Pricing for Profitability – Part 1
I know, I know. Math is BORING. At least for most people this is an absolute truth of life. Me on the other hand? I once worked through a math textbook from start to finish in one week. For fun. No joke.
Flower peeps, I’ve got news for you. Math is a reality of floristry and we rely on it almost every day of the week. And when we understand how to do the math, we’re one step closer to running a profitable flower business.
Does your bank account reflect the amount of time and energy you’re spending on your business?
If it is, well done. Give yourself a giant pat on the back and keep on keepin’ on.
If it isn’t, don’t fret. We’re here to help you decipher the numbers and empower you take control of your worth.
But Kathleen, where do I even begin?
We hear you. Finances are intimidating and there is a weird vibe that seems to hang over us when we bring up the topic of profitability and handling money. We get a bit sweaty and our hands start trembling. A hush comes over the room. It’s awkward.
Many of us feel shame when it comes to the topic of money. There is an assumption we should inherently know how to handle money. But how many of us were either (a) taught by an experienced, professional mentor about the ins and outs of money or (b) trained at school to understand budgets and money management?
Stop feeling ashamed and start paying attention. We’re here to show you what we’ve learned in establishing our own, successful flower brand.
Our top three tips
- Understand your expenses, as a business – Write down what it costs you to run your business at this moment in time. It’s important to gain a grasp on your real business expenses. Often there are dozens of incidental costs that add up to real money.
- Stop pricing emotionally – We’ve all been there. We are passionate about what we do, we care about our clients but we ‘feel bad’ because they have a limited budget so we take a hit to help them out. Stop it. Just stop it. Please.
- Understand your expenses, as a human – How much do you need to make in order to pay your bills? What are your dreams and aspirations, and how much do you need to cover the basic expenses of your own life?
Equations over emotions everyday.
Let’s start at the beginning, Step 1 Understand your Business Expenses.
There are dozens of items that can be considered basic costs of operating a business. Let’s start with the most straightforward ones – the things you pay for regardless of whether you have a wedding scheduled for this weekend or you have the weekend off. These are called fixed costs or fixed business expenses.
Here are a few examples of fixed business expenses:
- Light, Power, Heating, Air Conditioning costs
- Office Expenses, such as stationery, printers, ink, computer costs
- Motor Vehicle Costs – annual maintenance, insurance, repairs
NOTE: If you are just starting up, be sure to account for one-off costs such as legal / formation costs, website design fees, logo / branding design elements etc. Although these costs are not incurred on an annual basis, they can affect your annual budget and need to be accounted for when you are creating your initial annual operating budget.
As a first step towards pricing for profitability and sustainability, download a copy of our Business Expenses Workbook and we’ll walk you through how to calculate your annual fixed business expenses.
There are also business expenses that are specifically tied to this weekend’s wedding. These are referred to as variable costs or variable business expenses. These are often more complicated to calculate.
Variable business expenses might include:
- The cost of the flowers (wholesale)
- Sundries or hard goods such as twine, wire, ribbon, floral foam, vases and packaging elements
- Transportation costs such as: (i) courier fees for the flower shipment, (ii) petrol to get you to the wholesalers, (iii) parking fees for the venue, or (iv) petrol to get you to and from the drop off points for delivery
- Labour, if you are hiring assistance to help execute various aspects of the wedding set-up
- Hire fees or rental costs, if you are hiring linen, candles, signage etc. from a separate company (this is only relevant if you are paying for these out of pocket, as opposed to the wedding planner, event management company or the bride & groom themselves coordinating hire)
- Bank fees and processing costs (for taking payment from the client)
I’ll talk more about variable costs in our next instalment.