Understanding Cost of Gain

In ranching, profit isn’t just about selling cattle at a high price—it’s about controlling your costs and capturing margin when you buy. If you don’t know what it costs to put weight on your cattle, you’re essentially gambling with your profits. That’s where Cost of Gain (COG) comes in.

This post will break down the numbers, using a real-world example, to help you understand what’s driving your expenses, but if you want to dive into this deeper, we highly encourage you to come to a Sell Buy Marketing Educational SIM. Both the Foundation and Level 2 course will spend time on talking about Cost of Gain.

What is Cost of Gain?

Cost of Gain is exactly what it sounds like—the total dollars spent per pound of weight added to an animal. The formula looks like this:

Total Dollars Spent ÷ Total Pounds Gained = Cost of Gain

This number is critical. If your cost of gain is too high relative to what the market will pay for those added pounds, you’re losing money. It is also worth remembering that Bud Williams always said, “profit is a cost of production.” Thus, throughout this, we want to remember that profit is an expense that we need to consider as we calculate everything. 

Breaking Down the Costs

So let’s look at an example breakdown of costs for a 100-head lot:

Expense	Total Cost	Per Head
Feed (mineral, distillers, hay,etc)	$15,000	$150.00
Processing/Vet	$1,200	$12.00
Yardage (this should include your salary)	$3,000	$30.00
Sales/Transport	$2,950	$29.50
Death Loss	$1,500	$15.00
Total Expenses	$23,650	$236.50

From this, we can calculate:

• Cost per head: $236.50. To calculate this, we divide the total expenses of $23,650 by 100 hd. 

• Cost per pound: $1.18, assuming 200 lbs of gain per head. To calculate this, we take the cost per head of $236.50 divided by the 200 lbs, giving us $1.18 over the 200 lbs. 

At this point, we know it costs $1.18 per pound to put weight on these cattle. But what are we missing? 

Profit.

That’s right. Bud taught us to always consider profit, but we haven’t done that yet, so let’s add it in and see where we are. 

Adding Profit Targets

To add your profit target in you have to decide what number you like for your operation. We usually use somewhere between 10% and 30%, but you need to always remember that if you set your profit target too high, you will have trouble buying it back. The profit is captured when we BUY, not when we sell. 

So, for today’s purposes, let’s split the difference and use a 20% profit target and see what happens. If you want a 20% profit target, your cost of gain per pound would be:

$1.18 cost per pound × 20% = $1.42 per lb 

Bud would call this your Break-Even Point Cost of Gain. 

Why Profit is Captured at the Time of Purchase

One of the most critical lessons in this all is that profit is captured when you buy, not when you sell. If you pay too much for incoming cattle, it’s nearly impossible to make up the difference through feeding and management alone. That’s why knowing your cost before you buy is essential.

Final Thoughts: Control What You Can

At the end of the day, you can’t control the market, but you can control:

• What you pay for cattle

• How efficiently you put weight on them

• How well you manage costs

Knowing your Cost of Gain isn’t just a number—it’s the key to making smarter decisions, managing risk, and ensuring your ranch stays profitable year after year.

Want to dive deeper into this? Join us at an Educational SIM on Sell Buy Marketing. The team will dive into Cost of Gain and give you the tools and practice to work though on your own.