lori042499
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- May 3, 2006
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WS financials for a micro florist
- Thread starter goldfish
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(f) WS financials: My store is big, what should I do with WS?
Most likely you would be better off without filling for the incoming orders.
Mid-to-big florists employ multiple designers, most of whom are paid hourly. Their work hours go up and down, as the sales go up and down. Not exactly proportional, of course, but their labor expenses are not static as is the case for micro florists.
In that case, 'labor' expense would behave more like a variable expense, rather than fixed expense. You must include the labor as a part of the cost for filling incoming orders.
Example: "Cramp Florist" is a well-known, big florist. The manager tells the designers to go home when the job is done.
Using the sophisticated formula in ssection (e) above, I would estimate their margin to be about 35% (25% plus 10 bonus points) before labor. But the labor would "cost" them at least 25%.
So all in all, "Cramp Florist" would be making only 10% margin (give or take) for filling wire-ins. Considering they have so many local orders anyway, they probably don't want to fill wire-ins which contributes nothing to their bottom line.
But imagine, for the sake of argument, that "Cramp Florist" hires everyone full-time, just like a micro florist with one employee. In a slow day, these employees have nothing to do...
Some of them may be napping, some of them palying computer games on Flower Chat, some of them plucking nose hairs to see how much it hurts... all those activities we microflorists do during a slow day.
Now, imagine that their mercury just spit out a $35 order. If "Cramp" rejected this order, he would be an honorable man making a poor choice.
Most likely you would be better off without filling for the incoming orders.
Mid-to-big florists employ multiple designers, most of whom are paid hourly. Their work hours go up and down, as the sales go up and down. Not exactly proportional, of course, but their labor expenses are not static as is the case for micro florists.
In that case, 'labor' expense would behave more like a variable expense, rather than fixed expense. You must include the labor as a part of the cost for filling incoming orders.
Example: "Cramp Florist" is a well-known, big florist. The manager tells the designers to go home when the job is done.
Using the sophisticated formula in ssection (e) above, I would estimate their margin to be about 35% (25% plus 10 bonus points) before labor. But the labor would "cost" them at least 25%.
So all in all, "Cramp Florist" would be making only 10% margin (give or take) for filling wire-ins. Considering they have so many local orders anyway, they probably don't want to fill wire-ins which contributes nothing to their bottom line.
But imagine, for the sake of argument, that "Cramp Florist" hires everyone full-time, just like a micro florist with one employee. In a slow day, these employees have nothing to do...
Some of them may be napping, some of them palying computer games on Flower Chat, some of them plucking nose hairs to see how much it hurts... all those activities we microflorists do during a slow day.
Now, imagine that their mercury just spit out a $35 order. If "Cramp" rejected this order, he would be an honorable man making a poor choice.
RC in Dayton and Cincinnati
New Member
goldfish,
let me ad a little twist for Charlie Cramp's Florist.
Let's say it's not all that well run. No matter how hard the management tries the designers are only as productive as need be. They can barely get the job done on busy days, and likewise, on slow days the work just expands to fill the day (kinda like the full time scenario).
Now for the twist, let's say Mr Cramp has all his flowers on standing order. He does this to insure product quality (another topic). To simplify the scenario, let's say Mr Cramp gets 1,000 boxes of flowers once a week, on Monday. If the flowers are not sold by Saturday he must throw them away.
Should he now, not only consider labor a fixed expense, but also his perishable flowers since if they go unsold they must be tossed out?
RC
Thank you for the generous tip. I would donate it to Italian Ice shop down the street, and hopefully he will donate it back to me in the form of icecream.
I've heard Mr Cramp freaks out whenever he sees his designers filling water tubes at one tube per min with a big sigh in between.
That's a very good topic to start indeed. A renowned florist like you is obviously the best person to talk about qualities.
He could, but Audit guys won't like it because it would be inconstent with good accounting practice. Cost of materials should be accounted as 'Variable Expense' even if it may actually be constant throughout year.
People expect "Profit" is being equal to "Sales Price" - "Variable Expenses" and expect "Variable Expenses" to include the material cost. If Mr Cramp took the flower-purchase price out of "Variable Expenses", his nominal "Profit" would become bigger as the result. Confusing.
RC in Dayton and Cincinnati
New Member
I'm not an accountant and my accountant has never told me how to run my business, but whether inconsistent with good accounting practice or not, the fact remains once the flowers are bought that perishable expense is fixed, even more fixed than labor. So, using your same reasoning with labor and fixed expenses and applying it to perishables leaves a situation where as long as delivery and hard goods are covered, all incoming wire orders are profitable. Even a ridiculous order such as 200 rose corsages for a total of $29.95 for example because labor costs and perishable costs are to be ignored.
In your original post you define a simple way of determining whether incoming wire business is profitable, but when you claim fixed expenses and labor should be ignored for micro florists, you are using very subjective reasoning. My position is, although I agree in many instances the cost of labor should be ignored, even the cost of goods on perishables should be ignored on occasion, ignoring either on a regular basis to fill incoming wire orders that generally have no added value to your business except for the added revenue it brings is risky business, and over the years I’ve watched too many florists with dreams of success go out of business trying to play the exact same game you are subscribing to.
What we’re really talking about in this thread is maximizing revenue to cover expenses, and whether it's profitable, or a good idea, to maximize sales through wire service memberships and filling highly discounted incoming wire orders. I think there are much better ways of increasing revenue using your same principles that actually will help build your business than filling wire orders that often times is actually subsidizing your competitor.
RC
Rc
RC, your example is very good, but it is flawed. The string was started about a micro florist. The premise you are bringing up about buying 1000 boxes on Monday, makes a huge assumption that the shop is question carries a cooler full of flowers. The real question here that should be asked is, does the shop actually carry fresh product or does it only buy upon demand?
RC, your example is very good, but it is flawed. The string was started about a micro florist. The premise you are bringing up about buying 1000 boxes on Monday, makes a huge assumption that the shop is question carries a cooler full of flowers. The real question here that should be asked is, does the shop actually carry fresh product or does it only buy upon demand?
Bingo!!!!!!!! Sfox.
All of these great scenarios are all based on the perfect day at the perfect flowershop, to do what, maybe make an extra buck or two. There are only 2 florists in my area, myself and 1 other, that work out of their own cooler and not the wholesalers.
I've found that you can not talk pennies(percentages) with 99% of the florists. They have a hard enough time with the local day to day money accounting.
Hopes and Prayers and Percentages wouldn't work for most of todays florists.
My business plan 101 has always been, buy low, sell high and keep as many middlemen out of my business as possible. 100% is a percentage no one can screw up.
All of these great scenarios are all based on the perfect day at the perfect flowershop, to do what, maybe make an extra buck or two. There are only 2 florists in my area, myself and 1 other, that work out of their own cooler and not the wholesalers.
I've found that you can not talk pennies(percentages) with 99% of the florists. They have a hard enough time with the local day to day money accounting.
Hopes and Prayers and Percentages wouldn't work for most of todays florists.
My business plan 101 has always been, buy low, sell high and keep as many middlemen out of my business as possible. 100% is a percentage no one can screw up.
The flaw
"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."
It should be:
(20% of outgoing orders) $100 - $800 - $300 = -$1,000
so the check has to be for over $ 1,000.00 to give a profit.
"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."
It should be:
(20% of outgoing orders) $100 - $800 - $300 = -$1,000
so the check has to be for over $ 1,000.00 to give a profit.
Joe Mioux
Well-Known Member
Your break-even point for membership fees and commissions debited is 50 pct in this example.
You can take $2000 in incoming sales and be charged 50 pct memberfees and break even on your Cost of Goods Sold of $800 and your $300 of delivery expenses and your $500 outgoing commission.
this excludes labor and other variable costs as your example explains.
Anything above break-even contributes to your profitable by helping pay for fixed costs (that will occur whether you make 1 sale or 10,000 sales for the period, i.e. rent, insurance, utilities, certain taxes, and in this case labor).
$2000 in at 50 pct equals $1000.00
40 Pct Cogs is $800
delivery is $300
and WO commission is $100.
1000-800-300+100= 0 or break-even point.
Joe
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