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Pricing Dilema
I have been having a problem figuring out what to charge for the plants that I grow...especially the ones that I start from seed and cutting. I am only accounting for the cost of materials that go into producing the plants and I'm not accounting for my time or anything else. My price per plant ends up way below everyone else's.
How do you account for your time per plant when you are growing thousands?
How do you account for your time per plant when you are growing thousands?
Replies to This Discussion
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Permalink Reply by Daniel A. Gordon on -
for a quick and simple estimate of where you should be, take the total number of plants that you prepare, the cost of the materials and your time. assess a value to your time, say 40/hr.
add the all the costs together and divide that by the number of plants you prepared and it will give you a place to start.
once you have that number, get a sense of what it takes you at 40/hr to maintian them till they are marketable. add in any other costs. ie. ferts, water, etc, and divide that number by the number of plants. now you have a second number to add to the first.
lastly, you have to assume a 'loss factor'. how many of the originals don't make it and therefore have to be covered by the ones that do. add a loss factor of somewhere between 2 and 5 percent? someone in your related field can tell you more accurately.
that is a quick way to get a relative understanding of your sell price. as someone else said, your local market will ultimately deem where you can be but this way, you will have a sense of why.
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Permalink Reply by Maureen F. Murphy on -
Annie,
Jerry Montgomery has some good advice, I may add that you should also include cost for depreciation, marketing, and development. In other words you someday will have to pay for new plastic or glass on your greenhouse, or water pipes may need cleaning or replacing, or even a new phone. Paper to print a bill on for your customers and signage for displays etc. (marketing) has a cost. You may also need funds to make more space to grow more plants, you will need money to pay for this development. Don't sell yourself short of these hidden expences.
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Permalink Reply by Kathy Gagne on
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Hello Annie,
What you are describing and asking for is the theory behind cost base accounting. To determine what to charge, you need to figure in the fixed and variable costs to produce one plant...it sounds crazy, but at the very least you can figure out the cost of soil, fertilizer, plant/plug, and labor costs on a per plant basis. Labor cost per plug is the figure that is missing.
The above takes a bit of time; however, one suggestion is, do not lower your price because you propagate your own plants, use it to increase your profit margin.
Kathy
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Permalink Reply by Erik Friedli on -
There are alot of hidden costs, especially in growing. I'm not a grower, but soil, pots, labor, chemical, fertilizer, heating greenhouses, shadecloth, water, pumps, fans, turnover time...I'm glad I'm not a grower! As a Retailer, though, I start with a basic margin in mind. Then I try to determine what the market will bear. Then I consider my competition, and if the plant is a strong seller for them, I might drop margin to try and steal their thunder and use the plant as a lost leader.
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Permalink Reply by Annie M. Hall on -
Certain costs have been easy to figure out..but others are not. I have 4000 plants; I spend about 7 hours a day on them 7 days a week from April through October. After that, I care for them when needed. We are in the process of expanding. We're adding another 48 foot house which costs around $4,000. How do I work that cost into the cost of each plant? Of the 4000 plants that I have, I know I wont be selling all of those this season because of the economy. My prices are lower than the big box stores and people still ask me to cut them a break!
Erik Friedli said:There are alot of hidden costs, especially in growing. I'm not a grower, but soil, pots, labor, chemical, fertilizer, heating greenhouses, shadecloth, water, pumps, fans, turnover time...I'm glad I'm not a grower! As a Retailer, though, I start with a basic margin in mind. Then I try to determine what the market will bear. Then I consider my competition, and if the plant is a strong seller for them, I might drop margin to try and steal their thunder and use the plant as a lost leader.
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Permalink Reply by Michael Pawelek on -
Annie, I occassionally have customers that ask for a "deal" as if they want some huge volume and it usually entails 2 plants instead of one! :) I used to go into great detail trying to explain that I could not stay in business with lower prices because my prices are great to begin with, but found that customers do not really really want an explaination. I now in a friendly tone say, "no I am sorry we already sell high quality plants at reasonable prices" and leave it at that. I look at it this way. When was the last time you asked the grocery store manager, the hardware store clerk or the fellow at the hamburger shop for a discount? None of us do, so why should we be the barter kings and queens of the business world. You just have to charge a decent price that allows you make an honest profit so you can pay your bills and keep the business thriving. Everyone deserves to make an honest dollar for their time and know how. Don't sell youself short to please everyone and go broke in the mean time. There are proper occassions to give a really loyal customer an occassional price break but making it a common practice will eat away at your bottom line. At my nursery I do give away 200-300 blooming 4" annuals every Spring to children that come out with their families and are "good" while in the greenhouse but I chalk that up to positive customer relations and believe me the kids come out every year with great enthusiasm just to see what I've made special for them. It's usually a very full miniature sunflower or zinnia in 4" container. After all, they are my future customers!
Michael Pawelek
Pecan Hill Nursery
www.pecanhillnursery.com
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Permalink Reply by Sherwood Botsford on -
Last night I was at a friends house. He was an engineer, spending most of his career in production optimization. He claims that there are large companies -- fortune 500 companies -- that do not know which divisions are profitable. Cost base accounting can get so involved. GAAP -- generally accepted accounting practices can be straight forward in theory, but when you have multiple operations, it gets messy. In the example he used they had divisions that made parts for multiple other divisions. They had equipment that was amortized out long ago, but which could not be replaced -- there was no equivalent machine now. They had multiple divisions in the same complex. Quick: How do you split the electrical bill?
A previous poster commented on doing it based on a square-foot cost basis. And that makes sense if you have a greenhouse. Sounds straight forward. Then MP brings up the problem with the variable propane price. (Mike, I think you need to find a different way to heat...)
I currently have 4 types of operation in my tree farm:
1. I have the nursery, by the house. There I have the yearlings in their styroblocks, and where I'm building a mist house. I sell two and three year old trees from here, but most are destined for transplant. These trees have to be watered frequently, but fairly lightly.
2. I have the main pot yard. Here I have rows of pots on tarps surround by bales of straw in winter. Generally these guys get watered twice a week. How much they get depends on weather and their size relative to the pot.
3. I have the field trees. Trees here are in double rows with 7 feet between the pair, and 10 feet. (7 feet allows my grasshopper mower room to zip down the row. They don't need to be watered at all, but will grow faster and have a tighter root system if I drip irrigate them.
4. I have just started developing a shaded pot yard. This is carved into a poplar/birch forest, with small clearings for trees that are hardy here once they are older but are a bit tender the first few years because they are too small to create their own microclimate. With the shade they don't need to be watered mroe than twice a year during their first year -- a 6" seedling in a #2 pot can go a long time between drinks.
And I have 3 million square feet that isn't in use yet.
Q1. How do I apply the square foot system here?
Q2. I'm going to get to the point where I need to upgrade my water system. How do I amortise that upgrade to the various areas. This includes a larger pump, bigger mainline, probably mroe automation, and replcement of sprinklers with drip in many cases.
My answer is that I don't care. If something looks like it's worth doing, I'll do it. If I try to justify it on a bean counting level, I spend all my time counting beans, not growing trees.
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Permalink Reply by Sherwood Botsford on
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Michael Pawelek said:Annie, I occassionally have customers that ask for a "deal" as if they want some huge volume and it usually entails 2 plants instead of one!
I thought about prcicing for some time:
Experiments with farmers markets showed me that people who are buying a few items are not concerned about price or if anything a higher price improves the salability.
E.g. I tried selling a 6' paper birch at 15, 25 and 35 dollars. Makes zero difference to the number sold.
So my princing right now works like this:
Conifers are generally $8 per foot, except larch (fast growers) are only 6. and bristlecone pines (VERY slow) are $20
Willows, poplar and birch are $4 per foot.
Shrubs are $7 per trade gallon.
I had one person who fussed at $16 for a 2 foot blue spruce, saying she could get a 4 footer at Canadian Tire for $25. As I had been to CT earlier that week, I knew that their 4' spruce were $49. But I didn't call her on that.
Rather I pointed out that the Big Box Stores brought trees in from out of province. They were likely dug that spring, stuffed into a pot and shipped to Edmonton. They had never been through an Alberta Winter, and they would have experienced two transplantings in a 3 month period when she planted it. Buy a tree from me, if it dies, bring it back, I;ll give you another. She didn't buy, but went away thoughtful.
I too had someone who asked if there was a price break at 3 trees. My standard now, since I'm trying to be both a wholesale and retail seller:
Buy $200 take off 10%
Buy $500 take off 15%
Buy $1000 take off 20%
Buy $2000 take off 25%
Buy $5000 take off 30% And at that stage I'm willing to dicker.
For repeat customers, the discounts accumulate through the season.
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Permalink Reply by Rick Brown on -
Annie, Thanks for starting this great discussion. 2 heads are better than one when it comes to running a business and the more input and discussion you have the better. The plant business in general lives in the past in relation to pricing and we forget about the effects of inflation. Too often we sell plants at prices from many years ago. Even if we double our prices we are just deluding ourselves that we are making twice as much when in fact we are loosing ground. You are young and you need think long term before you settle on a pricing strategy as we will soon be in an era of hyperinflation when the housing crises settles out in a year (or 3). But the future is a whole new discussion.
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Permalink Reply by Annie M. Hall on
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Unfortunately, I'm not that young...51 ...so I can't think real long term. Heck..retirement is just around the corner! or not. :-)
Rick Brown said:Annie, Thanks for starting this great discussion. 2 heads are better than one when it comes to running a business and the more input and discussion you have the better. The plant business in general lives in the past in relation to pricing and we forget about the effects of inflation. Too often we sell plants at prices from many years ago. Even if we double our prices we are just deluding ourselves that we are making twice as much when in fact we are loosing ground. You are young and you need think long term before you settle on a pricing strategy as we will soon be in an era of hyperinflation when the housing crises settles out in a year (or 3). But the future is a whole new discussion.
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Permalink Reply by Sid Raisch on -
Annie,
A lot of information has been shared and your head must still be spinning. I'm not sure if I will add anything, but I"m going to try to summarize from the comments already made to help you, other future readers, and ME to keep a clear picture.
SOME of the up-front questions that we would all need to know more about are:
1. Are you selling wholesale or retail?
2. What is the realistic quality level of what you're selling and how desirable is it to the consumer in comparison to what is otherwise available to them?
3. What plant varieties and sizes are you selling?
A lot has been said about adding up all of your costs of doing business. But it is still not enough.
If you or any of your employees will have paid time off for vacation, holidays, sick days, etc. those unproductive hours have to be added to the cost of their productive hours. Also remember the cost of additional benefits such as insurance, uniforms, tuition reimbursement, educational fees, licenses, etc.
There are mandated business taxes, government fees, etc. that have to be paid whether you make money or not.
If you will need to borrow money for seasonal cash flow or long-term debt for facilities, etc. there will be interest to pay.
Rent is not always inclusive. Some leases require you to pay taxes, insurance, common area maintenance, improvement assessments, etc. If rent is subsidized by you or another landlord the money should still be recovered and saved in case you have to move later, or to buy the property rather than used to lower prices to be more "competitive".
We're still not finished. Do not go forward assuming you will sell every plant at full price. Some you will sell at a full price, some will be discounted, some will be destroyed or stolen, some will be discarded and all of them have to be factored into your equation to come up with your cost per plant SOLD. This will be a best-guess unless you have a track record to go on in which case you can apply historical data.
A lot has been said about competition, and getting the price your market will bear. But before we go there some other potential costs of doing business must be considered:
Whether you are retailing or wholesaling we need to add in the value-added marketing expenses if any were not already included in your operating expenses or wages. Better facilities, signage, lighting, benching, personal selling, etc. add value to your product, but also cost money.
A little more about risks and contingencies:
Keep in mind that there are insurable and non-insurable risks that you either have to try to account for, or accept as potentially devastating events that will potentially erase profit and create a loss that will have to be paid out of your profit, other assets, borrowed, or additional capital raised. Some losses such as undetected theft are never specifically known.
Profit is a necessary business expense:
Add to all of these costs the expected profit from your investment. It takes a profit to remain in business, not just to be rewarded for your investment. You can grow (your business) only by increasing your investment whether that means putting in additional capital, or re-investing profits generated by your operation. If you don't ask for your profit in your pricing you will never get it.
Once you have your sell-through rate, you will know your MARGIN FLOOR, or the minimum amount you can sell your product for without generating a business loss.
NOW, you're ready to ask for the price your market will bear. You will need every penny of it:
Beware those who ask for discounts and deals because they are taking your profit. It's okay for them to ask, but not okay for you to just give away the profit without understanding the cost to you for doing so.
Don't start with your prices too high, but definitely don't start with your prices too low. It is not only okay to experiment with pricing, it is expected because you don't know what you can get until you try.
Once you understand your costs and the price you must get make sure everyone associated with your company understands as well, especially your employees, but including your customers. They don't need to know all the details but they do need to consider that you are probably not going to make a net profit of more than 10 cents of each dollar of price even in your luckiest of years. That's not much when compared to what they THINK if you don't otherwise let them know. Believe it or not, common thinking is that about half of the selling price goes directly into the owners pocket. You may be able to make it without the ten cents but not for a long period of time, and if you lose money remember that eventually it is real dollars that are lost and they have to come from somewhere.
There is a false economy when you don't consider all the expenses. MOST businesses I have looked at fudge the numbers either unintentionally, or to soothe themselves into thinking things aren't THAT bad, or to justify doing what they want to do that doesn't make financial sense. Any way you figure it a false economy is false and will catch up with anyone. Eventually you will have to replace worn out equipment, make improvements to stay relevant and competitive, etc. If the money to do these things is not in the bank then...if you're like most people you'll figure out a way to keep it going but still not make money. Or, you'll have to get serious and break that cycle. It's possible but more easily said than done.
Do not take any of this as specific advice. Get advice specific to your situation.
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