For growers who have greenhouses at several locations and grow a wide assortment it is very difficult to objectively and accurately calculate all the costs of the different products. Yet that is necessary to make the right decisions. For the last few months Marcel de Lange, of Nolina Kwekerijen, the Netherlands, has been coached by an expert to get a more exact overview of the returns. But attention is focused on more than just the figures.
Cost calculations are a daily occurrence for Marcel de Lange who, along with his brother Steef, manages the nursery in Woubrugge in the middle of the Netherlands. This versatile ornamental plant company is best known for its pot roses, which via Nolina Young Plants also produces propagation material. The company’s third pillar focuses on the production of garden roses and clematis. The family business has over the last 25 years grown from 1 to 20 ha of greenhouses and outdoor cultivation, spread over four locations.
The wide assortment, the variety of pot sizes and the complex production schedule, of both indoor and outdoor as well as combined crops, guarantee a complicated internal administration. “It is difficult to attribute all the costs properly to the products,” admits the manager. “Even so we have been very disciplined about it for years. After all, there’s much to gain. We very regularly have to decide which products we want to delete from the assortment and which new ones to introduce in their place. If you don’t know exactly what a product costs it’s difficult to make such decisions.”
Need for a sounding board
Despite all his business knowledge and experience, the manager felt the need for a specialised sounding board. He found that during a symposium in senior consultant Pauline Cobussen, of Flynth advisors and accountants, The Netherlands. For years the nursery used this service provider for its accounting. Cobussen’s expertise focuses on strategic advice and this was precisely what the grower needed.
De Lange: “No one knows our company as well as Steef and I do, but we realise that it is useful to test your ideas and methods every now and again. Cobussen asked good questions and therefore I believe was the right person. I was curious what she thought about our calculation methods and allocation formulas and how she would interpret the figures. All figures are in principle available to use, but they are only valuable when you put them to good use. It soon became apparent that our starting points did not always correspond. That was good. If you think you’re the best, you don’t learn anything extra and you’ll never get any better.”
Return per week per square meter
“Many growers have a reasonable idea about the cost price of their products but that is just part of the whole picture,” adds Cobussen. “Most growers limit themselves to the exact costs of the plant or production while it is much more interesting and more informative to ask yourself what return you achieve per square metre per week. Then the turnover rate is also in the picture. The yield per week per square meter is a universal measure for any company, regardless of the crop.”
“That for me was a real eye-opener,” admits Marcel de Lange. “With that figure we could really measure everything objectively and that is exactly what we wanted. It’s not the Holy Grail but a tool that is good to use in your decision process. We want to make the step from thinking about cost price to thinking about return. Despite that, it was always easier to stick to our calculation methods and allocation formulas and just improve where possible.”
Start with the strategy
Before the manager and advisor dived into the formulas and figures they first examined the strategy. That to a large extent determines the way you interpret the figures and make choices. A product or service can be quite profitable but if it doesn’t fit within the strategy it may be better to remove such a product. On the other hand, it can also make sense to keep a less profitable product for strategic reasons.
Cobussen: “The first step was made very quickly. Nolina has a clear strategy and mission statement and therefore knows exactly where it wants to go. We define its strategy as ‘customer intimacy’. This means that the company consistently wants to create added value on the basis of high product quality and service for customers in the middle and upper market segments. When that was established, we could jump further into the deep end.”
Also include the accounting
That was done by listing which templates were available and evaluating the methods of calculation. “There are many methods and depending on the company organisation and complexity you can make choices,” added the senior consultant.
Based on this evaluation a number of calculation methods were adjusted. In particular the overhead costs were calculated more accurately. Cobussen stresses that it is also important to carry the adjustments through into the accounting system and to check the output. Does the accounting system then give the same result or do the annual figures give different results to those that were calculated internally?
Intensify the choices
Three months after the start, assessment of the business administration is still in full flow. “We have already made quite a number of small changes that give us a sharper picture about the cost prices and we are now looking more explicitly at the returns,” says De Lange.
So far, it hasn’t led to any specific changes in the assortment but that is just a question of time. Even when the picture becomes sharper it will still involve some hefty discussion, expects the manager. “I deal with the figures while Steef approaches such questions from a sales point of view.” Sometimes a product is removed which he would rather keep. Other times we keep a loss- or moderately making product, because, for example, it has a unique colour with which a customer can distinguish himself.”
De Lange finds it a challenge to bend such “bleeders” into profitable products. “I see that as a double benefit,” he says. “What’s important is its context in the product life cycle. By investing roughly five cents per plant early in the cycle you can capture ten cents more. Such an investment doesn’t always have to be in the product or cultivation. It can also be in the packaging or the service provided.”
Not too quickly satisfied
According to Pauline Cobussen, the exercise currently being performed at the Nolina nursery can be carried out on every nursery. “Companies are different of course, but how the fiscal result is derived and how the return develops throughout the year are questions that every grower should ask. Even for a year round tomato crop it can lead to surprising results and to other decisions about the cultivation strategy, varieties, packaging and even customers. Don’t be satisfied too quickly. It’s nice to earn on average one thousand per year but perhaps that could be two or even three.”
To get a better picture about the cost price and profit, growers can have their strategy, methods of calculation and allocation formulas tested by an external expert. Often things are overlooked hampering the overall result. One aspect that deserves more attention is the profit per week per m2, which expresses the turnover rate of the product.
Text: Jan van Staalduinen. Images: Studio G.J. Vlekke