The Math of Plant Nurseries

Its the time of year again when people pop down to their local nursery to purchase starts.  Many of the nurseries in Alaska won't actually be selling starts until early May since the last frost date is pretty late.  I have friends in the lower 48 who already have things planted and are almost ready to harvest peas and such.

According to the Nursery Management site, pricing starts and other plants is like a chess game.  There are many factors when setting the cost.

First, one must calculate the production costs which include seeds, water, pots, soil, fertilizer, transportation, marketing, and overhead costs like the green houses, employees, etc.  It is important to create a system such as a spreadsheet or computer program that allows the owner to type in changes and know instantly the current production costs.  Its also extremely important to have a detailed cost accounting system.

Most nurseries use the results of the production costs to determine the markup for retail or wholesale prices.  The markup is usually standardized per item such as all gallon sized plants have a 200 percent mark-up while five-gallon plants only have a markup of 150%.

Markup percentage = (price - cost)/cost

so a 200 % markup = (price - $1.37)/$1.37

$4.11 = price - $1.37

price = $5.48 is what they'd sell it for.

Then the nursery owner will round the price up to a better psychological price.  Most people prefer a sales price ending in 99 because it makes it seem as if you are getting a deal so the company might raise the sales price to $5.99 or if they really want to try to stimulate sales, they might drop it to $4.99 but most would go for the $5.99 price.

Another thing they need to keep an eye on is the life cycle of the product.  Most plants will grow and eventually die so as a nursery owner, you'd want to sell most plants before they get too big.  So the idea is to sell the product at full price before the plants get too big.  At some point, most nurseries begin discounting the prices but they still have to keep in mind the break even point between the cost of raising the plants and when they begin to make a profit. The bottom line is that when the owner begins to sell discounted plants, they need to sell more to make money.

If the person shopping knows little about the plants they are buying, they tend to look at price only but if the nursery is able to convince the buyer that they are getting additional value for the price, they are more likely to pay the additional money.  In the past, I've paid more for starts because they were varieties proven to grow better in Alaska.  Many plants I can buy at the major chain stores are not meant to be gown up here.

Additional value might mean you are given information on how to plant the start so you increase the chance it will survive, or perhaps recommending the proper fertilize.  If a nursery wants to raise the price of any of their stock, they should do it in the early stages of the product's life cycle because people are usually more willing to accept the increase.

These are all factors that plant nurseries need to consider when pricing plants to see each spring.  These are things I never thought would be involved.  Let me know what you think, I'd love to hear.  Have a great day.