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Great Ideas for Your Business...

• Pricing for Profit - a handy pricing system
• Pricing for Discounts - the 'break even table'

Pricing for Profit

Would you like a pricing system which guarantees you will make a desired level of profit over a year?

Let's assume you want to make 10% profit on your annual turnover. Further, let's assume you have average overheads (labour, power, rent etc) of 50% of turnover. The wholesale value of the flowers that you should put into (eg) a $40 bowl arrangement can be calculated by;

Therefore, to achieve a 10% profit with your present overhead costs, you should not use more than $13 wholesale of flowers and greens. Taking a different approach, this is a ( $40 bowl divided by $13 flower component gives ) 3 times mark-up.

Under this system, you would put in more flowers when they are cheap and less when expensive ( or temporally increase your selling price).

Of course, if you get left with a wholesale flower value that is obviously too low to give value for money, you will have to reduce business costs and/or increase sales volume to achieve the profit level you require. If you can't do either of these, you are going to go out the back door!

You can work out your own overheads from your annual accounts (divide the total of all costs except flowers and accessories by the turnover and multiply by 100 to convert to percentage) or use the figure of 45% which is the average obtained from a survey of Australian florists conducted by Petals.

For convenience, the value of flowers for several selling prices and overhead costs is given in the following table.

As an example of how to use this table, consider a bowl priced at $50. Assume your overheads are 55% and you want to make a profit of 10% of turnover giving you a total of 65%. Look down the 65% column and across the $50 row to find $17.50. Subtract from this the cost of the floral accessories to be used in the order (bowl, oasis, ribbon etc -say $3.00) leaving $14.50 wholesale value of flowers that you can afford to use in this order and still make a 10% net profit. For practice, look up a $40 bowl with 45% overheads and 15% profit and see if you get $16 in the table.

When choosing a pricing system, remember that you can sell more and more and still go bust if your pricing formula is incorrect. A simple mark-up strategy or, even worse, charging what the market will bear, can be a short road to ruin.

Pricing for Discounts!

This table will demonstrate how price reductions will effect your profit. To find the percentage increase in unit sales that you will need to earn the same gross profits when you reduce a price, look under your "Present Gross Profit" and across to the discount %. So. if your present gross profit is 25% and you discount your baskets by 20% you will have to sell 400% more than normal to get the same returns! So, think carefully before you discount!