 for one snake. In addition to the vet’s charges it is likely that the problem will take your snake out of breeding rotation for the entire season. Something like that will hurt you from every angle. The losses linked to a single vet visit can cascade and lead to a lot of unrealized profit. It is wise to budget for vet visits and be pleased if you don’t need to use the money.
- Accountant fees. Assuming you are a legal business you will need the help of an accountant to identify and quantify your deductions. Deductions can save you a lot of money and help offset losses. But accountants cost quite a bit of money, too. Find one you like and trust. They are incredibly important to you. I am fortunate to have an accountant that knows me on a personal and professional level and has handled my business and personal finances for more than a decade.
- Abstract vehicle costs. The cost to drive a vehicle one mile is more than the cost of the fuel it burns. Wear and tear on your vehicle is accrued one mile at a time. I go to at least eleven reptile trade shows each year (and that’s low compared to some breeders). For me, the mileage there and back again adds up to just under 9,500 miles/year. If you begin to factor in vehicle depreciation for extra mileage, 2-3 additional oil changes, tire wear, etc. you could easily attribute another nice chunk of change to the costs. In 2010 AAA estimated the average cost/mile (including fuel) to be just under 48 cents per mile. If that is true my trade show travel costs are an additional $4,500 per year. Even to me that number seems excessive. I hope this number is way overstated for the real additional costs I incur in those 9,500 miles. But even at $.13/mile (AAA’s fuel cost estimate) I’m still spending $1,000-$1,200 on fuel to go to/from trade shows each year.
Want to see the actual numbers? You can view a PDF of the ball python profit analysis worksheet here.
If you would like to tinker with the ball python profitability numbers yourself you can download my Excel spreadsheet here. Download the spreadsheet and tinker with the numbers to see how your specific situation works out.
If these numbers freak you out, please calm yourself. Don’t start planning your exit strategy from reptile breeding just yet. I’m not liquidating my collection and neither should you. I am optimistic about the future of the ball python business and I know good money can be made doing this. I do not believe, however, that most of us will. As I have written before, there are going to be winners and losers. Pick which one you want to be and adjust your behavior to meet that objective.
So what does it take to be financially successful in the reptile business? How do we turn the scenario outlined in the numbers into a profitable venture? I have several recommendations that I break into two general categories:
- Actions that directly affect the bottom line
- Actions that indirectly affect the bottom line
Note: I am open to ideas and suggestions to expand/contract this list. If you have an opinion, send it to me and I will update my post with your input.
Actions that directly affect the bottom line
- Treat reptile breeding like a real business. Why? Because it is. Costs must be managed. Decisions should be made with the bottom-line in mind. This includes your pricing structure as well as your expenditures and investments. As much as possible you need to remove emotion from the equation. Do not purchase animals that do not specifically fit into your projects. The dizzying array of morphs will often lead to impulse buys. Sure they are pretty to look at but how long is it going to take to make money off the investment? Is your money better spent on something less exciting with greater profit opportunity?
- Get an accountant. A qualified accountant will help you with writing off the costs associated with animal maintenance (food, bedding, etc.) and will also serve as an invaluable source of advice on how to depreciate the value of your breeders (for tax purposes, that is). It’s can be very complicated and there are many ways the numbers can be manipulated. Only an accountant is going to be able to help you do what’s in your best legal and financial interest.
- Determine factors that make up the cost. Partner with your accountant on this. You have to know the absolute bottom line dollar amount it takes to produce a baby snake. Excluding the amount invested in the parents the cost to produce a black pastel is equal to the cost of a ghost lesser killer clown. At a minimum your lowest sale price for an animal must always be higher than this. I do not know a single reptile breeder who can tell me the dollar amount it takes to produce a baby ball python. Importers know their landing cost (cost plus freight) so why don’t breeders know their production cost? Because it’s hard to calculate. Because of this prices are often arbitrarily set. The long-term economic viability of such approaches to pricing is suspect to say the least. Spend some time reading about pricing theory to learn more about this. I believe that reptile pricing requires a balance between cost-based and value-based pricing. Cost-based pricing will help you get a better handle on your actual production cost and maximize the return on early production while value pricing will help you to maximize your profit by pricing animals based on their perceived value in the industry. Learn and understand the following concepts in pricing:
- Price skimming (http://en.wikipedia.org/wiki/Price_skimming) – This concept should sound very familiar to people in the investment-level designer morph business. You should also read a little bit about “S-curves” in economics (http://www.hsdent.com/s-curve/) as they provide some insight on how new morphs permeate the industry over time.
- Cost-plus pricing (http://www.wisegeek.com/what-is-cost-plus-pricing.htm) – While this may be a viable strategy for pricing Mexican Black Kingsnakes it is not a good strategy for designer morph ball pythons. In addition to their actual cost to produce ball pythons have a perceived value that contributes to their price. This pricing model does not adequately account for that.
- Value-based pricing (http://en.wikipedia.org/wiki/Value-based_pricing) – This pricing model applies most directly to new ball python morphs whose price far exceeds the actual production cost. This type of pricing is extremely important to the high-end reptile business. The amount someone will pay for a designer morph is directly linked to perceived value, not actual value. You have to be able to determine what this value is in order to achieve optimal pricing. The initial price for a new morph plays a big role in its long-term viability (e.g. for how many years will it be profitable to intentionally produce them).
- Always Be Upgrading. You must relentlessly upgrade your collection. From one breeding season to the next there is no cruise-control. The genetic quality of your animals must increase every year. To do this you must:
- Hold back some of the better animals you produce or;
- Reinvest aggressively in new animals or;
- Control costs through meticulous record keeping. Track what you are spending, learn from it and adapt. You are going to find that you spend a lot more money on things than you would have guessed. The more vigilant you are in tracking your finances the more careful you tend to be with your spending.
- Define a realistic budget. Stick to it. Create a realistic (e.g. one you can afford) weekly/monthly budget for repetitive costs like rodents and other supplies. Make the budget realistic enough to adequately feed your animals. Do not acquire more animals than you can afford to feed. Females have to have the right body weight to consistently produce.
- Know when to cut your losses. Not every animal is going to be a winner. Regardless of gender you are going to come across poor performers. They may be poor feeders, poor breeders or both. While every animal deserves more than one breeding season to prove itself you cannot continue to hold on to an animal year after year if it is not producing for you. Murphy’s law guarantees that the person you sell it to will have wonderful success with it but you can’t worry about that. If the animal is not performing for you on a consistent basis it’s time for it to move along. This helps you to make sure every slot on the rack is there to help you make a profit.
- Breed your own food. If you have a large collection of ball pythons it is worth giving some serious consideration to this possibility. I know several breeders who do and each of them assures me that it A) saves them a large sum of money, B) does not take as much time as you might think and C) can be wonderful because you pretty much always have the exact right size meal for your animals. My current calculations suggest that I can reduce my monthly feeding costs by 42% or more. And if I were to do so I would probably have a surplus of rodents that I could sell to offset the costs even further. Having written that I do have to acknowledge that there will be a sizable investment in getting set up to breed rodents but that cost will be recouped over the next year or so.
Actions that indirectly affect the bottom line
- Don’t grow away your money. (Yes, the word-play is intentional.) The quality of your collection is more important than its size.Come to terms with the fact that being bigger does not mean you will make more money. In the short term (think decade or so) it may be the opposite. In fact, some larger breeders are actively trying to get smaller. Many new breeders begin with aspirations of building collections that rival the big names in the business. Put simply: dumb idea. Eight out of ten of the people who read this don’t have any real idea how big those collections are anyway. We give them credit for being huge (and some of them are) but we don’t know for sure. If you could sit one of the big names down for an interview I’ll wager each of them would fondly reminisce the days when their collections were smaller.
- Be financially and mentally prepared to not make money for the first 3-5 years. Building a solid collection of quality breeding animals takes time. The time required to grow these animals to a viable breeding weight are well understood. Don’t bank on exceptions to the rule. Do not become a ball python breeder unless you are fully aware of the fact that real profit is several years down the line. Most people who are making good money in this business have mature collections and they have spent years recouping their investment. It is only after many years in the business that you begin to really have a chance to earn. This business is littered with the shrapnel of wanna-be breeders who didn’t make it much longer than two years before throwing in the towel. Almost every single one of them lost a huge amount of money and came out on the other side wondering what they were thinking in the first place. Strap yourself in for the long haul or don’t do it at all. Breeding ball pythons for profit is not the get-rick-quick scheme that some people think it is.
- Sell out without being a sellout. Don’t lead the way on price declines. Prices are going to fall. Someone is always going to be on an Internet classified site selling a particular morph for an absurdly low price. That is never going to change. I’m frustrated by them as much as anybody but they don’t dictate my prices. People come to me at trade shows, look at an animal I am selling for $2,300 and say, “I can get this on-line for $1,500.” I often wonder what they are doing at the show talking to me. Shouldn’t they be at home ordering their new snake? If the other deal is that great why are they here haggling over my animal? If you produce a quality animal you should not be willing to match (or beat) the lowest price out there. If you do, the guy with the lower price is just going to lower his even more. If you produce quality animals you will get a better price for them. On this point, I recently had a customer who wanted a spider ball python I had for sale. Another breeder was selling a smaller spider for about 30% less than mine. The buyer wanted me to lower my price to match the other animal. The other spider was not as well cared for as mine and it had a very noticeable head wobble. My well fed, beautifully patterned, wobble-free spider was exceptional in contrast. Knowing that my animal was higher quality I declined to match the price. The buyer bought the cheaper, skinny, head-wobbling animal instead of mine. He got what he paid for. I was not disappointed and was amused a few hours later when my spider sold for a fair price. My point is two-fold:
- You don’t have to lower your price to the lowest current price (or lower) in order to sell your animals. I anticipate that more than 90% of breeders completely sell out of animals every season. There is not enough supply to meet the demand for ball pythons. I turn customers away multiple times per week because I am sold out of the animals they want.
- You should not always accept the first offer you receive for an animal. Another [less offensive] offer is coming shortly. Be patient. Quality animals will always sell for fair prices.
- Create a database of customers and track their animal interests. A query-able database will come in handy as you begin to produce greater morph diversity. Being able to match your existing inventory with previous customers is a great way to generate quick sales. Think of it as a ball python tickler file. You don’t have to be a SQL DBA to make this happen. If computers aren’t your thing, use a spiral notebook.
- Market yourself as much as you market your animals. This business is not any different from many others and a general truism in business is that people buy from who they know. Some sales experts suggest that as much as 85% of a sale can be based on the personalities of the people, not the product being purchased. While there are a number of people who buy with price as their sole selection criteria there is a thriving market for higher-quality (and higher-priced) animals. When everything else is otherwise equal people will buy from you because they know your name and know who you are. They like , respect, and trust you. Spend some time observing how people talk about others in the industry. With few exceptions people don’t refer to the name of the business, they refer to the person(s) behind it. Because reptile breeding operations are always small in the number of employees it is the name(s) of the owners that are known. Work diligently to make sure people know your name.
- Have an excellent web site that contains up-to-date information. A web site is a marketing tool, plain and simple. Static web sites do nothing to encourage people to come back again and again. Whether you do it with photos, videos, how-to articles or blog posts you have to do something that makes people want to come to your site and see what you’re up to. In the reptile business pictures are probably the best way to do this. “But I’m not good at that stuff”, is a common argument I get when I tell people this. You don’t have to be a professional photographer or an award winning author to have an interesting web site. More than anything you just need to do something. There are plenty of tools available that will allow even the biggest computer noob to set up some slick looking web sites. On this planet a lack of technical saavy is not really an option and, increasingly, not really an obstacle. As a corollary to this you need to make sure your web site doesn’t fall out of date, isn’t ugly, difficult to use or unprofessional in appearance. Any of those things will decrease your credibility.
- Be willing to pay for quality. Buy the best animals you can realistically afford. Do not buy the cheapest animal you can find. Junk in, junk out. Remember that.
The bottom line to all of this discussion is this: if you don’t diligently plan to make money, you won’t. The ball python husbandry business has the capacity to make you as much money as you want if (and I do mean if) you are a smart, calculating and realistic in your approach. The next step is an individual one.