WS Break-even calculator

Status
Not open for further replies.
Toto,

(added: I don't care where the WS revenue originates, at the end of the year the only thing that is important is whether or not WS business is profitable or not. We can earn WS revenue two ways, and outside of being an OG, I think the best way to account for this in and out revenue is to look at the whole picture.)

I don't want to look at individual orders. I want to look total revenue and expenses.

I can always reject the money losers, i.e. $29.99 wrapped rose bouquets.

and I can accept that some orders might be money losers, but also not worth canceling.

That isn't what this is about.

In this exercise, I am only looking - accounting for the fixed costs to determine the number of units that must be sold in order to break even.

The way I did this was I looked at 2008 revenue (which included commissions earned on outgoings and 73 pct discounted orders) and divided that by the number of orders I received which was 154.

I then had to determine how much Variable Cost I had in each order.

For this example, I only used COGS (and I think I made a compelling enough point to leave out my labor and the delivery)

The point of getting my Unit Selling Price and my Unit Variable Cost was to determine my Unit Fixed Cost.

Knowing my Break Even Point now allows me to make several decisions.

I went over those earlier, i.e. drop FTD, or renegotiate my membership fees, renegotiate the number of .com orders I am receiving, increase my selling price, and or reduce my Variable Costs that are associate with each order.

That is all I am doing here.

joe
 
  • Like
Reactions: TOTO
Joe:
I'm following your math, and I think there might be a small error.

You are using annual figures in all of your math.
When you begin to talk about the wire out commissions generated, I think you then swithched to monthly.
19/mo x $50.00 x 20% commission = 190.00/mo (you rounded to $200. per month).

Then $200/mo x 12 mo = $2280.00 in commissions.

this changes your outcome, if I followed correctly, and means that your WS generated a higher profit than you thought. :)

That's if I followed the #s correctly.

Cheryl
 
Joe,

All your doing is rationalizing and setting up the criteria to fit the outcome your looking for.

You say you don't have to consider labor because no additional help was needed. You say you don't have to consider delivery expense because you were probably going to make a delivery nearby anyway. You say any income received above variable costs is defined as profit. You could also argue you don't have to consider perishables either because they are already bought and need to be moved, helping with rotation.

All those considerations have some validity to it, but simply rationalizing so you come up with the outcome your looking for is like buying an unneeded item because it was on sale for $50 off, then claiming you made a $50 profit.

I overbought on red roses for Valentine's Day by 5,000 stems. The week after Valentine's Day I sold them to a freeze drying company for 20 cents a stem . I made a $1,000 profit! Didn't I?

RC
 
  • Like
Reactions: Knife's Wife
CHERYL BAKIN said:
Joe:
I'm following your math, and I think there might be a small error.

You are using annual figures in all of your math.
When you begin to talk about the wire out commissions generated, I think you then swithched to monthly.
19/mo x $50.00 x 20% commission = 190.00/mo (you rounded to $200. per month).

Then $200/mo x 12 mo = $2280.00 in commissions.

this changes your outcome, if I followed correctly, and means that your WS generated a higher profit than you thought. :)

That's if I followed the #s correctly.

Cheryl
Click to expand...

what i meant was I sent out 19 orders, say 20 for ease of math at $50 per order.

that equals $1000 in outgoing sales. twenty percent of $1000 in sales is $200 in earned commission revenue to me
 
RC in Dayton and Cincinnati said:
Joe,

All your doing is rationalizing and setting up the criteria to fit the outcome your looking for.

You say you don't have to consider labor because no additional help was needed. You say you don't have to consider delivery expense because you were probably going to make a delivery nearby anyway. You say any income received above variable costs is defined as profit. You could also argue you don't have to consider perishables either because they are already bought and need to be moved, helping with rotation.

All those considerations have some validity to it, but simply rationalizing so you come up with the outcome your looking for is like buying an unneeded item because it was on sale for $50 off, then claiming you made a $50 profit.

I overbought on red roses for Valentine's Day by 5,000 stems. The week after Valentine's Day I sold them to a freeze drying company for 20 cents a stem . I made a $1,000 profit! Didn't I?

RC
Click to expand...

Do yourself a favor and re-read this entire thread.

I have made it crystal clear, that I have based this on my business and that additional costs should be added to other's businesses if needed.

Randy, there is no rationalization, just a math equation.

joe

P.S. to be honest, I logged off earlier knowing you were replying to this thread and I had to get back on before Anna and I go out for dinner to see what you typed.

I had hoped you would have come up with a better argument than this for us to debate.
 
CHERYL BAKIN said:
Joe:
I still see you earning $200.00 per month in commissions, which = $2400 per year.

What am I missing??

Or, are you only sending 20 orders per year??

Cheryl
Click to expand...

Cheryl,

20 orders per year.

That number shouldn't be added in. It needs to be subtracted out. Joe only needs one wire service to send out orders so any revenue he received from sending could have easily been sent through the other wire service, hence, all costs associated with the FTD membership needs to be charged against the incoming orders. The wire out numbers need to be taken totally out of the equation.
 
  • Like
Reactions: Knife's Wife, TOTO and CHR
CHERYL BAKIN said:
Joe:
I still see you earning $200.00 per month in commissions, which = $2400 per year.

What am I missing??

Or, are you only sending 20 orders per year??

Cheryl
Click to expand...

Since Joe isn't here right now I'll answer. His calculations are based on him sending 20 FTD orders (he actually sent 19) for the whole year. I think he does most of his sending via Teleflora.
 
Joe is being paid less than 37 cents on the dollar for filling those orders and claims he is making a profit because his COGs are only 30 cents on the dollar.

These are his parameters he has set for his argument.

As long as he is being paid over 30 cents on the dollar, in theory, he is making a profit because for incremental sales any amount over his COGs can contribute to his fixed overhead.



Is what he's saying true? Yes, within the parameters he has set . Is it smart business. IMO it's bad business.
 
  • Like
Reactions: TOTO and CHR
Joe Mioux said:
In a few threads I have posted a little math computation that can help guide florists whether to retain or drop WS membership.

I thought I would make a new thread.

Break-even Point is determined by taking your fixed costs and dividing that the Unit's Selling Price minus the variable costs of producing the unit.

I will use my FTD activity as an example. I don't use FTD to send, I am only a member to receive some addtional incoming business.

My FTD revenue is marginal and hopefully will serve as a good indicator on what I should do.

My Membership costs were $2610. my total revenue (incoming and outgoing revenue - money I received from FTD to fill their orders) was $5415 on 154 incoming orders. We sent only 19. I am taking the net after commissions of both incoming and outgoing.

So now I know $5415/154 orders equals avg dollar/unit is $35.16. (again that is net less the commissions given up) If we divide that number by .73, we get the original average price of 48.16,

now I have to take that $48.16 times 154 order and that equals $7416.

I need that number to determine how much VC I used. For me I am only assigning COGS, not design labor because 154 orders per year is an after thought.

$7416 x 30 pct COGS gives me $2225 of variable costs.

So now the important numbers to use here are

$2610 member ship feed - My Fixed Cost

$5416 my net revenue
$2225 my Variable cost
154, my total orders.

I still have to convert the revenue and vc to a per unit cost. so$5416-$2225/154 = $20.71.

BEP= FC/unit selling price - vc

so $2610/$20.71 = 126 orders.

This number now tells me that I needed 126 order to Break-even with FTD, based on an average incoming order of $48.16

As you can see, I had 154 orders, so I did actually make money, albeit very small

And an argument can be made that I did not include some other hidden costs like FTD WS reconciliation report time, etc.

Should I stay or should I go?

Probably, the small difference between 154 and 126 orders isn't signficant.

More importantly: I now know where I stand financially with FTD and I am not basing any decisions on emotions.

Hope this helps some of you as well.
joe

btw: out of the 154 incoming orders 137 were from florists and 17 were .coms
Click to expand...
When you add up your fixed monthly costs, make sure you don't forget anything that will impact how much you will actually make on each order you receive from the w/s. You should include: membership monthly fee, publication and directory fees, your basic mercury, dove, or bloomlink fee, quality assurance, and local dues. Also, monthly order transmission fees and low send and reciprocity fees should be factored in, although they vary each month based on how many orders you rec'd each month, they are still a "fixed" monthly fee you are charged each month.

Also keep in mind, you are receiving either 73%, 71% or 70% commission depending on whether it's a florist-to-florist order or .com direct order.

I hope all florists do this exercise, it is truly an eye-opener.
 
  • Like
Reactions: Knife's Wife and TOTO
for this thread's purpose only, we separate our incoming away from our outgoing, and make them 2 different classes.
Our outgoing business MUST clearly capture a minimum 20% commission, and over the year, MUST cover our fixed FTD membership, and incremental overheads....to retain it's viability.
Our incoming business MUST "net" us a minimum of $1000.00 per year on shop to shop orders, and a minimum of $2000.00 on .com and OG orders, per year.
Our own fixed expenses are just that...whether we "get" the orders or not, heat,hydro, delivery, property taxes, etc are fixed.
Once we reach saturation point on wire orders, ALL OG and .com orders are transferred or rejected...we've had only 2 years, where that has happened......we've already reached that goal for this current fiscal year, which runs June 01/08, to May 31/09, so provided that we fill ALL incoming orders, and each one is over our net threshold, of $47.71, it will be a profitable wire service year!!
By the way, the 2 years that I spoke of were back to back, and were 2004, and 2005...we filed for discontinuation of membership with FTD, and some "interesting" things "happened"........
The way I see it IS, each buck OVER "net" zero ADDS to my bottom line, regardless!!
 
  • Like
Reactions: HeatherTuckey and bloomz
Dior said:
When you add up your fixed monthly costs, make sure you don't forget anything that will impact how much you will actually make on each order you receive from the w/s. You should include: membership monthly fee, publication and directory fees, your basic mercury, dove, or bloomlink fee, quality assurance, and local dues. Also, monthly order transmission fees and low send and reciprocity fees should be factored in, although they vary each month based on how many orders you rec'd each month, they are still a "fixed" monthly fee you are charged each month.

Also keep in mind, you are receiving either 73%, 71% or 70% commission depending on whether it's a florist-to-florist order or .com direct order.

I hope all florists do this exercise, it is truly an eye-opener.
Click to expand...

yes we know this.

Dior, you might want to sit back and watch some of these WS debate threads develop, or do a search. there are loads of them.

joe
 
RC in Dayton and Cincinnati said:
Joe is being paid less than 37 cents on the dollar for filling those orders and claims he is making a profit because his COGs are only 30 cents on the dollar.

These are his parameters he has set for his argument.

As long as he is being paid over 30 cents on the dollar, in theory, he is making a profit because for incremental sales any amount over his COGs can contribute to his fixed overhead.



Is what he's saying true? Yes, within the parameters he has set . Is it smart business. IMO it's bad business.
Click to expand...

or you could look at it like the moody guy does and say "you can make a 30 pct return on your invest with my gift baskets."


incremental sales? is that the same as additional sales.

joe
 
lizzie ann said:
This has been my solution to not being affiliated with any wire service. Have a great website and advertize locally.Out business builders run every other day for a month for $500. :)
Click to expand...

At $6000 per year, what is your added Gross Sales?

and can you track those sales directly back to this Business Builders thing?

joe
 
RC in Dayton and Cincinnati said:
Cheryl,

20 orders per year.

That number shouldn't be added in. It needs to be subtracted out. Joe only needs one wire service to send out orders so any revenue he received from sending could have easily been sent through the other wire service, hence, all costs associated with the FTD membership needs to be charged against the incoming orders. The wire out numbers need to be taken totally out of the equation.
Click to expand...


If florists treat the WS business like anyother department (i.e Silks, plants, etc) why shouldn't all revenue be considered?

Only OG's do the send only thing.

joe
 
This whole thread was started to show you how you can determine how many units must be sold in order to turn break even.

You can use this formula for your silk floral arrangements, your candle sales, your greeting card sales, your Lampe Berger sales, your candy sales, your whatever sales.

Determine your fixed cost for that particular department and divide it by your Unit Sales price less your variable cost of producing/COGS.

My intention was to highlight a managerial accounting tool that works.

joe
 
  • Like
Reactions: bloomz, CHERYL BAKIN and Tracy D'Amico
Status
Not open for further replies.
Top Bottom
Back