According to Dr John Fetrow, professor of dairy production medicine at the University of Minnesota, the highest rate of profit is made up of a farm's financial averages based on the outcome of a series of marginal decisions. The aggregate is the sum of a series of increments.
"Dairy producers tend to think about farm financial performance in terms of cost per litre produced," he said.
"Many accept that the milk price is a given per litre and think that making money depends on keeping total expenses per litre as small as possible, thus increasing the difference between income and expense.
"Generally, they focus on feed, since it is the largest expense but I have a slightly different way of looking at the situation."
He said that making money on a dairy depends, firstly, on making sure that the shed is full of cows and secondly, that each cow is as financially productive as possible.
Dr Fetrow added: "The solution to financial survival is found on the revenue side, with appropriate attention to prudent control of costs which do not contribute to production. Increasing overall profitability depends on increasing the profit margin per litre and the number of litres produced.
"When dairy farmers consider how to increase margin per litre many look to cut expenses, but if not done carefully this will reduce both production and income. Very often, the revenue lost significantly exceeds the expense saved," he said.
Pointing out an alternative strategy, he said that producers need to know the value of additional milk production from an existing cow before switching to a high input high output system.
And, when looking at revenue per cow, he said it is important not to use the average feed cost to estimate this because it includes maintenance, but instead use the marginal feed cost.
Average feed cost per tonne has little to do with the efficiency of feeding programme management, which has everything to do with level of production, he said.
"The single best measure of financial efficiency is income over feed cost per milking cow per day. Feeding cows in groups based on their production is common practice in large dairies and intended to save money on feed for those cows making less milk.
"When it comes to feeding, balancing energy for production is probably the single most financially destructive philosophy ever inflicted on the dairy industry."
Expected feed cost savings can be wiped out if production falls by even a small amount, as little as 1.6 litres per cow per day.
So while moving cows from a high group to a low group might, for example, saves £47 per cow in annual feed cost, it might result in a reduction of £108 in milk revenue and a fall of £61 in annual profit.
"Quality forages are the key to a profitable feeding programme and no nutritional wizard can completely overcome the impact of bad forages," added Dr Fetrow.
"Rather than focus on cutting feed costs there is probably more money to be made by controlling shrink and mixing errors, which often exceed 20%.
"It is a mistake to deliberately restrict the energy intake of milking cows and there may be value in changing protein or other nutrient densities to lower-producing cows. Producers should focus on increasing production per cow because this will dilute maintenance costs per litre and increases average margin per tonne of feed," he said,
"They should also be wary of seeking cheap feeds to substitute for the optimal ration and be prepared to measure the impact of any new feed on total production when it is introduced."
Dr Fetrow warned against cost cutting when it comes to feed, replacements or cow care and said that producers should start by making best use of forages and balance for the best rumen-safe ration possible. In general, they should select feeds that make the most milk and pay as little as possible, he said.