wire services

[RC in Dayton and Cincinnati]

Now this is where I get so confused with WS...If they get membership from all and 7% on all received orders, why is it that they reward the sending shops?​

Why would a wire service pay $7-$10 in rebates and incentives to large senders? Because that is the only way wire services are able to sign up new members and start charging membership fees and all the other fees associated with being a member (That's where the money is).

Here is where the big problem is. Florists are seeing their local business erode away, erode away by competition from the wire services and all the OGs.

So what do they do? They start seeking more incoming wire orders to fill their increasing excess capacity. In doing this they are financing the marketing programs of the very companies that are creating the ever increasing excess capacity. The more local orders that are lost, the more incoming wire orders are needed. A vicious cycle, where ultimately the local florists pay for their own demise.


RC

 

[RC in Dayton and Cincinnati]

Look at it this way.

Through your memberships and other fees to the wire services, you are giving your biggest competitors $7-$10 marketing money for every single order they send.


...and you wonder why you are losing ground??????




RC

 

[RC in Dayton and Cincinnati]

For the last two years, local sales have been increasing with the rate of 20-30%; the wire-ins sales have been decreasing. In the first year of operation, 50% of our sales was wire-ins (we lost tons of money as the result). Right now (2nd yr), it's about 25%. Next year, I hope it's going to be 10-15%. Once it becomes less than 10%, I will probably get rid of it.

I was posting away and missed your reply.

I'm glad your a man with a plan, but you recently purchased a florist with big problems, and you are correcting them. That's great!

I'm suggesting many many more florists are headed in the opposite direction than you. Their local sales are dropping, and they are trying to subsidize the ever increasing excess capacity with even more incoming wire orders.


Not good!



RC

 

[goldfish]

I just saw this one after I posted a reply to your prev post..:boggles:

as a follow up, I think it's dangerous to look at percentages when certain segments of the business are required to pay for fixed expenses, while other segments are not.

Right. And anyone who is doing this must know what s/he is doing, because as you said, it can be quite misleading.

With that said, here is a central issue that any WS member must address; would be it financially better-off or worse-off if they got rid of their WS membership? That's the question.

To answer that in terms of $$$ (I mean, not in terms of philosophy), we necessarily need to do some arbitrary accounting. I said "arbitrary" because the expenditures associated with local sales and WS sales are in reality mingled and cannot be truly separated.

By arbitrarily allocating a fixed expense (labor cost) to local sales but not to WS sales, we are indeed making an assumption that the labor cost would remain the same even if we eliminated the WS sales entirely.

While this assumption is not entirely valid, I believe it's a reasonable approximation, as long as our shop has only one designer whose hours cannot be significantly reduced even if we became WS-free.

Using an exaggerated example to make my point, suppose local business is expected to cover fixed expenses fully, while incoming wire orders (incremental sales) are only expected to contribute minimally. If you had 11 orders for the day, 10 were $50 incoming wire orders and one was a local order for a dozen roses, how much would you have to charge for that dozen roses, and with what margin?

OK, if you want to be profitable, I'd say... $1,000 (10,000% margin)? Something like that.

Seriously, I would charge the same amount (our price is $55 here), no matter how many incoming orders I am or am not receiving. Obviously, I would be losing a whole lot of money as the result.

The reality of many micro florists is that, in your example, it's a choice between (1) 10 x $50 wire-ins plus just one local order and (2) just one local order and nothing else. Since these shops can handle additional 10 orders without any added expense, they think (1) is better than (2).

This example may not be as far fetched as many would like to believe. CHR posted in another thread 3/2 of all florists with a payroll have sales of about $120,000. Most of these florists are members of at least two, and maybe three wire services. If they are getting a total of 6 incoming wire orders a day (2 from each service) for an average of $60 each, they have $131,000 in revenue a year from incoming wire orders alone. That doesn't leave much in the way of local business. What kind of margin does their local business have to pay?

I got your point and that's true. You can't survive if your business depends on incoming orders. Very difficult.

Finally, success of any new venture, whether it's in business or in any other career, I was told by a wise man that I need at least two things: vision and resource ("money" in the case of business). Vision means 'where': where do I want to go from here? Resource means 'how': how do I want to get there?

We do want to become WS-free; that's our 'where'. But we can't get rid of it right away. We need to gradually reduce our WS-dependence over several years; that's how. Also, I didn't create this WS dependence. The previous owner did. We are just trying to turn it around.

 

[RC in Dayton and Cincinnati]

By arbitrarily allocating a fixed expense (labor cost) to local sales but not to WS sales, we are indeed making an assumption that the labor cost would remain the same even if we eliminated the WS sales entirely.

While this assumption is not entirely valid, I believe it's a reasonable approximation, as long as our shop has only one designer whose hours cannot be significantly reduced even if we became WS-free.

Just for the sake of debate, since you're smart and have vision, I think the above assumption is dangerous.

It's dangerous for several reasons.

One, it's subjective. Some will reason you will always have excess capacity so incoming wire orders should always be looked at as incremental sales where any amount, no matter how small,that contributes to the bottom line is good.

Two, it's subsidizing the competition's business.

Three, Most florists severely underestimate how little they are actually being paid for incoming orders.

Four, wire orders are heavily weighted towards the holidays when capacity should already be at a max.

Five, many incoming wire orders require wire service containers.

Six, Many incoming wire orders are specific, forcing a tendency toward unproductive production.

Seven, incoming wire orders undermine the individual shop's branding process.

Eight, filling incoming wire orders too often distracts the florist form building strong local business.

Nine, filling incoming wire orders to fill excess capacity often slowly escalates unnoticed to a point where the florist's local business is actually subsidizing incoming wire orders through increased prices.

And finally, ten, filling incoming wire orders is the easy way out because there are much better ways of filling excess capacity that actually can contribute towards building a stronger local business.






RC

 

[CHR]

Yep, that's a keeper post if I ever read one.

RC, you are a gem.

 

[goldfish]

Just for the sake of debate, since you're smart and have vision, I think the above assumption is dangerous.

Thank you for the kind of word, but if I was smart, I wouldn't have gotten into the florist business. In fact I admit I had grossly underestimated the difficulty of this business. It looked so easy from outside. Anyway, I actually agree with everything you wrote, particularly...

Six, Many incoming wire orders are specific, forcing a tendency toward unproductive production.

Seven, incoming wire orders undermine the individual shop's branding process.

These two are my major concerns. I think we talked about it in the other board (not sure when).

We don't like 'cookie-cutter' arrangements. Fortunately, most cookie-cutter arrangements require the flowers that we no longer carry, so we reject almost all of them.

We used to, but no longer carry carns, mums, asters, daisies, liatris, alstromeria, anything that people see in the supermarkets. We avoid them. Among the "common" flowers we do carry, such as Lisianthus, Roses, and Lilies, we try to get most unusual kinds. Our store name "insolita" means "unusual" in Latin/Italian. That's our motto.

We are willing to pay premiums for these flowers (thus higher COGS), and that's why we are still not making a whole lot of money. But I'm convinced that, eventually, customers will notice our qualities.

I think in a long run, store brand is the only way for us to survive. I'm absolutely certain of this. We can't brand our shop if we keep making cookie-cutter arrangements.

 

[Jerry]

Post of the year!!!!!

Just for the sake of debate, since you're smart and have vision, I think the above assumption is dangerous.

It's dangerous for several reasons.

One, it's subjective. Some will reason you will always have excess capacity so incoming wire orders should always be looked at as incremental sales where any amount, no matter how small,that contributes to the bottom line is good.

Two, it's subsidizing the competition's business.
Three, Most florists severely underestimate how little they are actually being paid for incoming orders.

Four, wire orders are heavily weighted towards the holidays when capacity should already be at a max.

Five, many incoming wire orders require wire service containers.

Six, Many incoming wire orders are specific, forcing a tendency toward unproductive production.

Seven, incoming wire orders undermine the individual shop's branding process.

Eight, filling incoming wire orders too often distracts the florist form building strong local business.

Nine, filling incoming wire orders to fill excess capacity often slowly escalates unnoticed to a point where the florist's local business is actually subsidizing incoming wire orders through increased prices.

And finally, ten, filling incoming wire orders is the easy way out because there are much better ways of filling excess capacity that actually can contribute towards building a stronger local business.

RC

I would like to nominate this paragraph as "Post of the year". Print it, read it, re-read it. Well thought out, RC, thanks.

IMHO #1 is only subjective if you have excess labor on the payroll.

#4 is really all the WS needs us for anyway.

 

[Joe Mioux]

#4 is really all the WS needs us for anyway.

We, and I suspect a lot of small town flower shops do as well, receive most of our wire business in the form of Sympathy work.

There are only two holidays left where we see any significant Wire In business and that is Christmas and Mother's Day.

RC: I don't see the incoming WS business as growing. I see it decreasing in my little world. I look at the trend in my WI's WO"s, Delivered and Cash and Carry business and my Wire business is decreasing while the Local business is steady to increasing. Is that your experience as well?

Internet orders are growing, just as Wire In orders are diminishing. Currently, my wire in bus is 8.4 pct of GS v 12.5 pct for the first nine months of '06
Joe

 

[Bigted]

Just for the sake of debate, since you're smart and have vision, I think the above assumption is dangerous.

It's dangerous for several reasons.

One, it's subjective. Some will reason you will always have excess capacity so incoming wire orders should always be looked at as incremental sales where any amount, no matter how small,that contributes to the bottom line is good.

Two, it's subsidizing the competition's business.

Three, Most florists severely underestimate how little they are actually being paid for incoming orders.

Four, wire orders are heavily weighted towards the holidays when capacity should already be at a max.

Five, many incoming wire orders require wire service containers.

Six, Many incoming wire orders are specific, forcing a tendency toward unproductive production.

Seven, incoming wire orders undermine the individual shop's branding process.

Eight, filling incoming wire orders too often distracts the florist form building strong local business.

Nine, filling incoming wire orders to fill excess capacity often slowly escalates unnoticed to a point where the florist's local business is actually subsidizing incoming wire orders through increased prices.

And finally, ten, filling incoming wire orders is the easy way out because there are much better ways of filling excess capacity that actually can contribute towards building a stronger local business.

RC

What a great, well thoughtout post. Nice job RC