WS financials for a micro florist

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goldfish

goldfish

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Feb 8, 2006
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www.flowers-insolita.com
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We have seen a lot of discussion about wire services in this board. Some are for and others are against. The following discussion concerns mostly a tiny, "micro" florist who mostly fills, rather than send, wire orders. Just like our shop. I've tried to turn this shop around in the last two years and during the struggle, I've learned a bit about how to not lose too much money on WS. And I'd like to share my experience.

There are three issues involved in any discussion about WS: financial, strategic, and philosophical issues.

'Financial' issues of WS ask whether you are making or losing money from WS.

'Strategic' issues of WS ask whether you are increasing or decreasing your market share or competitive edge. Note that this is related to, but different from (a) above. For example, there coud be a situation where you might want to keep a certain money-losing business if it helps you to increase your market share. I won't discuss this, because I don't want to disclose our marketing strategy (some of our competitors might be reading this :)).

'Philosophical' issue of WS ask you whether it is right or wrong to join a WS. I won't discuss this either, because I'm getting too old (47) for shouting match.

So, let's just talk about money.

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(a) WS financial I: Are we making money on a WS?

As many have pointed out, just because you are getting a monthly check from WS, doesn't mean that you are making money on the WS. Then how do we find out whether you are making money or not?

You actually don't need a CPA or any sophisticated financial analyses of WS numbers. They help, sure, but not absolutely necessary. All you need to do is as follows.

Find out how much you've spent on and how much you've earned from monthly WS transactions. Ignore all the fixed expense. Calculate the Net. What I mean is as follows.

Example: Last month, "Flowers by Bobby" had $2,000 incoming orders and $500 outgoing orders.

Bobby calculated that he has spend $800 (40% COGS) for flowers and supplies, and $300 for 40 deliveries. Therefore the Net would be $500 (wire-out sales) - $800 (COGS) - $300 (delivery) = minus $600. Give or take.

So if your check is more than $600, you probably made money. It it is less, you probably lost money.​

Now before any CPA jumps all over me, let me be clear that the analysis above is crude. But it gives you a sufficiently accurate idea about whether you are making or losing money, and approximately how much. You would be surprized by your findings.

(b) WS financial II: Do I need all those additional services and products from my WS?

To answer this question, you need to calculate your 'profit margin' for incoming orders. The (profit) margin is simply a ratio between how much money (profit) you made and the sales price. If you buy a rose for $1 and sell it for $4, the profit margin is (4-1)/4 = 75%.

Problem is that incoming orders are discount sales. 20% of the sales goes to the sending florist and anywhere between 7-15% goes to the WS. These come on top of the normal COGS. Do you know your profit margin on incoming orders? If you don't, here's the rule of thumb.

If you are a small, mostly filling florist, I suggest you use 25% profit margin for all the incoming orders (40% COGS + 35% WS discount). You can't go wrong with this number.

What a 25% margin means is that you make $25 for each $100 wire-in sales. Why is it important to know this percentage?

Consider this. Listing your shop in many different towns ("also served by") cost you a bundle. Let's say $100 a month. How much additional sales do you need to justify this $100? If the margin is 25%, you need $400 additional sales each month to pay for that $100. In my opinion, most of those "also served by' ads are probably money-losing. We got rid of all of them as soon as we took over the operation of this store.

Another area you can use this analysis is WS speciality containers. They don't sell you just a few vases; you need to buy a case, which usually cost $200. With 25% margin, you would need $800 additional sales to re-coup the money ($200). Not happening most of the time in our store. SO we don't buy any of them.

... Next time, I will argue why I think a micro florist should suspend Mercury/Dove for holiday seasons. I'll take a rest now and I need to go buy icescream.
 
(c) WS financial III: Should I shut off my Mercury/Dove during holidays, or should I take as many incoming orders as possible?

From purely monetary point of view, the more incoming orders you take, the more money you make. However, already a small profit margin for incoming orders would become even smaller during holidays. It could become so small that you really need to think hard before deciding to take incoming orders during busy holidays.

Here's why....

If your shop is like ours, you have maybe only one full-time employee who works as designer and sales and everything else. Often, this person is yourself. :) This person is always in your shop, regardless of whether you have orders or not. In that case, the labor charge is a fixed expense, just like rent.

That's what I call the situation of 'excess production capacity'. A micro florist tends to carry this 'unused' labor most of the time.

It is this reality of a micro florist (but not a large florist) that makes incoming orders potentially profittable. You don't need to hire extra labor to take care of incoming orders. The labor "cost" (variable expense) for filling wire-ins is ZERO.

Let's recall here that I said the 'profit margin' of wire-ins is approximately only 25% (give or take) for most microflorists:

Commision to sending florist: 20%
Misc fees to WS: 15%*
COGS: 40%**
---
Profit margin: 25%

* This assumes that you pay 'Reciprocity' fee and low-sending fee; most filling florists actually do.
** COGS control is very difficult for most micro florists. If your sales vol is very small, COGS% might become more like 50%!​

Note above that we didn't include any 'Labor Cost' in calculating the profit margin.

During holidays, the situation would become different if you took a large number of incoming orders. You can no longer manage all those incoming orders, so you had to hire temporary, hourly workers. Now, any work hours by the temp workers to fill for the incoming orders would have to be included as cost. It's no longer zero.

Consider the following scenario:

During last Christmas, 'Flowers by Bobby' had $5,000 local orders and $5,000 incoming orders. Since Bobby couldn't handle all of them, he ended up hiring three more people (as you know, temp workers are not as efficient as a regular worker). They worked for 75 hours total (25 hours each), for which Bobby ended up paying $900 ($12/hr).

Was it worth? Let's calculate...

If Bobby had shut off his Mercury/Dove, he would have lost that $5,000 incoming orders. True. But he wouldn't have hired THREE people. Just ONE temp worker would have been enough to handle local orders.

So, to fill for wire-ins, he actually spent additional $600 (hourly wages for two temp workers).

In Bobby's kind of micro shop, he usually makes only 25% profit out of incoming orders. That is, $5,000 incoming orders would have given him $1,250 (25% of $5,000) during normal days.

But during Christmas, because Bobby had to hire two additional workers which cost him additional $600, his actual NET shrunk to only $650. Ouch! He worked so hard to fill for those $5,000 wire-ins and got only $650.

Worth it? You be the judge.
 
Goldfish,

There are just too many variables in your models.

from your second post.....

Here is one example, I don't know any flower shops that would get $5000 local and $5000 in wire ins...

Second, if that micro flower shop is paying $12 per hour for 3 temps' help something is really wrong.

that 15 pct wire service fee may not be valid at holiday time either, because the micro shop will also be sending out a lot more orders.

That reminds me the whole premise of a micro shop being assessed low sending fees and reciprocity fees might work if that shop has multiple WS's memberships. However, I would imagine and hope that a small shop would have one. Suffice it to say your examples, although accurate for the story you tell; may not, don't and or won't necessarily reflect real world shops and scenarios.

Joe
 
(d) WS financial IV: Delivery fee in incoming orders.

Bobby (of 'Flowers by Bobby') just received a phone call from another florist. She (Jane) wants to place an order over the phone.

Jane: "I have a FTD order for you. I need $50 vase arrangement.'
Bobby: "Sure' (suppressing his excitement; actually he didn't have any order today and has been spending all day in Flower Chat).

[After all the information was exchanged...]

Jane: "How much do you charge for delivery?"
Bobby: "$7.50"
Jane: "OK, then I will give you $57.50, $50 flowers and $7.50 delivery."
Bobby: "Sounds good."
Jane: "Bye"
Bobby: "Bye"

Did you notice that Bobby made a common mistake? Hint: delivery charge.

He should have charged more for the delivery charge. Here's why.

If your shop is like ours, you probably aren't making any profit in delivery. Delivery charge is almost 100% cost (driver's wage + insurance + gas + maintenance + depreciation).

You know what? In every incoming order, you are discounting the delivery charge too, because it's included in the wire-in orders.

In the above example, if Jane sends $7.50, Bobby is getting only $4.88 (Jane eventually gets back 20% - $1.50 and WS snatches 15% - $1.12).

$4.88 doesn't pay Bobby's delivery cost. Unknowingly, Bobby is cutting into his already very slim margin of incoming orders, by paying $2.62 for delivery out of his own pocket).

You can give discount if the sales has a profit. Delivery usually has no room for giving discount. Because of the way WS works, you can't separately charge the delivery charge. The only thing you can do is to increase the delivery charge by ~30%, so that you wouldn't end up subsidizing the delivery charge.
 
Joe Mioux said:
...may not, don't and or won't necessarily reflect real world shops and scenarios.

Joe
Click to expand...

But these circumstances could be true...and does not lessen the points Goldfish makes in his scenario, don't ya' think Joe?

I thought you would point out that at least the $650 extra made at the holiday is more than Bobby had before (incremental income if Randy[RC] is reading this).
 
prestonway said:
But these circumstances could be true...and does not lessen the points Goldfish makes in his scenario, don't ya' think Joe?

I thought you would point out that at least the $650 extra made at the holiday is more than Bobby had before (incremental income if Randy[RC] is reading this).
Click to expand...

yes, these scenarios can be true just as easily as they can be wrong.


And I was hoping you would comment on the Contribution to fixed costs ;)
 
goldfish said:
(d) WS financial IV: Delivery fee in incoming orders.

Bobby (of 'Flowers by Bobby') just received a phone call from another florist. She (Jane) wants to place an order over the phone.

Jane: "I have a FTD order for you. I need $50 vase arrangement.'
Bobby: "Sure' (suppressing his excitement; actually he didn't have any order today and has been spending all day in Flower Chat).

[After all the information was exchanged...]

Jane: "How much do you charge for delivery?"
Bobby: "$7.50"
Jane: "OK, then I will give you $57.50, $50 flowers and $7.50 delivery."
Bobby: "Sounds good."
Jane: "Bye"
Bobby: "Bye"

Did you notice that Bobby made a common mistake? Hint: delivery charge.

He should have charged more for the delivery charge. Here's why.

If your shop is like ours, you probably aren't making any profit in delivery. Delivery charge is almost 100% cost (driver's wage + insurance + gas + maintenance + depreciation).

You know what? In every incoming order, you are discounting the delivery charge too, because it's included in the wire-in orders.

In the above example, if Jane sends $7.50, Bobby is getting only $4.88 (Jane eventually gets back 20% - $1.50 and WS snatches 15% - $1.12).

$4.88 doesn't pay Bobby's delivery cost. Unknowingly, Bobby is cutting into his already very slim margin of incoming orders, by paying $2.62 for delivery out of his own pocket).

You can give discount if the sales has a profit. Delivery usually has no room for giving discount. Because of the way WS works, you can't separately charge the delivery charge. The only thing you can do is to increase the delivery charge by ~30%, so that you wouldn't end up subsidizing the delivery charge.
Click to expand...

Why not just fill the arrangement at $47.50 then? or $45 or $42.50?

Just because a flower shop gave you an extra $7.50 doesn't mean that you can't subtract out more from the arrangement in order to cover your costs of delivery.
 
prestonway said:
But these circumstances could be true...and does not lessen the points Goldfish makes in his scenario, don't ya' think Joe?

I thought you would point out that at least the $650 extra made at the holiday is more than Bobby had before (incremental income if Randy[RC] is reading this).
Click to expand...

I’ve been sitting back and reading goldfish’s thread, incrementally of course. I actually practice Incrementalism in my business every day.

As for this thread, I think goldfish is using acceptable accounting practices to give poor advice.




RC
 
Joe Mioux said:
Goldfish,

There are just too many variables in your models.
Click to expand...

There are. But the alternative would be hiring a spreadheet-wielding CPA who keeps bubbling about numbers, which most of us small florists don't understand. I'm trying to give a simple formula that may not be very accuarte, but can give non-CPA a good intuition about what's going on.
 
Joe Mioux said:
Why not just fill the arrangement at $47.50 then? or $45 or $42.50?

Just because a flower shop gave you an extra $7.50 doesn't mean that you can't subtract out more from the arrangement in order to cover your costs of delivery.
Click to expand...

The ideal solution would be for WS to stop subtracting commissions and fees from the delivery charge, which of course won't happen.

So for the time being, I think all we could do without being accused of order skimming is to set up two delivery charges, one for local and the other for incoming orders, and report these charges to WS.
 
(e) WS margin "calculator" for micro florists.

A good starting point for calculating profit margin for incoming orders is 25%.

Then, add or subtract the following points.

a) I don't know my COGS. Is that for "cost of good services'?: - 5 points.

b) Numbers with more than two digits make me dizzy. They remind me of marching ants: - 5 points.

c) We don't pay 'Reciprocity fee' 'Low-sending fee': + 5 poins.

d) I love numbers and am very financially disciplined. I know how many inches we use for a bow and how much it costs: + 5 points.

Typically, a designer-owned shop does worse than 25%.

---

... like the owner of "Flowers by Paris." Paris is not good at numbers nor common sense. She never pays attention to the cost control. She runs a tiny shop, and her wire orders are virtually all incoming orders.

Every month, she gets a small check from FTD, which makes her happy. Usually she has about $700 incoming sales. She must be making money... that's what she thought. At least it's paying the monthly WS fees ($250).

Or is it? Using the "formula", I would guess her margin is only about 15%. With this margin and without outgoing orders, she is making only $105 (15% of $700). She is actually losing $145 ($105 - $250).
 
goldfish said:
The ideal solution would be for WS to stop subtracting commissions and fees from the delivery charge, which of course won't happen.

So for the time being, I think all we could do without being accused of order skimming is to set up two delivery charges, one for local and the other for incoming orders, and report these charges to WS.
Click to expand...

What happens when I WI gives you too much delivery fee, do you return it?

Joe
 
goldfish said:
(e) WS margin "calculator" for micro florists.

A good starting point for calculating profit margin for incoming orders is 25%.

Then, add or subtract the following points.

a) I don't know my COGS. Is that for "cost of good services'?: - 5 points.

b) Numbers with more than two digits make me dizzy. They remind me of marching ants: - 5 points.

c) We don't pay 'Reciprocity fee' 'Low-sending fee': + 5 poins.

d) I love numbers and am very financially disciplined. I know how many inches we use for a bow and how much it costs: + 5 points.

Typically, a designer-owned shop does worse than 25%.

---

... like the owner of "Flowers by Paris." Paris is not good at numbers nor common sense. She never pays attention to the cost control. She runs a tiny shop, and her wire orders are virtually all incoming orders.

Every month, she gets a small check from FTD, which makes her happy. Usually she has about $700 incoming sales. She must be making money... that's what she thought. At least it's paying the monthly WS fees ($250).

Or is it? Using the "formula", I would guess her margin is only about 15%. With this margin and without outgoing orders, she is making only $105 (15% of $700). She is actually losing $145 ($105 - $250).
Click to expand...



In this instance, assuming the 250 is all she has to pay plus the 27% with no wireouts 700.00 would be her break even just on the wire service fees if her COGS were right on. This would not acount for labor or delivery. With wire service to make a 15% margin you really must be in very good control of money spent on labor, delivery and COGS, otherwise you are going to lose money. There is absolutely no room for replacements, overstuffing, over staffing etc...
 
Joe Mioux said:
What happens when I WI gives you too much delivery fee, do you return it?

Joe
Click to expand...


First of all, there is very few florists that even ask you nevermind give you any delivery. It always has been taken from the total. This is changing slowly as most florists everywhere have to charge a substantial fee for delivery. Years ago the delivery was usually less than 5 bucks and flowers were way less expensive so the arrangement was OK with taking out the delivery. Now because delievry charges are sometimes greater than 10 bucks it takes too much out of the flowers to brush it off and people get dissapointed if they do see the arrangement.

How does anyone know what they get for delivery unless the florist says, "I am giving you 50.00 for the flowers and 9.00 for delivery." If they are going to give you delivery on top of the flowers they will usually ask, "What is your delivery to this location." I do add on to my customers bill added into the flowers 5.00 for delivery, it doesn't take care of the delivery fully and I know it is taken out fully on the recieving end, but my customer knows that 5.00 to help with local delivery was added in and that is what is important. They are fully aware of what they paid for and will not be dissapointed when the recipient gets their arrangement, hopefully, if I have chosen correctly in the game I like to call wire out roulette...

As for giving back too much delivery, there really is no such thing. You get a total and take the delivery out of that, then fill to value. That is if you follow the correct rules...but, we all know how that goes..again wire out roulette...sometimes you win and sometimes you lose.
 
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This feels a lot like those story problems in high school math. You know when Susie drove a blue car with 12 green apples at 60mph and Mike drove a green car etc... Just being funny(I''ll deduct my 5 points):)
 
lori042499 said:
First of all, there is very few florists that even ask you nevermind give you any delivery. It always has been taken from the total. This is changing slowly as most florists everywhere have to charge a substantial fee for delivery. Years ago the delivery was usually less than 5 bucks and flowers were way less expensive so the arrangement was OK with taking out the delivery. Now because delievry charges are sometimes greater than 10 bucks it takes too much out of the flowers to brush it off and people get dissapointed if they do see the arrangement.

How does anyone know what they get for delivery unless the florist says, "I am giving you 50.00 for the flowers and 9.00 for delivery." If they are going to give you delivery on top of the flowers they will usually ask, "What is your delivery to this location." I do add on to my customers bill added into the flowers 5.00 for delivery, it doesn't take care of the delivery fully and I know it is taken out fully on the recieving end, but my customer knows that 5.00 to help with local delivery was added in and that is what is important. They are fully aware of what they paid for and will not be dissapointed when the recipient gets their arrangement, hopefully, if I have chosen correctly in the game I like to call wire out roulette...

As for giving back too much delivery, there really is no such thing. You get a total and take the delivery out of that, then fill to value. That is if you follow the correct rules...but, we all know how that goes..again wire out roulette...sometimes you win and sometimes you lose.
Click to expand...

thank you for reinforcing my points re: delivery.

joe
 
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