Web site instead of wire services?

[goldfish]

I was beginning to think I was all alone out here with my perennial comments about Cost Accounting.

Thanks Prestonway for the back-up.

Well, we always do cost accounting, with labor as a fixed expense. To us, it gives a better "intuition" as to what's going on. My personal preference.

On the other hand, I am not religious about the question of which accounting methods would be best for florists. I don't think the choice of accounting method matters. I can see how some people prefer using the orthodox accounting using labor as flexible expenditure associated with production.

Regardless of what accounting people choose to use, what really matters, I think, is that people need to understand the meaning of each number they see on their accounting chart. People need to realize that, depending on how to calculate these numbers, what they mean can be quite different.

That's easier said than done, as most accounting calculation is arbitrary. You could increase or decrease your net profit almost as you wish (though some of these creative accounting practices are illegal).

Anyway, here's the bottom line. Numbers are just that, numbers. The meanings of those numbers are more important than the precision of those numbers (yes, numbers do "lie"; look at Enron).

 

[12BucksFor2Dozon]

Mark:

That has nothing to do with PW's last sentence in the posted example about cost analysis.

Joe

I respectfully disagree. There is short-term cost analysis and long-term cost analysis, like CHR mentioned. She brought up the amortization cost of the guide and other long-term costs that PW failed to mention, and I feel I brought up another valid long-term cost of promoting some other brand instead of your own. When we were part of the OTSs we were constantly battling with large and small billing errors and blantent overcharges that crept into our monthly statements, things that could have been overlooked if you were not careful. I think 75% or so of the months we had to call an OTS to dispute some random charge or two on our bill.

To their credit they almost always immediately removed the charge, but just the fact we had to waste the time and effort to check on it all the time was enough to make me angry enought to stop doing business with them.

 

[goldfish]

Am I missing something??

No, and I don't doubt that if you have an "excess production capacity", joining or staying with a WS generates a positive cash flow. That's precisely the reason why our store can't get rid of WS.

Anyway, what we can further in the discussion is that, in the hypothetical store above, joining a WS is only one of the many possibilities that this store can take to help the bottom line. In a more relaistic situation, the issue is seldom whether or not WS makes any money (yes, it does when there is excess production capacity). It's whether WS is the best way to go among other things a florist can do with the same excess production capacity it possesess.

For example....

The store could cut the excess production capacity (summer-time schedule, etc).
The store could ask the designer to go out and do marketing.
The store could ask her to sing a song loud in front of the store to attract crowd.
and so on...

Any of these could help the bottom line.

 

[12BucksFor2Dozon]

...
The store could ask her to sing a song loud in front of the store to attract crowd.
and so on...

Any of these could help the bottom line.

Trust me when I say, as a musician, that if "sang loud in front of the store" people would run, not walk, as far away from me as possible, never to venture near my store again...

 

[prestonway]

I love this discussion.

Lemme see, numbers lie...just like Enron.

The only way to get more incoming is to buy containers...ads...more flowers.

The big senders already have there preferred shops, there is no more business to be had for incomings.

The wire services are only gonna re-direct the customer to direct shipping in the long run.

Sorry folks, but I don't really care about these side issues...it's only the pure numbers I'm interested in discussing as that is the sole basis for decision making when operating a business.

In other words, can I make a buck at this today...yes or no?

My original discussion had $750 C.M. after dues.

I'll buy the $5.00 delivery cost, even though this expense should be deducted before the 30% Cost of Goods...but for sake of discussion I'll leave it as is.

So now we're down to $500, less the amortized cost of the directory ($300 over 24 months, or $12.50/month). Good job Joe, must be using those fingers & toes without your calculator!

Have no idea what other "long-term costs that I failed to mention" which 12Bucks refers to, so I can't comment.

O.K....it's now down to $487.50/month, or $5850/year.

Not gonna retire, but ain't gonna throw it away either.

Remember, I'm a business grad.

Not too keen on the implications of fudging the numbers like Enron...I LIVE BY NUMBERS especially according to GAAP.

Further, I'm not concerned about the "big picture" of what the big boys are going to do in 5 years...only concerned about the bottom line result of my business decision today as it impacts my business.

In this industry today I'm in survival mode, & can't concern myself about what might happen down the road. I need to run my business today...for today.

I make business decisions, not decisions based on what may happen in the future. I'm aware of what MIGHT happen down the road in this industry, but I REFUSE to let my emotions cloud what would be a sound business decision today.

So...if I can make a buck today...I'll do it.

Enabling the competition by filling incoming...probably. Accessing 50 new potential customers a month who are now exposed to my high quality, long-lasting flowers...definitely. Opportunity to market to these 600 recipients in a year, emphasizing the savings by eliminating the middleman & dealing with your local florist directly...PRICELESS.

And when I crunch the the numbers a year from now & if it doesn't make sense, I'll quit.

PLAIN...PURE...& SIMPLE.

So I've got $5850 more in my pocket this year than you, 12Bucks.

Where do we go from here...gonna nickel & dime me some more...or agree that to run my businesss with the additional revenue stream provided by incoming wire orders is not such a bad idea?

 

[prestonway]

For example....

The store could cut the excess production capacity (summer-time schedule, etc).
The store could ask the designer to go out and do marketing.
The store could ask her to sing a song loud in front of the store to attract crowd.
and so on...

Any of these could help the bottom line.

Already stated if her hours are cut, she'd leave.

She is a designer, not a marketer.

She is a designer, not a singer.

...and she's not paid to wash floors, fill water tubes, or bleach pails either.

So if she's being paid as a designer, she better be designing & not doing these make work projects she's not trained for!!

 

[Eric S]

Prestonway

Goodluck with your decision. You make a good point about the money and that is what it boils down to. Many of us are just tired of working harder and making less. There really is a change in the industry and you just have to do what is best for your business. Many of us have learned from our mistakes and we have taken the time to share that with the many out there looking for the same answers. The change will take time and it will be the ones that band together, share ideas and learn from each other mistakes. Those will be the ones that will be around when this change takes place.

For now its waiting game and long summer ahead of us.

 

[Joe Mioux]

Well, we always do cost accounting, with labor as a fixed expense. To us, it gives a better "intuition" as to what's going on. My personal preference.

On the other hand, I am not religious about the question of which accounting methods would be best for florists. I don't think the choice of accounting method matters. I can see how some people prefer using the orthodox accounting using labor as flexible expenditure associated with production.

Regardless of what accounting people choose to use, what really matters, I think, is that people need to understand the meaning of each number they see on their accounting chart. People need to realize that, depending on how to calculate these numbers, what they mean can be quite different.

That's easier said than done, as most accounting calculation is arbitrary. You could increase or decrease your net profit almost as you wish (though some of these creative accounting practices are illegal).

Anyway, here's the bottom line. Numbers are just that, numbers. The meanings of those numbers are more important than the precision of those numbers (yes, numbers do "lie"; look at Enron).

Hi Gold,

Choosing one accountancy method over another is not a choice. All businesses do Financial Accounting.

Cost accounting is a management tool. It allows you to make business decisions based on how expenses impact Gross and Net Profit, i.e. Contribution Margins, your Break-even point, etc. Cost Accounting is used to determine whether one department within a business is hurting or helping profit. You can use Cost Accounting to determine whether your Gift Department, Plush Dept, Plant Dept is actually contributing positively or negatively to the overal business.

Financial accounting is Balance Sheets and Income Statements and stuff like that. It is the camera that tells you where you spent your money and how many sales have been generated. Yes, you can make some business decisions from this information, but not the type of decision that would allow one to expand or terminate a certain sales department such as WS, or the ones I mentioned earlier.

Also, Gold, Numbers don't lie, people do.

Joe

 

[12BucksFor2Dozon]

...
PLAIN...PURE...& SIMPLE.

So I've got $5850 more in my pocket this year than you, 12Bucks.
...

...and I'll make a bet that in 5-7 years my brand will be 10x stronger than yours and I'll be sending and receiving orders through some type of system that does not compete against me and does not allow competitors to misrepresent themselves as local florists and steal local customers.

At least in my mind, life/business isn't all about grubbing dollars, "PLAIN...PURE...& SIMPLE". I like my bubble of integrity, however small it may be in this anything-for-a-buck world we live in. I used to live outside of it, and did the most crazy stuff to make money, and made a whole ton of it. Discovered that, at least in my life, being run by the bottom line did not improve my "condition". My Dad, rest his soul, made 10's of millions in his life (he was a Pathologist...as he said "people were dying to see him"), but taught me early on take if you were not careful, you would stop owning the "stuff" and the "stuff" would own you...

Run the numbers, sell the snake oil, kiss-the-butt...whatever. If the OTSs work for you, work them...to be honest, if I would have seen 3 orders a day, as you mentioned is the break even point for the wires, when I was a member I *might* have stayed with them too, so perhaps we are not as different as you may think.

But if you can remember, this thread started with Twiggy asking if, as a new shop, being part of a OTS is a good thing. I stand STONGLY by my premise that as a NEW shop in the current floral business environment, SHE WILL NOT GET 3 ORDERS A DAY AND WILL THEREFORE NOT MAKE ANY PROFIT FROM BEING PART OF THE NETWORK FOR AT LEAST 5 YEARS.

Does that make sense to your business/mammalian brain?

 

[BOSS]

BOSS's Quote of the day!!

Further, I'm not concerned about the "big picture" of what the big boys are going to do in 5 years...only concerned about the bottom line result of my business decision today as it impacts my business.

In this industry today I'm in survival mode, & can't concern myself about what might happen down the road. I need to run my business today...for today.

I make business decisions, not decisions based on what may happen in the future. I'm aware of what MIGHT happen down the road in this industry, but I REFUSE to let my emotions cloud what would be a sound business decision today.

Welcome back Preston.....

 

[twiggy]

Hey Twiggy, Have we confused you enough!

Welcome to FC

Joe

LOL!..what a great debate.. i'm glad so many weighed in on this.. gives me a better perspective.. thanks for the welcome.. i'm LOVING this!

 

[Joe Mioux]

...and I'll make a bet that in 5-7 years my brand will be 10x stronger than yours and I'll be sending and receiving orders through some type of system that does not compete against me and does not allow competitors to misrepresent themselves as local florists and steal local customers.

But if you can remember, this thread started with Twiggy asking if, as a new shop, being part of a OTS is a good thing. I stand STONGLY by my premise that as a NEW shop in the current floral business environment, SHE WILL NOT GET 3 ORDERS A DAY AND WILL THEREFORE NOT MAKE ANY PROFIT FROM BEING PART OF THE NETWORK FOR AT LEAST 5 YEARS.

Does that make sense to your business/mammalian brain?

Mark:

RE: First Paragraph. WS business is probably a very small part of the overall floral business of any flower shop. There probably are exceptions.

For me it is less than 10 pct of my overall Gross Sales and the trend is that it is getting smaller not larger. That is why last year I dumped one of my FTD memberships. TF membership is being evaluated this year.

Even in the heyday of WS's, pre-1993, I would doubt that most florists overall business consisted of incoming wire business.

My point is that the WS's have very little impact on my branding of my business. Never has and never will.

RE: Twiggy's query: she does have the luxury of time. As with all business endeavors, some work some don't. If Twiggy chooses a wire service and the WS turns out to be a wrong decision, it's easy to drop the membership.

One thing is for certain, if she doesn't join a WS, she will never know if it will help or hurt her net profit.

Joe

 

[CHR]

She is a designer, not a marketer.

She is a designer, not a singer.

...and she's not paid to wash floors, fill water tubes, or bleach pails either.

So if she's being paid as a designer, she better be designing & not doing these make work projects she's not trained for!!

Slightly O/T but what about using a designer's skills during slow times to bring you more 100% direct business, like:

• Creating recipes and building an image gallery of in-store specials for your website and print marketing pieces
• Re-doing store displays
• Re-designing window displays, getting a few 'in the can' during slow times so they're ready to go in prime time holidays
• Making silk arrangements in advance of Fall and Christmas selling opportunities

If the owner is the prime designer (as is often the case in this biz with new companies), then the time spent making and delivering 50 orders/mo and only adding marginally to the bottom line is not usually the best use of his/her resources to grow the business. It may fit the comfort zone, however.

 

[Griff]

Yes, Joe, it is a very good debate and I'm enjoying every minute.

First of all, I'm sorry, but the example I gave about the clothing store IS the same as as the florist. The clothing store is trying to get ride of excess inventory by accepting discounted business <sale> and you and preston are talking about getting rid of excess labor by accepting discounted incoming wire business. Both are utilizing discounted business to use up an excess and have a marginal gain.

The formula that you are referring to gain marginal income is a valid formula, but very difficult to use in the florist business in this example. The problem is that florists just can't concern themselves with a designer that is not fully utilized, but also the unknown expense of delivering any work that designer produces. And any incoming order from a WS WILL have to include full delivery expense. I disagree strongly with this idea that DISCOUNTED business will help pay some fixed espenses these days. You are attempting to show that you can solve one FIXED expense <labor> by adding another VARIABLE expense which is joining a WS or accepting MORE incoming. This VARIABLE expense is a "hummer". It is not only the $250 <example> monthly dues, but must also include the unpredictable number of incoming orders every month. That number could be 50 as Mr Preston indicated and it could be 10. The WS have alot to say these days as to who gets what orders and for what reasons. The number can change from month to month just based on how many florists are listed as also serves or who is ending them. In additon, you have a large variable concerning the actual delivery cost of these orders. How far did you have to travel, cost of gas and corerctness of the order information given. Also not included is the cost of buying extra flowers just because the ones on hand don't meet the order requirement. The point is, you have no way of knowing what those real numbers are until the end of the month and after you have taken in those discounted orders. Many will find NO real marginal gain.

A florist can offer a "special" <sale> on a specific item <roses> or specify a special price for arrangements for a set period of time <15% off> or restrict any special offer to a limited items and not everything in the store. You, the owner have some control over the outcome. Accepting discounted incoming wire business allows you NO control. Yes, you can refuse an order, but you can't control the actual variable expenses that come with all the other orders they send you.

When any new business is started up, you gear you business to start at the bottom and work your way up. You don't hire a designer unless YOU are not a designer. Then you become the driver for delivery. You don't hire both a designer and a driver because you know that sales will not support that expense. What many long term florists become faced with is flat sales or worst yet declining sales and trying to find ways to keep everyone busy. The old concept was to take on more incoming wire business just to move product and keep the workers busy. Most florists can find some short term solutions and several of you have giving some ideas. Joining any WS to gain incoming discounted orders has to be thought of as a long term alternative and not a very good one, in my opinion. If the designer is not happy with less hours then let them find the alternative. Sad as it is, your business comes before the individual. I say again, because this solution is an ADDED variable expense, there are examples where you can win and there are many more where you can lose.

If you build your business to support the local market first and adjust as you go along, much of what we are talking about doesn't become as much of a problem. The ever increasing addition of OG's is what is causing much of our problems with local business. Taking what would be full value business locally and finding ways to run it through a middleman and convert it into discounted business. But then making a buck is making a buck. Isn't that right, Mr Preston??

 

[Bigted]

The real question

The question that started this thread was WS or not. Frankly, the answers are way too complicated for any florist, especially a new florist, to follow. Contribution margins, impact of incremental sales and semi-fixed costs are all valid business concerns, but a new florist won't be ready to address these issues for a while.

My recommendation would be to start without a wire service, see how much money you make, then add one, and compare the results.

My experience in the first year suggests that information on how to keep customers happy, buckets clean, vans running, employees drug free and toilets unclogged come before the evaluation of semi-fixed costs.

 

[David L.]

Getting back on track

Enough about marginal cost, financial cost, cost accounting, margins, et cetera. Though I could wax eloquently.

So what does everyone think about starting out with NO WIRE SERVICES!?? ..... and am wondering wouldn't my money be better spent on a nice web site??

Think about this.

What do you want a wire service for?
What useful service does it perform?
Do you want it to send only?
Are you interested in getting lots of in-bounds?
Think you can use your delivery of in-bounds to develop new local customers?

Being that you are in a very small town, in-bounds will likely be very small. So don't get lost on 50 per month etc. My guess is that you would be lucky to get 10 per month outside December and May.

My hunch is that the most useful (and perhaps only) benefit to you would be to send orders. But you do not need a wire service to do that. And again being in a small town the number of outbounds would likely be very small per month.

So from my perspective, to answer your original question, put the money into a web site. Then your audience is the world and who knows, maybe you will get a gazillion orders that you can send out. )

FWIW, my shop was at one time member of 5 wire services. Had been a member of FTD since 1969. I gave them the boot exactly 1 year ago this month. Now Teleflora only. City of about 80,000 and in May received 26 orders and sent 16. Usually we send about 2 out for each in.

Cheers,
David L.

 

[prestonway]

The point is, you have no way of knowing what those real numbers are until the end of the month and after you have taken in those discounted orders. Many will find NO real marginal gain.

I totally agree with you, Griff...you don't know...but this is ultimately what I'm trying to get at.

This thread is what business planning is all about.

But what florist actually plans before they make a decision???

How many FC participants tune out of this thread, because with all this talk of numbers many acquire a stoned glaze over their eyes.

Have you ever attended a florist's seminar on understanding financial statements, only to see more than half leave before the end (case in point last year's Gaylon Pyle seminar at the FTD Dallas convention...VERY INFORMATIVE)

BEFORE you make any business decision, what are you basing your decision on?

Your feelings?

Comments on a chat room?

What the guy down the street is doing?

Heaven forbid, maybe even the impact on bottom line profitability???

Business planning is just that...a projection as to what may or may not happen if we execute a certain decision.

What are the high, low, and break-even projections. Are they achievable? What do other shops in similar sized communities with the same number of competitors currently achieve?

Looking at adding a wire service? Thinking about your yellow page ad? Contemplating that POS system? Hiring a designer so you have more time for marketing?

All these decisions are business decisions, that are usually made on instinct &/or feel, but no financial analysis.

I still remember the old AFS days. You could usually count on 5 or 6 phone orders not being reported each month, because the filler only had their financial statements done once a year by the accountant. I still remember calling them "100% commission orders". This is a business?

Don't know how to do financial projections?...Well you better find out.

Don't care?...Welcome to the floral industry

Don't bother me, I'm too busy making silk arrangements?...I rest my case

I'm all about the "mighty buck"??? Nawwwww...I just like playing with flowers...it's my hobby you know...

(& thanks for the welcome back, BOSS. Haven't left...just listening & trying to learn!!!)

 

[12BucksFor2Dozon]

...
I'm all about the "mighty buck"??? Nawwwww...I just like playing with flowers...it's my hobby you know...
...

We can agree there...it's ALL of ours hobby

 

[CHR]

My experience in the first year suggests that information on how to keep customers happy, buckets clean, vans running, employees drug free and toilets unclogged come before the evaluation of semi-fixed costs.

ROFL. So true for new (and current) owners.

Twiggy has a big advantage in that she has a year to put her puzzle pieces into place.

Imagine opening a new B&M business with a fully functioning, fully indexed website ready to go. One of my husband's recent students is opening a new shop in Michigan in September. She already has her site up and is working to build an image library now - while she has the time. Her approach is refreshing in that she's covering the important, fundamental business development aspects that are often overlooked by aspiring flower shop owners.

I can't really predict the coming changes on the WS horizon but image we will be looking at a somewhat different picture this time next year. Safe to say we can count on changes in proprietary tech interfaces, more turf wars, alliances in flux and more fees. The decision about a WS can wait a year.

The development of a website - domain name(s) registration, basic content, information articles, image library building, etc... can start now.

 

[Joe Mioux]

Griff in a prior post you alluded to Preston and Me focusing on labor,

Preston and I are not just talking about labor expense it is the total O.E of the business.

Here is an example Gross Sales $200,000 with COGS (30 pct of sales) at 60,000, Gross Profit at $140,000, Operating Expenses are 120,000 (supplies, rent, insurance, labor utililities, property taxes, payroll taxes, repair and maintenance expenses, delivery vehicle expenses, Membership expenses, Professional fees, Advertising expenses, etc). Net Profit is $20,000.

Now: say you join wireservice and receive an additional 50 orders per month averaging $50. That equals an additinal $30,000 in sales, subtract 27 pct $8100 and you have a net WS sales of $21,900.

O.K.

Now new Gross sales with discounted wireservice business is $221,900.

COGS go to $65,700, Gross Profit goes to $156,200.

For the most part all expenses will have stayed the same except an additonal variable cost of operating your vehicle and WS memebership fees.
The fees equal $3000 per year and say your vehicle variable costs are $2.50 per delivery. New delivery expenses are increased by $1500. (50 new orders per month equals 600 additional delivers times an additional $2.50 in variable vehicle costs.)

New additional OE is $4500 add that to previous OE of $120,000 equals $124,500

So new net profit with discounted wire business is now $31,700 (GP, $156,200 minus OE, $124,500) $31,700.

I could also have used numbers that would make it unprofitable as well. Example $100,000 in sales with COGS at $50,000 and OE at $40,000. Net profit $10,000

Addiing a wire service and receiving 120 orders per year at $30 less 27 pct equals $2628.

Additional OE $3000 membership, additional delivery expense is $300 (120 deliveries times $2.50 equals $300).

GP - COGS at (50 pct)

Gross Profit now is 102,628. - $51,314 = $51,314

OE is now $40,000 + $3300 new WS associated costs equals $43,300

GP - OE = NP is now
$51314 - 43,300 = $8014.

So in my second scenario it is better for this florist to not be a WS member.

My point is you have to use your own accurate numbers for Gross Sales, COGS and pct of GS of COGS, OE, and Net Profit.

I am not advocating that wireservice business is correct for every florist.

I am saying that you have to look at your financial records apply some Managerial accounting principles and make an accurate assessment of whether a WS business is good or bad for your business' net profit.

Note that even with my bad scenario there is a difference of $1986 $10K- $8014 = $1986.

I did not even address the outgoing wire income. Say this second example send 100 orders valued at $25 for the year. This florist now makes an additional $2500 in profit.

So now, there is a net gain from $10,000 net profit to $10,514.

So now in the bad scenario a florist operating $100K with bad COGS of 50 pct this florist can still make a little bit more money with WS.

Plug the numbers in yourself Twiggy. During the next couple months project your Gross Sales, COGS, OE with and without WS affiliation. YOu will have to make some guesses such as incoming and outgoing business but atleast you have a formula that can help with your decision to join or not.

Again I am not advocating WS or no

Hope this helps

Joe