Set-up Costs
What Kind of Set-up Costs Can I Expect?
While start up costs vary by product, there are a few general approaches you can use to determine the costs specific to your enterprise. All costs, one-time and ongoing, should be considered. One-time costs may include equipment, licenses, or signs while ongoing costs may include utilities, hourly or seasonal labor, and insurance. More information about set-up costs can be found on the US Small Business Administration website
Understanding the difference between variable and fixed costs when estimating total production costs can also give you a better idea of how your costs will behave with respect to time and rate of production. Variable costs vary with different levels of output such as labor, packaging, and transportation of goods. Conversely, fixed costs remain the same regardless of the level of output such as taxes, salaried labor, and insurance.
Once you have calculated your anticipated total costs and anticipated yield you can then complete a breakeven analysis. Your breakeven price is the price per unit needed in order to pay all your costs of production and can be found by dividing your anticipated total costs by your anticipated yield.
Breakeven price = anticipated total costs / anticipated yield
Enterprise budgets [link section 2 on enterprise budgets] are particularly helpful in identifying both production costs and break-even production costs. Two such budget enterprises can also be found on the Maryland Cooperative Extension website.
| GINSENG ENTERPRISE BUDGET (wild-simulated) |
|---|
| Plot size 0.5 acre |
| Production time frame 9 years |
| INCOME |
|---|
| Price per pound | $260 | |
| root yield (lb) | | gross income |
| 50 | | $13,000.00 |
| 75 | | $19,500.00 |
| 100 | | $26,000.00 |
| COSTS | UNIT | AMOUNT | PRICE ($) | TOTAL COST ($) |
|---|
| Ginseng seed | lb | 10 | $80.00 | $800.00 |
| Planting labor | hr | 160 | $6.00 | $960.00 |
| Inspection/troubleshooting labor | hr | 500 | $6.00 | $3,000.00 |
| Harvest labor | hr | 270 | $6.00 | $1,620.00 |
| Drying labor | hr | 16 | $6.00 | $96.00 |
| Gypsum 50 | lbs | 16 | $4.00 | $64.00 |
| Rock phosphate 50 | lbs | 16 | $8.00 | $128.00 |
| Fungicide, rodenticide | | 1 | $75.00 | $75.00 |
| Backpack sprayer | sprayer | 1 | $125.00 | $125.00 |
| Hauling labor (150 mi. each way; 2 trips) | hr | 16 | $6.00 | $96.00 |
| Energy ($0.50/lb) | | | $37.50 | $37.50 |
| Insulation, drying racks | | | $400.00 | $400.00 |
| Miscellaneous (tools, chlorine bleach, heat, phone, etc.) | | 1 | $100.00 | $100.00 |
| Interest on costs | $ | 7501.5 | 5% | $375.08 |
| Total costs | $7,876.58 |
| Net income over costs | |
|---|
| | root yield (lb) | $ |
| | 50 | | 5,123.43 |
| | 75 | | 11,623.43 |
| | 100 | | 18,123.43 |
| Budget developed by Andy Hankins, Virginia Experiment Station, 1999. |
| Income derived from growing 0.5 acre of wild-simulated ginseng depends on yield and future price. |
| SHIITAKE MUSHROOM ENTERPRISE BUDGET |
|---|
| 1000-log operation |
| INCOME | year 1 | year 2 | year 3 | year 4 |
|---|
| Number of logs | 1,000 | 1,000 | 1,000 | 800 |
| (1) lbs mushrooms produced | 100 | 2,200 | 1500 | 600 |
| lbs sold (fresh) 20% cull rate | 80 | 1,760 | 1500 | 480 |
| Price per pound | $3.50 | $3.50 | $3.50 | $3.50 |
| Total revenue | $280.00 | $6,160.00 | $5,250.00 | $1,680.00 |
| ESTABLISHMENT COSTS | UNIT | QUANTITY | PRICE/UNIT | TOTAL COST |
|---|
| (2) 5" X 48" green oak logs | log | 1000 | $0.75 | $750.00 |
| Mushroom spawn | gal | 25 | 16 | $400.00 |
| Polyfoam plugs | box | 3 | 12 | $36.00 |
| High speed drill | drill | 1 | 250 | $250.00 |
| Drill bits | bit | 10 | 6 | $60.00 |
| Water tank | tank | 1 | 100 | $100.00 |
| Used refrigerators | unit | 2 | 100 | $200.00 |
| Misc. (sprinklers/hose) | | 1 | 100 | $100.00 |
| Labor-drill, plant, cut plugs, plug, rack | hr | 70 | 6 | $420.00 |
| Labor-inspect & water | hr | 15 | 6 | $90.00 |
| (3) Total establishment costs | | | | $2,406.00 |
| FIXED COSTS | year 1 | year 2 | year 3 | year 4 |
|---|
| Hauling, $0.44/mi., 200 mi.-yr. 1; 3,000 mi ea., yrs. 2-4 | $88.00 | $1,320.00 | $1,320.00 | $1,320.00 |
| Boxes ($0.50/3 lb mushrooms) | $13.00 | $293.00 | $200.00 | $80.00 |
| Utilities ($0.07/Kwh) | $25.00 | $200.00 | $200.00 | $200.00 |
| Labor ($6/hr) | | | | |
| Soak/rack-yr 1: once x 1 min/log | $100.00 | | | |
| Yrs 2-4: 4 times/yr x 1 min/log | | $400.00 | $400.00 | $320.00 |
| Harvest (17.5 lbs/hr) | $27.00 | $603.00 | $411.00 | $165.00 |
| Hauling (wage x distance/40 mph) | $30.00 | $450.00 | $450.00 | $450.00 |
| (4) Total fixed costs | $283.00 | $3,266.00 | $2,981.00 | $2,535.00 |
| Establishment costs | $2,406.00 | | | |
| Total costs | $2,689.00 | $3,266.00 | $2,981.00 | $2,535.00 |
| (5) Net revenue over total costs | ($2,409.00) | $2,894.00 | $2,269.00 | ($855.00) |
| (6) Break-even price @ this yield | $2.61 | | | |
| (7) Break-even yield @ Price per lb. | 3,277.43 | | | |
| (8) Total labor costs | $4,316.00 | | | |
| Total labor hours | 719.33 | | | |
| Prepared by Dale Johnson, Univ. of Maryland & Andy Hankins, VA State Univ. |
Additional Resources
Other universities and governmental organizations such as Penn State and the USDA also provide helpful budgeting information:
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