A fuzzy logic model for quantifying farm households’ potential for non-farm income diversification is developed and applied to 1,077 farm households in Bulgaria, Hungary, Poland, Romania, and Slovenia. About three quarters of households have a diversification potential, but not all households use it. An analysis of diversification potential and diversification behaviour shows that there are seven household types in the sample. Not all development options, i.e. farm development, farm exit, or starting non-farm employment, are equally suitable for all households thus fine targeting of policy measures according to the household type could be important for policy makers.