Hydroponics and Profitability
Are You Making... or Losing Money?
Profit is a term used in business to denote the money left over after all expenses have been accounted for. It is, essentially, the measure of value provided by that business activity. The problem is that many of us fail to calculate profit correctly. There are various ways to calculate profit, some of which are more accurate than others.
Many people simply take the cost of the product to buy and deduct that figure from the selling cost which hopefully is a positive number, and assume that they are making money, but many times this is not the case.
A more accurate way to calculate profit is to use what is known as 'operating profit'. In this calculation we attempt to account for as many business expenses as possible in order to achieve a highly accurate picture of our businesses achievements. It is at this point that many people come to the stark realization, most likely one that they know all along, that they are not actually making money at all.
What is the most profitable hydroponic crop to grow?
In order to make money - a business needs to provide a product or service that is worth more to the buyer than the amount of money asked in exchange. As we are operating in a free market, the joint forces of supply and demand come into play. This can be clearly seen in the traditional agricultural markets where crops have become commoditized and are sold by the seller with the lowest prices. In order to remain profitable the seller must sell volumes large enough to offset the near elimination of margin.
One way to avoid selling products that have become commoditized is through innovation, this allows the company to offer a unique product that cannot be readily obtained elsewhere.
On the flip side of this, artificial pressures from regulators and law makers can massively skew the supply and demand equilibrium causing prices of crops to surge if they are artificially made scarce through regulation.
So in order to find the most profitable crops to grow hydroponically one should either attempt to create an innovative product, in the case of growing plants this might involve creating unique genetics or simple marketing hype. Or, for the less feint hearted, a crop that has been artificially made scarce through laws or regulations, but beware... there could be severe consequences if discovered by the authorities.
Major threats to your profit...
Once you've selected a profitable crop plant to grow, built your ultimate grow room and perfected your hydroponic system set up you might think that's the hard work over. But experience would suggest that this is far from the case. There is much ongoing work to do to keep your crops, your grow room and your profits safe.
One of the major threats to the hydroponic horticulturist are pests that can and do devastate indoor gardens. An infestation of spider mites, thrips or fungus gnats can wreak havoc on your plants and your pocket so it's an absolute must that your garden is kept sealed and spotless clean at all times. A constant look out must be kept by implementing a strict regime of inspecting the upper and undersides of the leaves on a regular basis, especially during the warm summer months. Any indication of an infestation should warrant immediate remedial action.
An even more serious threat is from a different kind of pest, and that's the human kind. When it comes to your prized indoor garden it’s understandably tempting to want to tell the world about it. But the issue is that people can and do become extremely jealous of other peoples success and that can lead to extreme actions, even culmination in the theft and wanton destruction of your grow room, so it’s vitally important that physical security is considered at all stages when planning your hydroponic set up and that begins with keeping your operations location a secret from others.
Supply and Demand
We touched on supply and demand earlier but as it’s key to selecting a profitable crop to grow in your hydroponic garden let’s dive into a little greater depth on this subject. Supply is the volume of a good of service to come to market, it may be relatively high or low as compared to previous values. Demand is the volume of that particular good or service that the market as a whole requires in order to be satisfied.
The relationship between supply and demand is graphically represented by the supply and demand curve, it is a proportional relationship where as demand increases for a fixed supply, price increases to offset that demand. In contrast, if demand were to fall, relative to a fixed point in the past, prices would fall in order to ensure continued consumption at the market level.
What does this mean in practical terms for the hydroponic grower? In order to maximize the profitability of the hydroponic operation the grower must ensure that the crops being grown are in high demand by the market. This is where a little market research goes a long way. There’s simply no substitute for getting out there and speaking to your prospective customers and asking their opinions, try to get a feel for whether or not they would actually pay for the crops you are thinking of growing. Look at the market for competitors and gauge the amount of success they are achieving. If this is high that is a very good signal that the market is one that is ready to be exploited.
In summary, to ensure your hydroponic garden or small holding is profitable you must:
- Select a crop in high demand
- Select a crop with low competition
- Innovate to produce a product that is resilient to commoditization.
- Ensure that profitability is calculated correctly