It’s been said that profit is like oxygen, food and water – they are not the point of life, but without them, there is no life. Profits keep your business healthy by allowing it to grow and flourish. If your business is profitable, you can focus on strategy, which is a lot more fun and less stressful than worrying about how to meet payroll or how to pay suppliers.
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By making profitability a priority in your shop, you will help your bottom line grow over time.
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Fattening that bottom line is often a matter of understanding which market you’re targeting, deciding how to determine which segments of your business are most profitable and then devising a marketing strategy that highlights priority (profitable) products and services.
Floral retailing is one of the most challenging businesses in which to be successful. With many other retail premises, you buy finished goods, put them on the shelf and sell them. In the flower business you buy raw materials, manufacture the goods and then sell the finished product. The labour and overhead costs to make the finished product are potential speed bumps for your profit margins; everything can be derailed by bloated material costs or design labour.
When Canadian Florist conducted the 2010 National Survey last year, one of our goals was to to get an idea of how the industry was faring when it came to the profit side of the equation. Florists were surveyed about their profit margins and the majority of respondents – 28 per cent – selected “Profit? Are you kidding me?” as their response. Twenty-two per cent of florists said their margin was between one and four per cent, 25 per cent said it was between five and 10 per cent of sales, 17 per cent selected 11 to 20 per cent and eight per cent said they had margins of 20 per cent.
According to Industry Canada’s 2008 SME Benchmarking Statistics, 66 per cent of florists were profitable in 2008, with the remaining 34 per cent falling in the non-profitable category. When you break down the total expenses, the organization reports that the average florist’s cost of sales account for 50 per cent, operating expenses take up 47 per cent and the average net profit rings in at three per cent. Looking specifically at only the profitable florists, Industry Canada found that some florists report margins which are much greater than the average net profit figure of three per cent but these florists know the secret to profitability – not all orders are created equal.
If you could be a fly on the wall of a well-run corporate marketing department, you would hear the term “priority products” used frequently. Marketing is the art of solving customer problems profitably, so it’s the job of marketers to keep sales and production focused on the prize. They do this by first understanding deeply and accurately which products boast the largest margins. When they’ve identified the cash cows, sales and marketing efforts are lavished on these products. To identify these priority products, you must first establish product P&Ls (profit and loss statements) for your offering. While each arrangement may be a unique creative expression with different elements involved, it’s still a good idea to pick five to 10 of your most popular arrangements and to calculate the costs associated with selling them.
If red roses are your top-selling item, then start with those. There’s your cost to purchase the roses, the cost of packaging, the cost of labour to take the order and fill the order, and finally the cost of delivery. Those would be direct costs or costs associated directly with processing the order. Costs such as rent, utilities, vehicle purchase and upkeep are considered overhead. These are the costs that exist even without the order. It would be wise to calculate how many roses go to spoilage every year and then divide that number by the number of dozen rose orders you send out. It may work out that a fraction of the cost of these spoiled roses needs to be added to each order and that will add a few cents to the cost of each bouquet. You’re in a business that carries with it a natural amount of spoilage. Manufacturing companies factor in equipment down time and spoilage into their pricing structure, and you should too. Being able to forecast your inventory needs will go a long way towards minimizing spoilage and shoring up your bottom line. You may find that those Internet/wire orders are a little less predictable than your base business is and make inventory planning more challenging. Your view of the profitability of this segment will likely change after you’ve looked at the cost of managing it.
If artisan arrangements are the cornerstone of your brand, then the cost of materials and labour will be greater. Product P&Ls on these arrangements will likely show a thinner profit margin. Although the numbers are important, so is strategic fit to your business and market fit in terms of your point of difference versus your competition. Can you systemize the production of these arrangements to save on the time needed to create them without compromising the quality?
Wineries have wine clubs – why not create a floral club? Target the do-it-yourself segment and each month send them the floral components along with a container, floral foam and a set of instructions on how to create and care for the arrangement. You get to offer a true point of difference the consumer feels is worth paying for (the experience of being a floral designer), yet save on the labour to create the arrangement. That monthly contact will help foster a deeper relationship between you and the consumer, which will keep you top of mind when they need flowers for important life events.
You likely became a florist because you love to create beautiful things. Think of your bottom line as a vital piece of your creative process and nurture it as you would your colour sense or your ability to track trends. Manage the business – don’t let it manage you.
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