What is a 'Harvest Strategy'

A harvest strategy is a plan in which there is a reduction or a termination of investments in a product, product line, or line of business, to reap the maximum profits. A harvest strategy is typically employed toward the end of a product's lifecycle when it is determined that further investment will no longer boost product revenue.

BREAKING DOWN 'Harvest Strategy'

Products have life cycles, and when the item nears the end of its lifecycle, it will usually not benefit from additional investments and marketing efforts. This product stage is called the cash cow and is when the asset is paid off and requires no further investment. Therefore, employing a harvest strategy will allow companies to harvest the maximum benefits or profits before the item reaches its decline stage. Companies often use the proceeds from the ending item to fund the development and distribution of new products. Funds may also go towards promoting existing products with high growth potential.

For example, a soft-drink company may terminate investments in its established soda product to reallocate funds to its new line of energy drinks.  Companies have several harvest strategy options. Often they will rely on brand loyalty to drive sales, thereby reducing or eliminating marketing expenses for new or replace products. During harvest, the company can limit or eliminate capital expenses (CAPEX), such as the purchase of new equipment, needed to support the ending item.  Also, they can restrict spending on operations.

A harvest strategy may involve the gradual elimination of a product or product line when technological advances render the product or line obsolete. For example, companies selling stereo systems gradually eliminated sales of record turntables in favor of CD players as compact disc sales soared and record sales declined.  Also, when product sales consistently fall below the target level of sales, companies may gradually eliminate the product from its portfolio.

Harvest Strategy for Equity Investors

Harvest strategy also refers to a business plan for investors such as venture capitalists or private equity investors. This method is commonly referred to as an exit strategy, as investors seek to exit the investment after its success. Investors will use a harvest strategy to collect the profit from their investment so that fund can be reinvested into new ventures. Most investors estimate that it will take between three and five years to recoup their investment. Two common harvest strategies for equity investors are to sell the company to another company or to make an initial public offering (IPO) of company stock.

RELATED TERMS
  1. Robo Tax Loss Harvesting

    Robo tax-loss harvesting is the automated selling of securities ...
  2. NEM

    NEM is both a cryptocurrency and a blockchain technology company ...
  3. Fee-Harvesting Card

    A fee-harvesting card is a credit card that charges excessive ...
  4. Exit Strategy

    An exit strategy is the method by which a venture capitalist ...
  5. Crop Year

    A crop year is a period from one year's harvest to the next for ...
  6. Balanced Investment Strategy

    A balanced investment strategy is a method of portfolio allocation ...
Related Articles
  1. Investing

    A Complete Guide to Tax Loss Harvesting With ETFs

    Using exchange-traded funds (ETFs) to harvest tax losses can be a smart way to maximize your portfolio's tax efficiency.
  2. Taxes

    Using Tax-Loss Harvesting as a Tax Saving Strategy

    Tax-loss harvesting is a strategy that can reduce your income taxes, but be sure to do your homework before using it.
  3. Tech

    Using Tax-Loss Harvesting to Keep Your Gains

    Harvesting tax losses is a key skill that investors can use to keep more of their money in their pockets the next time they file taxes.
  4. Taxes

    'Tis The Season For Tax-Loss Harvesting

    With the end of the year upon investors are looking for ways to reduce their tax bill. One tactic that is often used is tax-loss harvesting.
  5. Investing

    Charles Schwab: Tax-Loss Harvesting Trades Up in Volatile Market

    With volatility back in the markets, there are more tax-loss harvesting trading opportunities, says Charles Schwab.
  6. Investing

    Harvest Your Tax Losses Before Year-End

    You could have some losses in your taxable accounts that you can harvest for a tax deduction.
  7. Financial Advisor

    How to Help Clients Harvest Tax Losses by Year End

    Here's how to help clients employ tax-loss harvesting to reduce their taxes before year end.
  8. Taxes

    There's Still Time for Tax Planning in 2016

    Here’s a look at some considerations for year-end planning for taxable (non-retirement) accounts.
  9. Investing

    Norwegian Cruise's Latest Bet: Harvest Caye (NCLH)

    This private island is unique, which could pay dividends for the company. The reviews, however, are mixed.
  10. Taxes

    5 Year-End Tax Strategies You Don’t Want to Miss

    Take a break from your holiday preparations and use these strategies to reduce your taxes.
RELATED FAQS
  1. What is an elimination period?

    Elimination period is a term used in insurance to refer to the time period between an injury and the receipt of benefit payments. Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center