This might seem to be a question that is simple to answer. When do you make money? When you sell something, of course, but if that is your answer, you’re wrong. You make money when you know how much the ingredients of your products cost you and how effectively you use the labor required to produce those products.
If you don’t have a solid knowledge of your costs or the relationship that these costs have on your profitability, it’s a safe bet that you’re losing money. Every florist must watch costs daily and look for ways to lower the cost of goods sold (COGS) and labor costs. Only when you have a handle on your costs can you make a true profit.
Look at it this way: think of your shop’s profitability as a three-tiered fountain and water are the money coming into your business. Your goal is to have enough to fill every tier.
The top fountain tier takes a lot of the water. It represents variable costs – all the costs that go into what you sell, including fresh product, materials, and freight.
The second tier is for your labor costs. Once your income covers your variable costs tier, it overflows to the labor tier. This tier also takes a lot of water and includes insurance, utilities, and business taxes.
Now, we have the third tier of our fountain and it’s the most important one – our profit tier. When you have enough sales to fill your variable cost tier and your fixed cost tier, then any money after that spills into your profit tier. If your bottom tier is dry or barely damp, you’re breaking even. But you’re not profiting. Breaking even isn’t and never should be good enough nor should it be your goal. Only when you earn a profit, can you stabilize your business and begin to grow.
You might be increasing your sales every year, but if you aren’t monitoring your COGS and labor, you could be at “break even” or actually losing money. That’s why so much is written about controlling your COGS and keeping an eagle eye on your labor expenses.
To fill your profit tier, police your design room production more diligently and use the Internet and your floral industry network to find the best product for the best price. If you don’t know what you’re spending or how the products are being used in your shop, you can’t possibly know when you make money - and isn’t making a profit the main goal of any business?