Pricing strategy for retail florists
When you create your profit and loss statement to assess the health of your business, you’ll see:
Sales minus cost of goods sold equals gross profit.
You pay all your expenses out of gross profit. If you find that your gross profit is not enough to cover your expenses, you have two options, you can increase gross profit by increasing sales or reducing cost of goods sold, or you can reduce your expenses. Certainly that is an oversimplification, the art of business management is in the hundreds of nuances that are found within those two options. For this article, let’s assume that your spending has been carefully rationalized and that you’re doing some due diligence on your buying habits. So, let’s investigate the price end of the equation.
How you set your prices can be one of the most important management decisions you make as the owner or manager of a retail flower shop. It takes a lot of work to run a flower shop, wouldn’t it be a shame to price your products low and not be able to make ends meet? On the other hand, overvaluing and exiting the market before even starting would also prove disastrous. Market conditions and your competition will largely determine your price. Keep in mind, however, that depending solely on these items, without looking at the actual cost of the products you’re selling, you could lose your shirt. Pricing can be a tricky thing in a retail florist. This is because there are perishable items and skilled labor that need to be factored in along with the gross cost of goods.
Let’s consider each of these factors one at a time. We’ll start with cost of goods sold (COGS) because it’s the most straightforward of the three. Cost of goods sold is the price you paid for the item you’re selling, plus any costs associated with buying and owning that item up until the time you sell it. If you sold widgets and bought a widget for three dollars, your COGS would be $3. In the flower business, you will need to add the cost of your fresh flower preservative or any other product that you need to add to the flowers to make them salable. In the case of an arrangement, the cost of goods includes the flowers, the container, the condom, and the ribbon or accessories.
Second, with perishable items, you will have a certain amount of product shrinkage or loss. Take your time to analyze the amount of product you lose. For every $100 worth of fresh flowers you buy, you should account for approximately 5% loss from shipping and normal damage. You’ll also need to find out your own store’s loss factor. Let’s say for this example that you lose 10% of your fresh flowers because they are not sold before they expire, or because they are wasted or broken at the store.
Now, let’s look at the components of a fresh flower arrangement. We will use some industry standards as a starting point to set the price.
Fresh Flowers: If the flowers are $10 wholesale, you’ll add $1.50 for the shrink, .10 for the condom. Multiply by two to get the retail price of the flowers: $23.20
Container: The vase cost you $2.00. Multiply by two to get retail price: $4.00
You will put in a bird, a bow, and a butterfly, which will cost you $3.00, so the retail price for those items is $6.00. This gives us a total retail price of $30.20. We’re not done yet!
Third, consider the cost of the skilled labor that was used to create the arrangement. Look at your business plan and calculate your labor cost as a percentage of your total sales. Let’s say your labor costs are 12% of your total sales. You will need to add this labor factor to each item you sell. If you want to be able to sell gift items without adding labor, you’ll probably need to do a little more analysis to calculate the labor cost of the design as a total of your total sales. This number is probably more like 20% to 25%. Let’s go with 25% for this example.
Now the math gets a little more complicated. You need to find the selling price that reflects a labor cost of 25%. Dust off your Algebra I text and solve this equation:
Cost + (PRICE+(PRICE *25%))=PRICE
Prayed
$30.20+PRICE*.25=Price
Do not panic!
The easiest way to do these calculations is to simply divide the cost by whatever percentage you need to add to the labor factor to get to 100%.
$30.20/0.75=$40.26
If we were using the 10% duty factor, the math would be:
$30.20/.80=$37.75
Take your market considerations into account and research your competition. Set your price accordingly. Follow up with ongoing analysis and adjust the work factor or multipliers you use in the formula as needed until you find you have the results you need to break even. For example, you may find that you need to multiply your costs by 2.5 or even 3. You may find that your skilled labor is actually a factor of 30%, or even a factor of 10%.
Finally, we have not addressed the delivery. That’s a topic for another article, but remember to consider where the money comes from to cover the cost of delivery. If you include shipping with your regular spend (which you should), you’ll either need to add a shipping charge, which in effect only increases the retail price, or you’ll certainly need to use a higher multiplier. closer to three than two.
In short, you can analyze prices from dawn to dusk, in fact many people make a career out of it! I recommend that you establish a formula based on your best research. Make the formula simple enough for all your staff to follow. Most importantly, don’t stop there. Be diligent about checking your numbers on your profit and loss statement, and adjust the formula as often as necessary.
