Price points

Years ago, growers were more likely to price plants based on a mathematical formula, concentrating on what costs they had in the production of the plant. But to thrive in today’s economy, there’s more to consider than how much you have in the pot, the soil and the cuttings.

Covering your costs is a good place to start, but not the only consideration. That’s a producer-only mentality, said Bridget Behe, horticulture professor at Michigan State University. You must also consider what the consumer is willing to pay for. When you take the producer-only approach to pricing, you leave money on the table, she said.

Instead, the key is to create value and present that value message to the consumer. First ask yourself, is the product different? Perhaps it’s a different size than what’s in the market, an unusual color or form, or it’s new in the product lifecycle. If there’s value in that difference, the consumer is probably willing to pay more. Growers often resist raising prices out of fear of losing sales. Sales will decrease to an extent, but you can preserve profitability with a price increase, Behe said.

Take some baby steps. Try raising prices for one genus or cultivar, not every item you grow and sell. Test the market’s reaction.

“I’m suggesting a price increase of 2-5 percent, not an increase that would price you out of the market,” she said. “It’s just math. Think about how many plants you have and how much do you want for them. Look at selling 80 percent of your inventory at three different price points,” she said.

Consider the alternative – discounting hurts profits. If a nursery has 500 1-gallon containers to sell (at a cost of $1.29 each) and is considering a $4.99 price point, what is the break-even point? Total cost is $645 and break-even is calculated by dividing total cost by the price of $4.99. The nursery breaks even when the 129th unit is sold and profits will be generated on the 130th unit sold. If all 500 plants were sold, total revenue would be 500 x $4.99 = $2,495, which gives the firm a profit of $1,850 or $2,495 - $645 = $1,850. If the profit goal was $1,600, the business would only need to sell 450 units.

But if the price was discounted 10 percent to $4.49, the grower would have to sell 144 units to break even, and all 500 plants would have to sell to reach a $1,600 profit.

Nursery Management’s State of the Industry research saw some encouraging numbers in terms of raising prices. About one-third of respondents (31.3 percent) said price increases yielded “the best possible gain in retaining or improving profit margins.”

Bill Jones, president of Carolina Native Nursery in Burnsville, N.C., has raised some of his prices this year.

“I will always argue that plants are undervalued,” he said. “It is truly unfortunate that so many growers think they have to cut prices to make the deal. It undermines our whole industry because of this profitless practice.”

When growers price by the container, the industry is telling its customers and the consumer that the value is below the soil line. But most of the value is above the soil line, Behe said.

It’s not just consumers that need to be educated on value. Bold Spring Nursery in Hawkinsville, Ga., raised prices on trees in 2012 and will likely raise them in 2013, said John Barbour, the nursery’s owner. Barbour decided to raise prices due to the shortening supply of some trees and to be profitable.

“We have worked hard to educate our customers of the upward pricing trend so they can make good decisions when they are bidding new jobs,” Barbour said. “But we have seen several instances where contractors have bid jobs with 2010-2011 tree pricing. Now they can’t source the material under budget. This fall, contractors have recognized growing tree shortages and they are paying more for trees.”