Wire Service Profitability
- Thread starter BOSS
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Joe, we are on the same page...the thing I am struggling with, is: Is the $35K worth the headaches it creates, since this is the only part of my biz that seems to be able to manufacture headaches...? (and remember, that $35K is less than 5% of total sales...)
Joe Mioux
Well-Known Member
Hi Susan
I want to say No for the way you phrased the question, but the answer really is Yes.
I want more Gross Sales.
Now, Susan, look at Marks example ( his example pretty much mimics my numbers as they relate to income and expenses associated with WS business)
My outgoing commissions offset my the commissions and WS commissions I have to give up on incoming wire service business.
My Rebates offset my WS member fees.
So the Gross sales on the incoming wire business is actuall dollars, when you add back the outgoing commissions and the rebate revenue.
So if I do $35K, in Gross Incoming WS bus for the year, I actually get that $35K when you do the math on the outgoing commissions retained and rebates received.
This isn't a difficult concept to grasp. The pluses and the minuses for me add up.
Also, I do not have to spend any additional revenue on Marketing, Merchandising or Advertising to get the $35K in additional Gross Sales. It's akin to following the path of least resistance, it is easy money.
From your past comments regarding your business, I don't think a ws membership is correct for your size market. For Mark, I would say yes, but I am not Mark, it is his right to run his business anyway he deems best.
Hope this helps.
Joe
Joe Mioux
Well-Known Member
the $60 labor and the $50 overhead will be incurred with or without these additional orders.
so that is why you can't use fixed costs (as Tom has defined his daily labor) to these types of orders. Yes, some of the revenue will contribute to these costs and that is what you need to look at.
In your example, had Tom not received his extra $500, his net loss would have been $111.00, not $1.00.
Joe
Joe Mioux
Well-Known Member
My guess is that your labor is a fixed expense because you are a big sender so labor is a smallish percentage. But, if you were an average sender and filler, labor is one of the two big expenses you can, and must control.
Maybe designers should be paid per arrangement they make, just like a delivery guy paid per delivery.
If we can do this legally without inducing a mutiny in our shop, this will turn designer's wage into a variable expense, and also discourage the designers from stretching their work hours in a slow day.
Best of all, we wouldn't be having this endless debate of whether labor is fixed or not.
If we can do this legally without inducing a mutiny in our shop, this will turn designer's wage into a variable expense, and also discourage the designers from stretching their work hours in a slow day.
Best of all, we wouldn't be having this endless debate of whether labor is fixed or not.
Some have fixed, some have variable. Mine is variable as all of my employees are "on-call" and outside labor is only used as needed. I do charge for my labor even though I am here all the time anyway. I do this because since I do all the management and accounting and marketing, when I am designing the time has to be accounted for in that way.
LJVF
Well-Known Member
I think the legal part could be a problem. I've been discouraged by a number of sources to not hire independent contractors for delivery on a regular basis, so I'm sure this goes the same for designers as well. The worker's comp factor comes into play.
BOSS; The big problem is that a huge percent of your incoming came at busy times when you had to hire extra staff to fill them. They really cost you. A simple improvement to the bottom line would be to refuse orders for floral holidays when you do NOT NEED THEM. Then your outgoing would far exceed your incoming and you may even have made a net profit for the year.
That's the thing. IRS would almost certainly consider "pay-per-arrangement" designers as employees.
How about paying a low basal wage ($10/hr) plus some kind of "bonus" based on the number of arrangements they made? It sounds legal enough to me.
I see BigtTed's points, but the problem is that it's really difficult to let designers go home early when all the incentives are for them to stay longer. They just work slowly in a slow day, that 's all.
"Pay-per-arrangement" schedule would in theory create an incentive for them to work more efficiently.
<edit> P.S. it would reward a more efficient designer better.
We are celebrating our first full year of wire service independence. It has been a big improvement for our store. Everything we sell is now profitable. Also, we can now order our more of our own containers and create our own designs. We found that we were spending a lot of time and energy on the wire service orders without ever showing a real profit. It was kind of risky, but it has been working for us. We now do a lot of our own marketing and advertising. Good Luck!
Joe Mioux
Well-Known Member
Hey Gold and LJ.
You know, you guys are not far off from a successful manufacturing concept.
I don't know how many factories still pay on a piece-meal basis, but I do know my M-I-L used to work that way (prior to a promotion) for a men's suit factory in STL.
Actually if you think about it, a flower arrangement factory based in certain cities - metropolitan areas isn't such a bad idea.
Yes, the individual artistic signature of a particular store might be lost in the mass production of flower arrangements, but then again the person who wants just a "pretty bouquet of flowers" might not care.
could this be a trend away from the Pro-flower model?
joe
p.s. rzimmer. did I meet you at a meeting in early April in downtown STL at the MAC?
You know, you guys are not far off from a successful manufacturing concept.
I don't know how many factories still pay on a piece-meal basis, but I do know my M-I-L used to work that way (prior to a promotion) for a men's suit factory in STL.
Actually if you think about it, a flower arrangement factory based in certain cities - metropolitan areas isn't such a bad idea.
Yes, the individual artistic signature of a particular store might be lost in the mass production of flower arrangements, but then again the person who wants just a "pretty bouquet of flowers" might not care.
could this be a trend away from the Pro-flower model?
joe
p.s. rzimmer. did I meet you at a meeting in early April in downtown STL at the MAC?
But that's when consumers really need us.
I'm happy to have more holiday business incoming or not.
Calculator
http://blog.philrulloda.com/files/39895-36749/WS_Profit_to_Overhead_Calculator_07.xls
I hope I pasted this link correctly...but has anyone tried out Phil Rulloda's calculator?
It's interesting.
http://blog.philrulloda.com/files/39895-36749/WS_Profit_to_Overhead_Calculator_07.xls
I hope I pasted this link correctly...but has anyone tried out Phil Rulloda's calculator?
It's interesting.
Joe Mioux
Well-Known Member
You did.
but i still have some issues with it.
It's a good calculator.
but if some person doesn't know the difference between their business' fixed and variable costs, this calculator could cause them financial harm.
joe
If they don't know the difference, they're probably already financially harmed.
:>RC in Dayton and Cincinnati
New Member
Joe Mioux
Well-Known Member
If they don't know the difference, they're probably already financially harmed.
The calculator just says Payroll, it doesn't define what type of payroll. Total flower shop payroll, design payroll, office payroll, sales payroll, delivery payroll, etc.
Some florists might choose to use the total payroll as a percent of GS in the formula. For Example if their total payroll is 30% of Gross Sales, then that will have a signinficant impact on the profitablilty of that incoming wire order. I doubt many Wire ins would ever show any profitablity using Gross Payroll percentatages.
However, not all that labor is variable to each incoming wire order.
Even if a florist just assessed 10 pct of the design labor to the calculator, is that 10 pct design labor truly variable or is it fixed. I don't know any flower shop that compensates its designers using a time clock. They don't punch in to make an arrangement and then punch back out when done. If the deisnger was paid by the piece then yes, that designer's labor could be plugged into the calculator.
Now, say there is a shop that receives alot of incoming wire business, and then that owner hires a designer to only fill incoming wires orders for 8 hours per day six days per week. Then yes that design labor would be 100 pct variable.
Hope this explaination helps.
Joe
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