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 your gross profit by increasing sales or reducing your 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 lie within those two options. For this article, let’s assume your spending has been carefully rationalized and you’re doing some due diligence on your shopping 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 put low prices on your products 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 its competition will determine, to a large extent, its price. Keep in mind, however, that by relying solely on these items, without looking at the true cost of the products you’re selling, you could lose your shirt. Pricing strategy can be tricky in a retail florist. This is because there are perishable items and skilled labor that must be factored in along with the gross cost of goods.

Let us consider each of these factors one at a time. We’ll start with cost of goods sold (COGS) because it’s the simplest 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 to the time you sell it. If you were to sell widgets and buy 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 products that you need to add to the flowers to make them salable. In the case of an arrangement, the cost of the goods includes the flowers, the container, the condom, and the tape or accessories.

Second, with perishable items, you will have a certain amount of shrinkage or product loss. Take your time to analyze the amount of product you lose. For every $100 worth of fresh flowers you buy, you should allow for approximately a 5% loss for shipping and normal damage. You will 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 don’t sell before they expire, or because they go to waste or break in the store.

Now, let’s look at the components of a fresh flower arrangement. We’ll use some industry standards as a starting point for pricing.
Fresh Flowers – If flowers are $10 wholesale, will add $1.50 for shrink, .10 for 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 the retail price: $4.00
You’ll put up 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, you must consider the cost of the skilled labor that went into creating 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 on 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 sales 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 labor factor of 10%, the math would be:
$30.20/.80=$37.75

Keep your market considerations in mind and do your research on your competition. Set your price accordingly. Follow up with ongoing analysis and adjust the labor factor or multipliers you use in the formula as needed until you find you have the results needed 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%.

Lastly, we have not addressed delivery. That’s a topic for another article, but remember to consider where the money is coming 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 just increases the retail price, or certainly use a larger 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 in checking your numbers on your profit and loss statement, and adjust the formula as often as necessary.