Crunching the Wire service numbers

[Dan5602896]

I have crunched my numbers regarding Teleflora and FTD. The following is a comparison of 2007 with 2008, January through November. I specifically separate out my wire service money as if it is it's own business. Also, I believe we are all in the same boat, thus, I do not believe in being secretive about my numbers.


I like to check to see just what I have to work with per order received after all expenses related to processing costs and advertising. I include for processing membership, fees related to use of the network, quality fees, senders cut, etc. I do not include any advertising or purchase of supplies (containers, mailers).
On the income side I included the total incoming dollars plus my commission on outgoing plus rebates.


Interestingly enough, both FTD and Teleflora after cost for processing and advertising gave very similar working dollar amounts for 2008, with a 5% benefit in 2007 for Teleflora.


FTD: $32.19/order (08) 484 orders in, $33.34/order (07) 527 orders in
Tele: $32.48/order (08) 335 orders in, $35.03/order (07) 399 orders in


These are the dollar amounts retail I had on average to work with. These amounts would be equivalent to a person walking in and purchasing an item for $32 to $35 dollars.


The cost of being with FTD and Teleflora as a percent of the gross income is:
FTD 38% (08), 34% (07)
Tele 38% (08), 31% (07)


This is the percentage of every dollar coming my way excluding the 80% for items sent that has to be expensed for every order I receive and for every commission I earn.


The increase of percentage for FTD is via processing cost increases of 3.8% and advertising of 13%.
The increase of percentage for Teleflora is via processing cost increase of 23.9% and a decrease of advertising by 3.3%. I do know that we did not participate in the Thanksgiving program.


The gross dollar amount averages as follows:
FTD $51.92/order (08), $50.52 (07)
Tele $52.39 (08), $50.77 (07)
Thus, the customer is paying more but leaving the one who will actually produce the item less.


The dollar amount per order without advertising is:
FTD $37.79/order (08), $37.88/order (07)
Tele $42.18/order (08), $43.44/order (07)


Thus Teleflora spent on advertising 23%/order this year and 19.4% last year. I guess they are trying to promote their brand, but it has left me with 7.3% less per order with 16% fewer orders.


FTD spent 14.8%/order this year and 12%/order last year. FTD is not promoting as much as Teleflora, but I have 3.4% less per order with 8.2% fewer orders.


So, first off, it is very expensive to be with these two services. I can run my shop on a factor of 0.4. This is the number used to calculate the minimum retail price. Interestingly enough, this is only 2 points more than it costs to be in FTD or Teleflora as of this year.

Now, here is where it gets bad. For me to cover my expenses of just having the shop in place and functioning so that FTD and Teleflora can use me, I have the following wholesale values on average to work with:
FTD $12.88/order (08), $13.34/order (07)
Tele $12.99/order (08), $14.01/order (07)


In my shop, had that orders come directly to us, my working wholesale values would be:
FTD $20.77 (08), $20.21 (07)
Tele $20.96 (08), $20.31 (07)
In both cases, the customer having spent more this year would have actually gotten more not less.


Some would say that running both is costing money. Not necessarily, especially now that both are running equal as to the cost of doing business with them. Not including sales made of their product could be considered a fault in the numbers in that there is good will benefit of customers coming to my shop do to the brands. However, if neither existed, I would still be selling something to the customer and probably at a lower wholesale cost to me as to the containers. At the same time, for all their orders received for their specials, I'm still paying the cost of doing business with them on top of my cost specific to my shop.
So, what are you thinking?

 

[NPFloral]

You seem like a number cruncher kinda person so... I'd like to see your average profit/loss on each order after including the w/s fees (membership, dove, merc, per-prder charge, low sending fees etc)

Thanks for your insight!
Tim - North Port Floral

 

[Joe Mioux]

I like your analysis.



Is your 38 pct WS cost a pct of GS (both WS and Local) or is it a pct of your Gross Wire Service Sales? If it is the latter that is exactly what mine is.

I am just going to use 40 pct as an example below. Every shops' numbers will be different.

Considering a COGS and variable delivery costs of say 40 pct, that still leaves a Contribution Margin pct of 22pct.

That 22 pct revenue contributes to paying fixed expenses, such as phone, electricity, NG gas/heating oil, property taxes, etc.

Also, since you are averaging a little over one order per day in Wire business, I wouldn't suspect your labor would change if you eliminated the WS business.

Also, these incoming orders might be lost to your competitors if yoru competition is WS affiliated. Before you receive any out of town orders, the orders exist as a Wire order, the customer's choice had already been made without the benefit of them knowing that you service the market you service.

In other words, a florist can't assume that if they drop a WS, that they will receive that order as a direct order. Your competitor will get that order if they are WS affiliated.

joe

 

[Dan5602896]

First off, I'm here at the computer because my sweety needs me to leave her alone so that she can get all she needs done for our gathering tonight.

The only way not to have a loss on a wirein is to deduct the percentage of thier costs and then adjust the remainder to my shop cost factor to get what I have in dollar value to put into the item ordered.

My factor of 0.4 excludes the costs of the flowers and container. So, my staff only has to total the actual flowers used and the container to meet my operating margin. The filler, ribbon, picks, etc are included in the 0.4 number along with all the other operating costs. In my shop, regardless of what you want to spend, we can sell you something.

Example:
$40 order in, including delivery. I have a $5 delivery charge.

$40 - $5 = $35 - (35 x .38 wire service) = $21.70 x .4(shop costs) = $8.68 wholesale costs.

This $40 order would have to have only $8.68 wholesale worth of flowers and container to meet my margin of profit.

Had that same order come in by a direct sender it would look like this:
$40 - 20% = $32 - $5(del) = $27 x .4 = $10.80 for flowers and container. This is a 24.4% increase in flowers for the consumer.

Lastly directly to me:
$40 - $5 = $35 x .4 = $14 for flowers and container.

The issue of wire services is that they are increasing the costs to the customer without adding much if anything to the purchase. Thus, they are part (a big part I would argue) of what is lowering the consumer's preception of value in purchasing flowers. If in concert we went to services that did not take a cut, our industry would increase the value to the customer 24%. If we did this, we could lower the commision margin some and increase it further. Basically, the commision currently is used to cover our cost of doing business with FTD and Teleflora. It was a mistake for shops to think they were making out with a 20% commision. It's an illusion of making money, unless you are only sending orders.

In the past, for every order received, there was an offsetting commision received by a shop. That balance goes out the window when an entity only sends. Their commision is money removed from the pile that covered the filling florist's costs and thus reduce the amount of money that the florist has to put toward filling the order. So, to answer the question of another thread here, there are no "good" OG's. It is possible to imagine that if FTD and Teleflora were the only order gatherers, the commisions earned could be used to offset their operating cost, thus lower the costs to the shops. They both messed up by allowing non-receiving shops. They may have increased increased the volume of orders through the system some, but have actually allowed the removal of money from the flower business.

So instead of every dollar a consumer spends on flowers staying within the industry, a percentage is taken before it enters the industry. It is a very poor model of operation. It is nothing more than an economic model of middleman, but that gets into another discussion. So...

I work to not leave my profit and loss to chance. I work by the numbers which assures my set profit margin. Now, as to what I have at the end of the year, well that depends on how many unexpecteds come up. Example: new boilers for greenhouse, massive collapse in the market such that total sales just can't cover my total costs, etc.

 

[sweetpeas]

Dropped wire service after three months what a night mare . Do not miss it, I use Flower shop network relay fee for sending is $3.99 or I can call the florist direct no relay fee. Website is fabulous customers, love it and I can spend my time updating my site rather than on the phone trying to untangle the web of the wire service over charges etc. Sounds like it would be worth a try.

 

[Dan5602896]

Joe Mioux: “Is your 38 pct WS cost a pct of GS (both WS and Local) or is it a pct of your Gross Wire Service Sales?”


As I noted, I account my wire service business as a separate entity. Thus, the 38% is the cost of doing business with FTD and Teleflora based only on the incoming and outgoing. It does not include my local business. The share of my costs in filling an order is accounted for using my shop number AFTER I subtract the cost of the service.


As to dropping the wire service, by calculating their costs based solely on the revenue generated by them makes it easy to see if they are worth keeping or not. In Quick Books I set up a separate bank account and all wire service business is put through that account. So in essence, I have set up a business structure of Wire Service Ind, a wholly owned subsidy of Flower's Inc.


It is the only way for us to actually see what is happening with wire services. For my business, the question is not about loosing the order from a wire service, it is now about earning enough from Wire Service Ind. to make that subsidy of my business worth the trouble. It is getting to the point that it is not.

 

[RC in Dayton and Cincinnati]

Dan,

All your numbers make my head spin but taking your last post as it stands, a couple of comments.

One, in your example why do you discount delivery for the florist sending you an order directly but not if the order comes through a wire service?

Example:
$40 order in, including delivery. I have a $5 delivery charge.

$40 - $5 = $35 - (35 x .38 wire service) = $21.70 x .4(shop costs) = $8.68 wholesale costs.

This $40 order would have to have only $8.68 wholesale worth of flowers and container to meet my margin of profit.

Had that same order come in by a direct sender it would look like this:
$40 - 20% = $32 - $5(del) = $27 x .4 = $10.80 for flowers and container. This is a 24.4% increase in flowers for the consumer.


If you treat your wire order the same as a florist direct it should look like this, not?

$40 - (40 x .38 wire service) = $24.80 - $5(del) = $19.80 x .4 = $7.92 wholesale costs, not $8.68 as you stated.

Second, are you suggesting you first figure how much money you really have to work with before filling the order? If so, you are breaking wire service rules of filling to full value. If I send you a $40 order, I should expect it will be filled just as if you were filling it for your own customer, not discounted.

 

[Joe Mioux]

As to dropping the wire service, by calculating their costs based solely on the revenue generated by them makes it easy to see if they are worth keeping or not. In Quick Books I set up a separate bank account and all wire service business is put through that account. So in essence, I have set up a business structure of Wire Service Ind, a wholly owned subsidy of Flower's Inc.


It is the only way for us to actually see what is happening with wire services. For my business, the question is not about loosing the order from a wire service, it is now about earning enough from Wire Service Ind. to make that subsidy of my business worth the trouble. It is getting to the point that it is not.

Exactly. This is the way more shop owners should evaluate their WS business. You built a separate business within QB's, I look at it as a Department.

 

[Dan5602896]

RC,


Yes, you would be correct, which is why I posted my numbers. Better to refine this.


Filling to full value is relative to the given shop's costs. I can control my costs such that I can consistently price less for a given item priced by the wire service. $60 for roses will get you far more in my shop than say NY city both handling the order as if local. I assure everyone here, FTD and Teleflora have never had a problem with our shop during their tests in now 56 yrs.


To handle the wire in as local, the 38% now comes out of the profit of the overall business.
$40 - $5(del) = $35 x .4 = $14 of flowers. For argument, 10% of that $35 is net profit or $3.50. Unfortunately, 38% of that $40 is $15.20 going to the wire service. You, me and all the other's filling these orders are now short $11.70 for that order. I have to sell 3.3 local orders of $35 carry out to cover that one wire in order. Is this not the problem we shops understand regarding the current business model for wire services even if not to this detail? I can control this issue by not making wire service incoming orders a big part of my business. This is where small shops looking to survive make a mistake thinking incoming wire service will help them.


The reason that one order needs to have 3.3 local orders in my shop to cover it is because the services costs are no longer controlled by one having been owned by the florists. That one only need to cover the cost, not make a profit. Second, is because of send only entities.
The wire services have a problem with this model, they are killing the primary piece of their model. They long ago removed any margin that would cover the ability to make money in down economy.


When we purchased the shop 10 years ago, the wire service costs were only 27%.

 

[RC in Dayton and Cincinnati]

Dan,

You said, "...one order needs to have 3.3 local orders in my shop to cover it..."

Are you saying you are requiring your local customers to subsidize your incoming wire business? If so why?

Also, why be a member of two wire services when your incoming orders double, membership related costs double, but your outgoing wires that are supposed to offset those costs remain the same?

 

[Dan5602896]

RC,


If a shop fills the wire order without accounting for the costs specifically related to receiving that wire order, then the part of the profit of all other orders filled are covering the wire order.


Your 2 questions:
1. Second, are you suggesting you first figure how much money you really have to work with before filling the order? If so, you are breaking wire service rules of filling to full value.
2. Are you saying you are requiring your local customers to subsidize your incoming wire business?
define the catch 22, no? How do you calculate your numbers so that there is not this catch?


I ask this genuinely as I'm not interested in argument. I am interested in finding out where I am wrong. Business is a numbers game. If I make a mistake in calculating the numbers, I will make a profit harming decision.


The shop has been in both for decades. There was value to both's brands. Being in them meant that the shop captured a profit from their good will. The good will was in both the wire service and selling their products. The sale of products would well cover the lost costs of the service even after the loss of the commission aspect to send only entities. Now, they are not. In fact, their products are becoming of crappier quality. Thus, the cause for this original post. Buy my calculations, there is no longer enough money in my Wire Service Ind. for it to be profitable. It maybe that keeping one will return the benefit. That is what I'm considering.


To keep one however, means I can still not take advantage of sending via an entity like FSN. To do so, means the commission is not applied to the cost of incoming FTD or Teleflora.

 

[jamese]

This is an excellent thread, I hope as the holdiay progress, more will read this and realize what is going on for the majority of retail florist that are never quite ready to understand this incoming situation...it has become a thorn in our side.
Several excellent view points going on.

 

[Dorothy]

OGs vs HOGs

In the past, for every order received, there was an offsetting commision received by a shop. That balance goes out the window when an entity only sends. Their commision is money removed from the pile that covered the filling florist's costs and thus reduce the amount of money that the florist has to put toward filling the order. So, to answer the question of another thread here, there are no "good" OG's. It is possible to imagine that if FTD and Teleflora were the only order gatherers, the commisions earned could be used to offset their operating cost, thus lower the costs to the shops. They both messed up by allowing non-receiving shops. They may have increased increased the volume of orders through the system some, but have actually allowed the removal of money from the flower business.

So instead of every dollar a consumer spends on flowers staying within the industry, a percentage is taken before it enters the industry. It is a very poor model of operation. It is nothing more than an economic model of middleman, but that gets into another discussion.

As I said in another thread, "Good marketing is Good Marketing" I don't have a problem with that - your customer can be anywhere in the world. But when it comes down to taking money (expending paid efforts, resources, etc.) from another Real Florist in the guise of "profitable business practises" or the "jump on the bandwagon" mentality, THAT I have a problem with. Florists should be working together, not against. Ignorance is not bliss.

Of course our shop accepts orders thru the Internet going to another town we don't deliver to - same as an in-store customer at the counter or over the phone. But we don't actively 'seek out' those kinds of customers. That's not our purpose for being here.

This Christmas, the main problem I saw with receiving wire-out orders thru the Internet is that our website is hosted through TF and the $ we received for that order in the end (after fees) is way too low for the effort/time we had to put in to ensure its delivery. Better to have our own website in instances like that. We're working on it!

I also know of some shops that receive a wire-in say from TF, then turn around and send it out through FTD. Who knows what how many $ they've taken out of that order before sending it to the filling florist.

Let's get back to ethics and good business practises, instead of banging our heads against the wall trying to figure out how to BEAT the system (ie. WIRES).

 

[goldfish]

Example:
$40 order in, including delivery. I have a $5 delivery charge.

$40 - $5 = $35 - (35 x .38 wire service) = $21.70 x .4(shop costs) = $8.68 wholesale costs.

This $40 order would have to have only $8.68 wholesale worth of flowers and container to meet my margin of profit.

Had that same order come in by a direct sender it would look like this:
$40 - 20% = $32 - $5(del) = $27 x .4 = $10.80 for flowers and container. This is a 24.4% increase in flowers for the consumer.

Lastly directly to me:
$40 - $5 = $35 x .4 = $14 for flowers and container.

In other words, a customer who places a $40 order (including delivery) through WS will get 38% less flowers than she would if she called directly.

That's skimming. I don't think you are allowed to do that.

 

[goldfish]

RC,

I didn't know you are back, Randy. Getting bored, huh?

To handle the wire in as local, the 38% now comes out of the profit of the overall business.
$40 - $5(del) = $35 x .4 = $14 of flowers. For argument, 10% of that $35 is net profit or $3.50. Unfortunately, 38% of that $40 is $15.20 going to the wire service. You, me and all the other's filling these orders are now short $11.70 for that order.

Not necessarily true, here's why.

First of all, the WS overhead number you quoted, 38%, depends on the number of orders. Because many of WS fees are fixed, the more orders you get in/out, the smaller the overhead becomes in terms of percentage.

But let's say your WS overhead is indeed 38% with the volume you have.

Your calculation is as follows...

If a $40 order (including delivery) is local,

$14 -> flowers and containers
$5 -> delivery expense
Gross profit = $40-$19 = $21 (52.5%)
$17.50 -> misc expenses
Net profit = $21-$17.50 = $3.50

If the same orders comes in as wire-in,

$14 -> flowers and containers
$5 -> delivery expense
$15.20 -> WS overhead
Gross profit = $5.80 (14.5%)

I think your point is simply that this $5.80 is less than $17.50 needed to cover "misc expenses."

This issue has been discussed in FC zillion times before. I believe that, under certain conditions, wire-in gross profits don't need to cover the $17.50 "misc expenses" because these expenses are already paid for.

Rent, Utilities, and in most cases, Personnel expenses (salaries and benefits) are fixed in most small shops. In other words, even if you get rid of "unprofitable" wire-ins, these expenses won't go away.

In a very slow day, your designers are at idle. You still pay their salaries because they are fixed.

Now a $40 wire-in order comes in. You know that gross profit of this order is only $5.80, LESS than the amount needed to cover the labor. Reject? Of course not.

Reject or not, you would have to pay these designers anyway.

14.5% margin of $40 wire-in orders is better than 52.5% margin of non-existent local orders.

Now caveat... If the number of wire-in orders is overwhelming (like 30-40% of all the sales), then we can't argue that labors are already "paid for". That's a whole different story.

 

[Dan5602896]

Goldfish,

First, there is no misc expense. My .4 covers all of the cost in my shop and includes a net profit. That is it. For argument, it's a 10% profit. Every dollar amount of the order is simply multiplied by .4 to get the value of flowers and container.

At the same time, why would there be no misc cost to the wire order but only to your local orders? That wire order needs to cover the cost involved with having the shop to be able to service the order. To not include the wire orders as sharing int he expense of the shop is just wrong. Your $5.80 is short of the expense to be able to service the order in the first place. You can not take in enough orders to make up for the expense of having the shop open to start with.

The 38% cost to doing business with wire services is based on actual numbers. Please note the comparison of numbers between years. It shows, that even in the higher volume year of 2007, the costs were still high. There are some fixed costs, but mostly the costs are related to the amount of volume in and out. That is how the services make their money.

 

[bloomz]

But when it comes down to taking money (expending paid efforts, resources, etc.) from another Real Florist in the guise of "profitable business practises" or the "jump on the bandwagon" mentality, THAT I have a problem with. Florists should be working together, not against. Ignorance is not bliss.

Of course our shop accepts orders thru the Internet going to another town we don't deliver to - same as an in-store customer at the counter or over the phone. But we don't actively 'seek out' those kinds of customers. That's not our purpose for being here.

This Christmas, the main problem I saw with receiving wire-out orders thru the Internet is that our website is hosted through TF and the $ we received for that order in the end (after fees) is way too low for the effort/time we had to put in to ensure its delivery. Better to have our own website in instances like that. We're working on it!

Let's get back to ethics and good business practises, instead of banging our heads against the wall trying to figure out how to BEAT the system (ie. WIRES).

There you go again with the ethics accusations.....those are your lines you choose to draw in the sand and opinions vary - everyone seems to have their line. I've never left ethichs behind so there's nothing to "get back to." Just because you don't choose to market yourself nationwide doesn't mean someone else lacks ethics if they do.

If you don't try to figure out how to BEAT THE WIRE SERVICES (I sure do) - they will beat you - is that what you're complaining about?

Correct me if I'm wrong but isn't the pricing on your Teleflora site controlled by you?

In other words, a customer who places a $40 order (including delivery) through WS will get 38% less flowers than she would if she called directly.

That's skimming. I don't think you are allowed to do that.

I'm trying to follow this and I thought I spotted this and I think RC also did as did Goldie.

Point blank question, Dan, so I can follow this:

Are you saying you fill an incoming order to less value than you would the same order with the same gross price that is not an incoming wire order?

I believe that's what is known as two tiered pricing.

Am I reading this right?

 

[RC in Dayton and Cincinnati]

Dan,

You asked, "How do you calculate your numbers so that there is not this catch?"

I believe for nearly all florists membership to the wire services cause more financial harm than good. I know there is some validity in Goldfish and Joe’s argument that an incoming order is an incremental sale that doesn’t need to bare all costs. I don’t believe that’s a smart strategy.

Furthermore, talking about calculating numbers, I believe wire ins and wire outs should be analyzed separately because in reality you don’t need wire service membership and all the related costs to send an outgoing order, but you do to receive. Now, if you calculate wire ins without the benefit of outgoings to offset some costs you will find your 38% number approach 50% or more.

As for my shop, wire service membership is very profitable. We are a large florist with a relatively large number of very profitable wire outs, and our wire ins account for far less than one half of one percent of revenue. Unfortunately, that is not a possible situation for most in the industry.

RC

 

[Dan5602896]

Bloomz,
No. But, that does not mean that I do not understand the cost of not doing such. That is what I'm posting.

At the same time, if the issue is filling to value, then the value is based on my costs and the wire service is part of my cost that must be accounted for. Of course there is the "you signed the contract" argument isn't there. : )

RC, assessing ins and outs separately within the same service I beleive is an error of accounting. Both work to make or lose me money. If the ins and outs were via two separate services, then I think you would be correct. Also, as noted, my wire business is accounted as a separate line of business. And, my numbers presented do not account for the sales related to the brand such as the Kinkade stuff for Xmas. That was $3200 in sales I might not have had.

My wire business is 10%, give or take a point or 2 of my total business in any given year. I will not be hurt losing it other than the traffic of selling their products.

Your wire in being less than 0.5% is what I noted was what makes the system profitable. Unfortunately it is only profitable on an individual shop basis, not industry wide basis. It is the order gatherer, middle man approach. Not every shop can do this, the system is not gamed that way. The system is gamed for shops to not understand what is happening when they receiving an order. IOW, if all shop owners were the ideal model of the "rational consumer" as discribed in economic models, all shop owners who are not balanced toward the wire out setup of the business would dump the services at which point the model fails.

The alternate view, is that it is impossible for there to be more orders out for all shops such that they make money under this business model. Nor is it possible for all shops to reject enough orders such that they stay neutral to the plus side of wire out/in ratio. On an individual basis, that could be done (except for the new FTD rules). But on a mass basis both situations lead to a failure to be able to get an order out. With such a situation, that means to me the model overall is self distructive.

 

[CHR]

Um.. quick question?

If the prices on a site include delivery but the site charges an additional service (relay) charge of $10 or so since they primarily focus on wire outs, when they fill locally, they have another $7-$10 to make a locally-delivered arrangement more full - but the distant filling florists don't have that same cushion, since they never get the $10 service charge AND also have to give up a $27% commission.

Is that two-tiered pricing?

The problem I see with many, many real local florists sending flowers out-of-town is that they expect other shops to make & deliver for less than they do (even after subtracting the usual WS commissons.)