Just a couple of questions first to clarify some things. Because you treat design labor as a fixed expense, you say that as long as incoming wire orders cover variable expenses (COGs) and delivery, it is not necessary to cover labor expense. I'm not trying to put words in your mouth so state it however you wish.
I am glad to answer this question....
On a daily, weekly and sometimes on a monthly basis, a flower shop will employ the same number of people irregardless of the daily, weekly or monthly work load. Over the long term, we all have to adjust labor up or down depending on sales.
Now specifically, if your COGS is $15-20 for a $50 incoming wire order, your wire discount and member fees will drop the sale to say $30. You will have $10-20 to contribute to your Fixed costs.
Your fixed costs, which includes labor, utiliities and a good portion of you delivery expenses will occur whether you make this sale or not. So if you have 50% labor and utilities expenses/to GS. Your additional $10 - $20 will help pay for those expenses.
It is not about earning a net profit that is derived from covering 100 pct of your expenses. It's about reducing the burden of fixed costs on 100pct of the sales.
Remember if you have $25 in fixed expenses per avg order and you accept a little more business at a discount, that discounted revenue over and above the variable costs of the sale will ease the burden (Contribute) to the average per sale fixed costs.
Secondly, I asked previously if you considered a driver as fixed or variable expense and you detailed all costs relating to delivery as either fixed or variable. It was just a simple question. If for example, I employ a driver for anywhere from 2 to 4 hours daily based on need, is the driver's expense fixed or variable? If I employ a PT designer as BOSS has indicated, is this designer still considered fixed or a variable expense?
This is where you fall down.... If you hire a person for 2-4 hours per day, every day, 5 days a week, 12 months out of the year, that part time person is a fixed expense. Why? because you did not tie that person to a particular sale. Now, holiday could be considered a variable expense, but it doesn't change the benefit of accepting additional discounted business.
No I didn't. Some items are fixed. Depreciation, insurance, etc are definitely fixed costs. The delivery driver may or may not be fixed. It depends if he is there only for deliveries or has other responsibilities.
Obviously, Gas, oil, and other maintenance items are variable.
And lastly, if you have a husband and wife as the sole employees and the wife does design and all flower related choirs and the books and the husband does the delivery and sales. They're joint owners. Are they considered a fixed expense or variable?
I suppose if they take a structured draw, or salary they would be considered fixed. However, if they are living out of the cash register then they shouldn't be in the business.
Now I have to get to work.
joe
