Profit margins are very thin in the greenhouse world, regardless of the specific products or growing methods. Most US greenhouse operations only achieve a 3.5% profit margin at best and drop down to 1% during years with worse weather and slower sales. At that kind of margin, a single out-of-control cost can wipe out an entire year’s budget.
Even a well-designed greenhouse can start costing more to run than it produces in profit as it ages or if it’s not well optimized. Commercial greenhouses that lack good design, or that are built improperly from the beginning, will certainly inflate operation costs over the span of many years. There are dozens of potential issues that slowly raise the operating costs of the greenhouse. Some of them develop over time, while others tend to affect the structure from day one. Explore the most common causes of profit loss in a commercial greenhouse to determine what’s causing issues with your operation.
It’s easy to order pots, irrigation nozzles, and other regularly replaced supplies from the first source you find. While you may get a decent rate for a while from your routine supplier, prices can fluctuate year to year. You may find that other suppliers offer the same products at a fraction of the cost just by shopping around. Many newcomers to commercial greenhouse cultivation purchase all of their initial supplies from the same company providing the greenhouse structures or film. While that may work out for an initial stocking, commit to price checking your routine supply purchases as soon as possible to reduce unnecessary spending that quickly eats up the profit on individual plants.
According to the University of Wisconsin-Madison Extension Office, heating is often the second or third largest cost for the greenhouse grower. This is especially true in cool or cold climates where extensive heating is needed to grow into the fall, winter, and early spring. The heating method you choose, along with the average costs for various fuels in your area, largely determines the cost of heating. In some areas, natural gas heating can cost less than a quarter of the cost of electricity. In other areas, propane or wood heating is the least expensive option. By choosing an inefficient or hard-to-access fuel, you could spend up to four times the amount necessary just to keep your plants from freezing over the winter.
Loss of Heat
It’s not enough to simply pump a steady supply of efficient and affordable heat into a greenhouse. If that space isn’t properly sealed or lacks insulation, all that heat will be lost over time. As much as 85% of the heat lost from a greenhouse escapes at night when temperatures drop to their lowest. This increases radiant losses through the walls and gaps of the greenhouse since heat is always seeking to travel to the coldest possible area. By covering your greenhouse using a double layer method, tightly sealing around vents and doors, and setting up a thermal blanket overnight over the exterior of the structure, you can trap as much heat as possible to dramatically reduce costs on recovery heating.
Need for Cooling in Summer
Even with shade cloth and automated vents, greenhouses located in climates with hot summers often need air conditioning to stay below 100 degrees Fahrenheit at the peak of July or August. Shutting down the business in August and planning to empty out the greenhouse during that period rather than in the dead of winter can save a surprising amount of money in a borderline or warmer climate. Running both heating in the winter and cooling in the summer can shrink profits rapidly due to high energy costs year-round. Look for a winter or summer period you can shut down operations and restart again the next year, at least in propagation houses that aren’t in constant production.
Growing Plants with Low Demand
You can have the most efficient heating, a perfectly designed and super-insulated greenhouse, as well as a great local market, but still generate disappointing profits if you grow plants that aren’t in demand. Many greenhouse growers tend to stick to familiar perennials or bedding plants rather than trying to chase trends. But, when demand for evergreens or mums hits an all-time low for the decade and that’s all you sell, generating a profit for the year can seem impossible due to sluggish sales. Dedicate at least part of your growing operation to experimenting with trendy plants like orchids, succulents, and organic starts to figure out what will produce your next wave of profits.
Fluctuating Labor Demand and Supply
Automation is finally reducing the labor required to run a busy production greenhouse, but it’s still far from solving labor fluctuation issues. Many farms, of all kinds, are struggling to find affordable and skilled labor in their local areas. Greenhouse businesses may find it easy to bring in extra labor when it’s barely needed, but struggle to get staff during peak harvest or shipping times. Rising labor costs still don’t quite eclipse the price of automation, making it hard for growers to decide what to do at this point. Many companies continue to turn to H-2A programs to support workers who travel from other countries to staff their greenhouses, even as the costs and limitations of these programs continue to rise. Developing training programs and qualified internships with area colleges and technical schools is a great method for building a labor force in your area.
Estimating the demand from consumers or bulk buyers for the next season is more important than you might think. Underestimating demand is relatively easy to deal with by making some last minute orders but overgrowing leaves you with wasted costs sunk into plants you can’t sell. Reducing the amount of plants grown was reported by multiple growers as the best profit increasing measure attempted in 2018 according to the Greenhouse Grower 2019 State of the Industry survey. Don’t forget to consolidate growing units whenever possible so you can potentially shut down entire greenhouses to reduce unnecessary heating, lighting, and ventilation costs during a year with lower projected demand. Just because you’ve invested in a structure doesn’t mean you need to use it every year or year-round.
Lack of Opportunities for Sales
Careful plant selection in your greenhouses doesn’t automatically result in high profits. You can grow the most in-demand and trendy houseplants, or delicate tropical plants, and still suffer from slow sales if you’re not located near any opportunities for finding buyers. For greenhouses and nurseries desiring to sell directly to the public, you’ll need to be near a large population center to bring in enough traffic. Don’t forget to offer plenty of open hours during spring and late summer planting periods to satisfy your customers’ demands. Bulk growers, supplying large-scale and national sellers, should be located on shipping routes to ensure their products arrive in good shape and without extensive transport costs.
Extreme Weather Conditions
Natural disasters and late spring freezes are hard to predict, but their effects can be minimized to control losses that destroy an entire year’s profits in one sudden event. Even in areas with steady electrical connections, winter and summer storms can bring down the grid for an entire region. Generators and backup battery supplies can keep greenhouses from freezing or overheating during periods of difficult weather. At the very least, make sure you’re insured for weather-related crop and plant losses to help mitigate the financial impact.
Older greenhouses often feature multiple profit damaging issues that need attention. Renovating an older structure may be easier than you think if you choose a reliable cover to give it insulation and easy venting opportunities. Discuss your options with us here at BTL Liners to design a new greenhouse or improve an existing one to avoid these profit draining problems.