WS membership as an "investment"
Here's how I look at it. Being a WS member means that I am investing ~$4,000 a year in a particular way of making sales.
If I am getting exactly $4,000 back, I am just at break-even. In that case, all I have done was to give a profit to WS, with no benefit to my bottom line.
My objective, therefore, is to get at least ~50% return ($6,000). In that case, $4,000 goes to WS; $2,000 goes to my bottom line. Anything less than that is really not worth in my book.
Investment objectives: short-term vs long-term
Ordinarily, a $4,000 business investment, even without any immediate return, is not always a bad investment. If you are "planting a seed" for the future, that's a good
long-term investment.
In the case for $4,000 investment in WS membership, however, it must produce an
immediate return, or its worth is practically zero.
Why? Because it does absolutely nothing to brand my business; so there is no "planting a seed for the future" factor here. None.
How do you calculate ROI (return on investment)?
Let's simply say this upfront.
It's hard to know how much we are getting back from this WS investment. We could have a field day debating on profitability of WS operation, and in fact we have, gazillion times here in FC.
What is not in dispute (well, to most people anyway) is that,
a) if your labor cost is fixed and
b) if the number of incoming orders is not overwhelming,
there is a small contribution margin to be made in incoming orders.
That margin is usually in the range of 25-30%, as opposed to 60-65% for local orders.
What does it mean? It means that, since I am investing $4,000 a year, to just break even, I should get approximately $13,000-16,000 incoming orders a year ($1,000-1,300 a month).
Recall here that, if I am merely at break even, I got nothing in return. To get a 50% return (my goal), I need $20-24K wire-ins a year (~$2,000 a month). Anything less than that is really not worth IMO, considering all the headaches my employees and I suffer from filling WS orders.
Also note that this "calculation" doesn't consider our labor cost. This is a reasonable assumption for us, because our shop has an excess production capacity (i.e., workers at idle). Most florists do.
Issues on WS-dependency
Finally, if your shop is dependent on incoming orders (>40% sales), you are playing a whole different game.
As an investment, you are putting a large portion of your money in a single basket, the basket which you ultimately has no control over. It's a risky position to take.
When I took over the operation of our shop, that was exactly the situation we were in. About 50% of our sales were wire-ins; now it's less than 20%.
If you would like to get out of WS dependency, here's a couple of things that we've done.
First, analyze each WS separately if you have multiple WS's. Consider dropping a WS that's not performing well (break-even or less). If you say you are dropping, they will always try to keep you by reducing monthly fees. Re-calculate if that makes your operation profitable. Usually not.
Second, if you have only a small number of outgoing orders, consider consolidating all of them into a single WS channel. This way, you won't get slapped by "reciprocity fee" and "low-sending fee" by at least one WS.
Third, if you are listed in multiple cities (ASB, "Also served by"), analyze the return on investment for each city you are listed. If the listing fee is $8 a month (I'm not certain of this), you would need at least ~$40
additional sale per month for that city to justify ASB. "Additional" is a keyword here. If my hunch is correct, you should remove all of ASB. Even if you remove your shop from a particular town, you will still get orders going to that town.
Fourth, if you have any ads listed in Directory, I think you should remove them all. A simple rule here is that, for x-$ amount of WS ad, you need 4-5 times x $ amount of
additional sales to justify it.
Fifth, most important, you should re-invest the money saved by doing #1-4. If you don't, there's no chance that your shop will grow. Where should we invest?
I don't know a general answer to that. In our case, we have invested heavily (and still do) on quality and quantity of flowers we use for arrangements. Wise investment? I don't know. We will see.
You could also consider local campaign. Things like freebies, for example. Organizing a design class for local people. Etc, etc. "Planting a seed for the future" is a key.
There's no guarantee that it will work. But if you don't plant a seed, there will be nothing to harvest in the future.
