OFA Bulletin July/August 2013 : Page 3

matters that makes the most difference for our industry. Furthermore, the impact extends beyond Washington, DC. The dues members pay support other important activities that affect change and increase the consumption of plants, trees, flowers, and our services. Through sponsorships, management services, and partnerships, OFA and ANLA support great organizations and coalitions like Agriculture Coalition for Immigration Reform, America in Bloom, the Nursery & Landscape Association Executives of North America, National Christmas Tree Association, the Society of American Florists, National Agriculture Alumni Development Association, Sustainable Urban Forests Coalition, and several others. Associations are powerful because of the support and contributions of their members. Ultimately, we can achieve nothing without your participation and support. Through you we have the power of association. MiChAel V. GeAry, CAe Chief Executive Officer OFA – The Association of Horticulture Professionals 2130 Stella Ct Columbus, OH 43215 614-487-1117 mgeary@ofa.org Greenhouse CONTINUED FROM PAGE 1 are your cropS Making Money? uSing enterpriSe BudgetS to calculate coStS and profit with sales ranging from $3.95B (in 2003) to a peak of $4.32B (in 2007). Since 2007, the number of growers has declined by 26 percent from 7,387 to 5,419, reflecting the attrition and consolidation that has occurred in the industry. Given the market climate, how do you decide whether it is profitable to grow a particular crop? Rather than throw your hands up in the air, it is even more important to know your production costs and profit margins. If you decide to gain market share by pricing product below the market price, which requires deep pockets and economies of scale, then are you still making money? If you want to reduce costs, which expenses should you focus on to increase efficiency? Should you grow a particular crop yourself or contract with another grower? In this article, we discuss how to develop enterprise budgets that accurately estimate costs and profitability and aid in answering these types of questions. DIRECT COSTS Table 1. An example budget for a 4-inch potted petunia grown from two seedling plug sizes (table continued on page 4). Item A Plant cost B Container, growing substrate, label C Total direct cost D Sales price E Gross margin/container (D -C) F Spacing between container (in) G Area per container (ft2) (in2/144) H Weeks J Square-foot weeks (sfw) (G * H) K Overhead cost per sfw L Overhead cost (J * K) M Total cost (direct + overhead) before shrinkage (C + L) N Shrinkage (production losses & unsold product, %) O Cost of shrinkage (N / (1 -N) * M) P Total cost including shrinkage (M + O) Q Net margin/pot (D – P) R Net margin % of sales (D – P) / D S Net mark up (D / P -1) T Net margin/sfw U Net margin/ft 2 392 cell tray $0.15 $0.10 $0.25 $1.25 $1.00 6 0.25 6 1.5 $0.30 $0.45 $0.70 4% $0.029 $0.73 $0.52 42% 11% $0.35 $2.08 128 cell tray $0.26 $0.10 $0.36 $1.25 $0.89 6 0.25 4 1.0 $0.30 $0.30 $0.66 2% $0.013 $0.67 $0.58 46% 87% $0.58 $2.31 3 The example enterprise budget in Table 1 provides a starting point to discuss cost and profitability. Lines A to E only consider sales price versus direct costs. Direct costs [also called variable costs or cost of goods sold (COGS)] are expenses that are directly linked to the level of production, such as labor, equipment operating costs, and material costs (in this case seed, container, growing substrate, and label). For plant costs, include royalties unless these are passed through to the customer as a separate line item over and above the sales price, in which case it is not a direct cost borne by your business. CONTINUED ON PAGE 4

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