This paper describes the on-farm profitability and sustainability implications of smallholder dairy farmers in Pakistan from an innovative informal strategy of developing village-based forage seed enterprises (VBFSEs) for berseem clover (Trifolium alexandrinum). The evaluation of agricultural innovations and their impact on whole farm profitability is often very difficult to relate to economic parameters. The agricultural interventions implemented in this study resulted in enhanced crop yields, but the farmers involved did not consider these gains fulfilled their economic rationale. The impact of growing improved varieties of berseem clover using research based technology and developing VBFSEs was validated through on-farm participatory research in the districts of Kasur and Okara, Punjab, Pakistan. The intervention was evaluated on the basis of net income and benefit:cost ratio to the farmers on their investment. The statistical analysis indicated that average net incomes of 512,340 Rs/ha (5,240 US$/ha) was achievable through establishing VBFSE for berseem clover when grown for both green fodder and seed production. The maximum green forage (50.58 t/ha) and seed yields (946 kg/ha) of berseem clover were produced by using improved seed and contemporary agronomic practices compared to 31.76 t/ha and 192 kg/ha, respectively with traditional methods of growing berseem clover. The average net income generated through berseem VBFSEs is eight times greater than for wheat (34,022 Rs/ha), six times more than for oats (45,541), five times more than for canola (56,083), four times more than for conventional berseem clover (67,723), and two times more than the net income from a potato crop (142,737) growing in the region. Thus berseem clover VBFSEs are more profitable than any other cash crop grown in the area, having a benefit to cost ratio of 5.32:1. They are therefore an economically viable agricultural option for smallholder farmers.