When it comes to monitoring the output success of a commercial cultivation facility, data is key. Ensuring your facility is as efficient as possible is a must for any large operation. Inefficiencies in any area of the grow process can result in hits to your overall bottom line and ability to turn a profit. Cultivators used to simply look at factors like total annual yield, but there are additional key performance indicators (KPIs) that can help you point out and determine areas to streamline your grows.
In 2022, the difference between a good company and a great company is the ability to leverage the proper data for use in important cultivation decisions.
1. Grams of THC per square Foot
There are several ways to measure the efficiency of a commercial cultivation facility. Some cultivators use the formula for yield (grams) per square foot. The problem with this metric is that it does not allow the operator to understand if the product will be saleable. In most markets, high THC is directly correlated to saleability. Therefore, the more powerful metric is grams of THC per sqft. THC is measured as a percentage meaning your calculation should look like this.
(total yield in grams * % of THC) / (total sqft. of cultivation of sample cultivar) = grams of THC per sqft.
For example, this is what the calculation would look like if the grow room that you harvested in is 2000 sqft. and the yield is 125,000 grams tested at 25% THC.
(125,000 / 2,000) * 25% = 15.63 grams THC per sq. ft.
This specific reporting metric allows cultivators to compare different yields based on their individual productivity. With that said, it’s important to designate standardized metrics to plug into the calculation for accurate results. You first need to decide how to measure the overall square footage of cultivation. We recommend looking at the total canopy, or the area in which plants are present. On the other hand, all product should be weighed uniformly to find the total yield in grams. It is most common to use dry and untrimmed flower to find the full weight of the usable product.
Click here to learn more about measuring overall yield.
2. ENERGY COSTS
Energy use is an essential component and top of mind for all commercial indoor cultivators. Depending on the location of the facility, electricity and energy can be heavily regulated and extremely expensive. We recommend auditing the overall energy footprint of your facility to find ways to better manage resources and cut costs. You can find the total energy usage on your utility bill. Your engineers can then calculate kWh by electrical panel (and subpanel for more granularity) which will give you insight into which parts of the facility are drawing more power.
The truth about LEDs is that they will cut your overall power consumption, but by a little less than you may think. For example, a 600W LED will replace a 1000W HPS, but not by a ratio of 1:1. In this case you would need 25% more LEDs as every 600W* 12.25 LEDs = 1, 1000W HPS fixture. With this calculation, replacing a 1000W HPS fixture with 750W of LEDs would lead to a 25% savings in power. If you happen to be retrofitting your facility rather than just saving power, you can use that power to build out an additional 25% of cultivation (space permitting).
In some cases, LED rebates may help you recover some of the costs of installing efficient lights. Not only does proper lighting cut costs, but it also drives respiration and serves as a catalyst for plant growth. Click here to see how RMJ can help you increase cultivation efficiency and crop yields with innovative commercial grow lighting solutions. An up-to-date and efficient HVAC system is another way to lower energy costs related to cultivation.
3. Labor costs
Properly tracking labor costs is essential to determining the actual costs of producing different strains and products. Labor costs also happen to be an important element when it comes to tax planning for cultivators. For example, certain labor costs tied to production are part of Cost of Goods Sold (COGS), which may reduce your taxable income.
You can calculate labor cost per product by adding up all direct and indirect labor costs and then dividing that number by the overall harvest yield. For more granularity, the calculations can be segmented out by product or strain to evaluate the ones requiring more labor and resources than others.
Since it’s impossible for your staff to be physically present and keep an eye on your growing facility 24/7, automation and controllers are of utmost importance and are the best way to reduce labor inputs. Not only do they maintain proper conditions, greenhouse automation systems continuously monitor your space and inform you of threats such as temperature fluctuations, low carbon dioxide, frozen irrigation lines, and more. With the right automation and controllers, you can significantly save on labor inputs while mitigating the risk of user error.
4. CAPEX Spend amortized against revenue projections & ROI
Capital expenditure (CAPEX) is an investment made into a business that’s typically steered towards the goal of rolling a new product line or expanding existing operations. In cultivation, these business investments can take the form of lighting, automation equipment, benching systems, fertigation systems, software, HVAC, and more.
The money you spend on CAPEX is not initially reported on an income statement. Instead, it is treated like an asset on a balance sheet that is deducted over the years as a depreciation expense. In other words, CAPEX refers to the money spent on tangible assets that will be in use for longer than a year.
Once you calculate CAPEX spend, the next step is to amortize against annual revenue projections. Amortization refers to capitalizing the value of intangible assets over time. At its core, Amortization reflects the fact that intangible assets have a value that must be monitored and adjusted over time. Click here to learn more about amortization and how to work it into your balance sheet.
A major factor in the overall justification of whether to make an investment is Return on Investment (ROI). ROI is a measure of how quickly you will recoup the money that you’ve invested. The formula is as follows: (ROI = Net Return on Investment/Cost of Investment) x 100%). You can also calculate ROI with the formula: ROI + (FVI-IVI/cost of investment) x 100%. In this case, FVI represents the final value of investment while the IVI represents the initial value of investment.
Let’s take the example of an investment in an irrigation system which costs $15,000, cuts labor by 2000 hours/year, and lets assume labor costs $15/hr. The payback period is then 6 months and $30,000/$15,000 *100% = 200% ROI annualized. Another way to think about this is, 2000 hours per year is now being spent on value creating activities such as scouting, pruning and taking measurements which leads to better yielding crop turns.
Are you meeting your PERFORMANCE OBJECTIVES?
When it comes to cultivation in a highly regulated and taxed environment, the ability to maximize efficiency is key to turning a profit. In a commercial grow setting, all inputs are interconnected from fertigation to lighting. That means improper equipment systems in just one area of cultivation can lead to poor yields across the board. Setting and actively monitoring specific benchmarks can help you pinpoint problem areas and improve overall grow efficiency.
At RMJ, we combine proprietary technology, unparalleled industry expertise, and established integration management best practices to evaluate sourcing alternatives, integrate engineered systems, and mitigate project risks. Our comprehensive approach enables operators to save time, optimize assets, accelerate speed to market, and meet designated KPIs.