Take a look at an mushroom business profit margin so you can better understand the industry, especially if you are a new mushroom farming or someone interested in getting into commercial mushroom farming
Is growing mushrooms a profitable farming endeavor? Current models of small scale sustainable farming are difficult to make economically viable. It is really a lifestyle choice to decide to farm for a profession. Does a mushroom business profit margin fare better than other crops? Well it depends on a lot of factors. In this article we are going to discuss the major points that influence a mushroom business profit margin.
- Yield, like any farming endeavor, has a huge impact of the success or failure of the operation. The yield potential of a mushroom crop is drastically impacted by two decisions every mushroom farm makes before they even start growing. First, what is the strain of mushroom that is going to be used. Secondly, what kind of substrate are they going to grow the mushrooms on. Strain places determining factors in size of fruiting body, color of fruiting body, overall yield, and shelf life of the mushroom. Strains that have been bred for commercial mushroom cultivation are generally higher quality and give better results than wild strains. In a trial at Fungi Ally, we found that by selecting the proper strain with cordyceps, shiitake on logs, and shiitake on sawdust yields increased by 50-100%. This decision alone can double the income yield and thus the profit margin of a mushroom business. High-nutrient substrates are obviously going to produce a higher yield AS LONG AS contamination does not increase. Deciding on the investment and infrastructure that is available will inform what kind of substrate to grow on. When growing on straw or logs yields are lower but inoculations can happen outside. When growing on supplemented sawdust yields are higher but more infrastructure is needed and more can (and will) go wrong.
- Costs will play a huge factor informing the mushroom business profit margin. Costs are primarily influenced by the method of cultivation that you choose to pursue. Three different methods that will have different costs are:
- Oysters on straw: This is a low cost set up with low cost inputs to grow mushrooms. Labor is more intensive, and the substrate does not create the best yields, but as a small scale (50 lbs) farm doing inoculation, incubation. Fruiting, and sales all in house this can be a viable option
- Buying in ready to fruit blocks. This typically requires more cash flow and sales of fruiting bodies at a higher price point than producing in house. It focuses the businesses attention on fruiting and sales and the entire inoculation and incubation phase can be outsourced. Costs are higher but yield and labor is much lower. If you can sell mushrooms at $12+ per pound this a is a great option (or $10 at quantities of 200+ pounds.
- Producing blocks in house: This method is the most costly for management and set up but produces higher yielding substrate than straw for less money than buying in blocks. It also opens up opportunities beyond fresh mushroom sales with capabilities of selling ready to fruit blocks, spawn, and grow kits.
- Space needed for fruiting will impact mushroom business profit margin. Building and maintaining a grow room doesn’t need to be overly expensive but it is a limiting factor in fruiting mushrooms. The less amount of space and the faster the turnover the higher the margin. Making assumption of how much space mushroom take up is key for estimating profit margin.
- SALE PRICE! Of course the last factor here is how much can you sell the mushrooms for. Depending on the species, quantity, and customer you will be able to set prices at different levels. Are you selling 50 pounds at $16/lb at farmers markets or 100 pounds at $8/lb to a distributor who picks the mushrooms up from you? On average, small-scale specialty mushroom farms are selling wholesale around $8-10/lb and retail $12-16/lb regardless of the species.
SO taking all of these factors into account let’s see how that looks based on one scenario of working with straw and oyster/chestnut mushrooms.
Scenario 1: Growing 150 lbs of oyster mushrooms on straw. We are making 20 lb bags of substrate that produce 3 lbs of mushrooms over 4 weeks (2 flushes) We will need to create 50 bags per week to meet that quota and add 5-10 more for wiggle room. So in total we are producing 60 bags per week. The cost for 60 bags will be
Substrate: 1200 lbs of substrate @ 55% moisture content = 540 pounds of dry straw divided by 40 lbs per bale = 13.5 bales of straw X $6/bale= Cost for substrate is $81.
Spawn: using a 6 lb bag of spawn which costs $15 to inoculate 5 bags, we will need 12 bags of spawn a week. Cost for spawn is $180.
Miscellaneous: The bags, zip ties, other misc materials will cost $.25 per bag for a total of $15.
Total material costs: $276
A shelf unit that is 2x3x8 can hold 15 bags total. There will be 4 weeks of 60 bags in the grow room at once so 240 bags at least need to fit in the grow room.The grow room needs to have space for 16 shelves and aisles, so should be at least 200 square feet with 9 ft ceilings.
All of the mushrooms are sold at $11/lb in a CSA so the income is 11*150= $1650 per week. This will need to cover labor, business expenses, taxes, and delivery. Lets say these add up to 40% of the income. So a weekly margin at this scale would look like Income – material expenses – labor = margin.
$1650-276-660= $714 or a profit margin of $4.76/pound of mushrooms.
If you are interested in learning about the breakdown of the other scenarios consider joining our online commercial mushroom cultivation course. If you would like to work with us in a consultation role we are happy to help co-develop a project that meets your goals and vision.