Prioritizing which crop to grow each season is a delicate task. You must take into account which products have the highest yield, have the highest margins, and sell the most units. To calculate this, we have created a step-by-step method to get insight into which products will perform better next season.
Note: This calculation is an estimation and will only work for produce production!
Before you start calculating your priority score, there are few definitions we need to cover. Refer to this list as you move through the calculations for any clarification:
Plants Planted: The total number of seeds/plants that were planted at the beginning and throughout the season.
Plants Harvested: The total number of plants that were harvested throughout the season.
Yield: The percentage (%) of plants harvested compared to total plants planted.
Units Harvested: The total number of individual units (products) harvested over the season.
Average Weight per Plant: The average weight (lb) of product harvested from each plant.
Package Size: The size (lb) of package the product is sold in. (ex. 5 lb bag of potatoes)
Average Package Production per Plant: The average number of packages harvested from each harvestable plant.
Cost of Labor per Hour ($): The hourly wage of labor.
Number of Units or Weight Harvested per Hour: The total number of units harvested or the total weight harvested from one crop in one hour.
Percentage Sold: The percentage (%) of units sold compared to the units harvested at the end of the season.
Total Loss on Crop: The loss ($) on the crop based on the growth yield and cost of seed/plant.
True Cost of Plant/Unit: The actual cost ($) per plant/unit based on the growth yield and cost of planted seed/plant.
Profit Margin: The percentage (%) of true cost of a unit/package compared to the retail price.
Priority Score: The ranking of which products will be most successful. It is based on the total number of units sold, growth yield, and profit margin. The higher the score in comparison to the other products, the higher priority the product should have.
Step One: What was your production yield?
The first step to determining what to grow, you must determine your production yield for the previous year. As different types of crops yield different numbers of units, the growth yield determines the likelihood of a crop sprouting. You should calculate the success for each crop.
Growth Yield (%) = Number of Plants Harvested/Number of Plants Planted x 100%
Growth Yield (%) = 300 Harvestable Plants/350 Seeds Planted x 100% = 86%
Now, you have to determine the success of each plant:
Average Number of Units per Plant = Number of Units Harvested/Number of Plants Harvested
Average Number of Units per Plant = 1200 units/300 plants = 4 units per plant (ex: 4 tomatoes per tomato plant)
Note: This example is for specific to produce that is sold by individual unit, not by weight. To make this calculation work for weighted products, consider a “unit” as a package size for a product. For example, if you sell apples in bags, your unit could be a 5 lb or 7 lb bag. In this case, the calculation for Average Number of Units per Plant would be:
Average Number of Units per Plant = (Total Weight Harvested/Number of Plants Harvested)/Weight of Package Size
Average Number of Units per Plant = (1500 lb/300 plants)/5 lb bag = 1 bag per plant
If you sell multiple package sizes for one crop, you can calculate the average production yield per plant for each type of package size, and later compare the popularity of each package size based on order history.
Growth Yield and Average Number of Units per Plant will allow you to predict the outcome if you were to plant more or less seeds the following year. For example:
If you planted 400 seeds the following year, you would likely produce 344 harvestable plants and 1375 sellable units (400 seeds x 86% Growth Yield = 344 harvestable plants x 4 units per plant = 1375 units).
Step Two: How many units did you sell?
Now that you know how many units you produced, you can look at what sold best. To do this, gather all of your orders from the last year, and look at the highest selling product(s). Collect the number of products sold for each product type (and package size, if applicable).
To determine, the Percentage Sold, you must compare the total units sold and the total units harvested.
Percentage Sold = (Total Units (or Weight) Sold/Total Units (or Weight) Harvested) x 100%
Percentage Sold = (1175 units sold/1200 units harvested) x 100% = 98% sold
Or for a weighted product:
Percentage Sold = (1300 lb sold /1500 lb harvested) x 100% = 87% sold
Also, if you are working with different package sizes, you want to determine which package size did best (ex. selling 5 and 7 lb bags). In order to do so, take the number of packages sold and multiply it by the size of the package. For example, you sold 200 five pound bags and 70 seven pound bags. This means you sold 1000 lb as five pound bags and 490 lb as seven pound bags. If you produced 1500 lb of product, your percentage sold is 67% for the five pound bag (1000 lb/1500 lb x 100%) and 33% for the seven pound bag. In this case, the 5 lb bag did much better than the 7 lb bag.
Step Three: What was the cost of labor per unit?
To determine your cost of labor per unit, you need to determine how much time is being spent on each crop. Periodically track your harvest/packing time on a particular vegetable and use that measurement to get a rough idea of profitability. In this example, let’s say you were able to harvest, clean and package roughly 30 units in one hour. If your labor cost is $20.00/hour, the labor cost per unit would be $0.67 ($20.00/30 units = $0.67).
Step Four: What were your margins on the product?
Now you need to determine which products have the best margins. The first step to determining your margins is to determine the initial losses on the crop. With your growth yield, you can determine your losses on the crop. So, if it costs $1.00/seed and you planted 350 seeds, you spent $350 on the crop. If only 86% of the crops sprout and you sold 98% of the units harvested, you lost $56.25 ($350 - ($350 x 0.86 x 0.96) = $56.25) in total on the crop. This equates to be $0.19 cents per plant.
Note: This only takes into account the cost of the actual plant. It does not factor in cost of labor or water.
To determine the true cost per unit:
True Cost per Unit = (Cost of Individual Seed + Loss per Plant + Cost of Labor per Unit)/Number of Units (or Packages) per Plant
True Cost per Unit = ($1.00 + $0.19 + $0.67)/4 = $0.96
With the true cost per unit, you can determine your profits on the product:
Profit per Unit = Retail Price per Product - True Cost per Unit
Profit per Unit = $3.00 - $0.96 = $2.04 per unit
Note: To determine your selling price, try multiplying the cost of labor per unit by 3 for wholesale and 4.5 for retail. This will ensure you are getting sufficient profit from your labor.
If you sold 1175 units, you would make $2397 (1175 units x $2.04 = $2397) on that product.
Next, you have to calculate your profit margin.
Profit Margin (%) = (Profit per Unit/Retail Price of Unit) x 100%
Profit Margin (%) = ($2.04/$3.00) x 100% = 68%
Step Five: What is the priority score?
The best performing products are those that have a low true cost, higher profits, and are most popular amongst your customer base. The priority score is an arbitrary number that ranks which products you should prioritize based on those factors. To use this score, you must calculate it for your top 5-10 products and compare. The higher the value, the more the product should be prioritized.
Priority Score = Number of Units (or Weight) Sold x Profit Margin x Growth Yield
Priority Score = 1175 x 68% x 86% = 684
Step Six: What are complementary products to your best performing products?
Now that you have calculated your priority scores and ranked which products perform the best, it is important to note that you should not only grow those products. In order to be successful, you want to offer your customers a variety of options to create a one-stop-shop.
To determine which products would best compliment the best-selling products, look at all the orders in the last year where you sold the best performing products. From there, record which products were also purchased. Compare and assess if any products are repeated. This allows to ensure you are offering products that work together, and will increase filled shopping baskets.