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The Nursery Papers
ESSENTIAL INFORMATION FOR AUSTRALIAN PROFESSIONAL NURSERY OPERATORS
EDITED
BY
IAN
AT K I N S O N ,
N AT I O N A L
IDM.
ISSN:1326-1495
ISSUE
NO:1998#012
Garden centres benchmark
financial performance
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Key result No. 1 - Gross profit margins
ross profit is the amount that is left from
every sales dollar, after you have paid for
the ‘cost of goods sold’. A simple illustration is where you sell a Grevillea bush for $12.50.
You bought it from a wholesaler for $7.00. Your
gross profit margin is:
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The results from Australia’s most comprehensive study of ‘nursery’ operations and finances are
now available. This Nursery Paper outlines some key financial indicators relevant to RETAIL
NURSERIES. The retail firms who were in the survey generally had gross profit margins between
33% and 50% of their retail sales. They generally had gross profit per person between $30 000
and $80 000. Read on for a ‘do it yourself’ analysis of your business! This NIAA initiated project is
continuing and anyone can participate and receive a detailed report on their business performance.
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$12.50
$ 7.00
$ 5.50
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Gross profit is $5.50 divided by $12.50, then
multiplied by 100. This gives 44%.
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Cost of goods sold is $7.00 divided by $12.50,
then multiplied by 100. This gives 56%.
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For easier comparison, you can express the cost
of goods sold and the gross profit margin as percentages of the selling price. In this example,
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Sell price
Less cost of goods sold
Gross profit
Compare yourself with the best
Pick one of your products and do the calculation now:
Sell price
$_____ (A)
Less cost of goods sold
$_____ (B)
Gross profit (A) minus (B)
$_____ (C)
Cost of goods sold is $_____ (B) divided by selling price $_____ (A),
then multiplied by 100. This gives _____%. and
Gross profit is $_____ (C) divided by selling price $_____ (A), then
multiplied by 100. This gives _____%
© NIAA 1998 — The Nursery Papers — Issue no 1998/012 — Page 1
Total retail sales of all products in the period
Less cost of goods sold, calculated as:
Dollar value of stock on hand at start of the
period (at cost, not at selling price)
Plus purchases in the period
Plus freight on goods bought for resale
Plus costs of ‘growing-on’ (ie fertilisers, soils,
mulches etc used to maintain the stock)
Less value of stock on hand at end of the
period (at cost, not at selling price)
Equals gross profit
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How much of the sales do you keep?
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You can also do this calculation for the whole firm.
The retail firms who were in the survey generally
had gross profit margins between 33% and 50% of
their retail sales. Firms with higher net profits per
owner had average gross profit margins of 41.3%,
while the ‘low profit’ firms had an average gross
profit margin of 38.2%.
To calculate for the whole firm:
This automatically adjusts for any increase or decrease in the value of stock during the period.
Try your own calculation now...
Total retail sales of all products in the period
$_________ (D)
Less cost of goods sold, calculated as...
Dollar value of stock on hand at start of the period
$_________
Plus purchases in the period
$_________
Plus freight on goods bought for resale
$_________
Plus costs of ‘growing-on’
$_________
Less value of stock on hand at end of the period
$_________
Equals cost of goods sold
$_________ (E)
Equals gross profit (Total retail sales (D) minus Cost of goods sold (E))
$_________ (F)
And the percentages are...
Cost of goods sold is $_____ (E) divided by retail sales $_____ (D), then multiplied by 100.
This gives _____%, and
Gross profit is $_____ (F) divided by retail sales $_____ (D), then multiplied by 100. This gives _____%
Page 2 — The Nursery Papers — Issue no 1998/012 — © NIAA 1998
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proportion of a full-time position. It is the most
accurate way to check your staffing levels.
Higher gross profit per person is better, because it shows that each person is delivering more
money to the business from their efforts. No matter whether you are aiming for a high margin or a
low margin pricing policy, your people each need
to deliver a certain level of gross profit - around
$50 000 ought to be the minimum acceptable level.
This performance can be improved by either
increasing total gross profit, or by reducing the
number of people. Methods to increase gross profit
can include aiming for higher turnover, aiming for
higher gross profit margins; increasing your efforts
at ‘companion selling’ (eg snail pellets with vegetable seedlings or seeds; or blood & bone with
roses sales). Staff performance can be improved
by techniques such as better rostering of people;
blending casuals and full-timers so that you minimise the ‘quiet times’ for staff; marketing to specific markets or customer-groups to smooth out
the peaks and troughs either through a week, or
across the different seasons.
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The retail firms who were in the survey
generally had gross profit per person between
$30 000 and $80 000. This shows a very wide variation. Firms with higher net profits per owner had
average gross profit per person of $61 766, while
the ‘low profit’ firms had an average gross profit
per person of $43 493.
Just one trick to watch - make sure you convert your ‘total people’ into ‘full-time equivalents’
- add up the total hours that all your people work
in a typical week, then divide by 35 or 38 hours.
This converts all your part-time or casuals to a
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Gross profit in dollars, divided by total
personnel in the business.
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Key result No. 2 - Gross profit per person
While we’re looking at gross profit, let’s also use it
to see if your staffing level is ‘right’. Gross profit
per person is a good indicator of this. It is calculated by:
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Higher gross profit margins are generally better,
because they show you are keeping more of your
sales income, to be able to pay overheads and
make a profit. However, if you have consciously
aimed for ‘low margin and high turnover’ then your
gross profit margin will be lower.
Gross profit margin is not only increased by
charging more - many other factors influence it,
for example: reducing the value of shoplifting or
damage of stock while it is waiting to be sold;
reducing deaths of greenlife stock; buying efficiently to minimise freight costs, or to obtain bulk
discounts; checking that stock billed to you has
actually been received, before you pay for it; and
so on.
Which part of your business performs best?
Try your own calculation now...
Gross profit in dollars (calculated above)
$______ (F)
Divided by total personnel, calculated as...
Total hours worked by all people in the business in a typical week
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divided by the number of ‘standard hours’ you expect
a full-time person to work per week
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Equals ‘full time’ equivalent personnel numbers
_______ (G)
So your gross profit per person is gross profit $_____ (F), divided by full-time-equivalent people
______ (G), giving you $______ in gross profit per person.
© NIAA 1998 — The Nursery Papers — Issue no 1998/012 — Page 3
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The bottom line
These two simple measures are very powerful in
pin-pointing parts of your business that need some
attention. There are many techniques apart from
raising your price that will improve these very
important indicators. If your own result doesn’t
match up with the averages from the better firms,
take a look at the different parts of each equation
that you could improve. Increasing your gross
profit is one of the most rewarding areas of operating your business - it indicates a more efficient
business. It’s rewarding operationally and because
of that, it’s rewarding financially too!
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Benchmarking is a useful tool to guide change
in your business
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Style +Profit = Success
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Why is this type of analysis important?
This research project (conducted with NIAA’s
endorsement and with HRDC funding from the
pot levy) has made available Australia’s best collection of financial information for retail nurseries.
Now, you the operator can see where your business is stronger or weaker than your competitors.
In recent months as we disseminated these
averages, we’ve already noticed a lot of people
taking a much keener interest in doing some of
this ‘number-crunching’ – they see it as a simple
way to see where they can improve their business. We even know some who have ‘burnt the
midnight oil’ just to work out their gross profit
margin for the first time! They know that they still
have to produce and sell good quality product,
but these numbers help make sure that they are
profitable sales.
Going through the calculations shown in this
Nursery Paper is an important first step in improving your results – the full ‘Benchmarking’ report
(which was sent to all the firms that contributed
raw information as part of this research) has a lot
more detail. All the information is designed to let
you see which parts of the business are not performing up to scratch, and so lets you see how
much work is needed to fix it up.
Further information
Chief Investigator: Ian Brown
The FMRC Benchmarking Team Pty Ltd
PO Box U192, UNE Armidale NSW 2351
Phone: (02) 6772 5199 Fax: (02) 6772 7607
email: [email protected]
This project is funded by the Horticultural Research and Development Corporation and endorsed
by Nursery Industry Association of Australia
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HORTICULTURAL RESEARCH &
DEVELOPMENT CORPORATION
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You can either take a ‘broad brush’ approach and
look at just a few major indicators, or you can go
to a lot of detail. It’s your choice. The numbers
really do tell a story! What are yours telling you?
Page 4 — The Nursery Papers — Issue no 1998/012 — © NIAA 1998