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Terms to know

Terms to know. Labor = human activity that produces a good or service. Mark-up: an amount added to the cost of an item or service to determine the selling price. Overhead: expenses and the general cost s of running a business.

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Terms to know

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  1. Terms to know • Labor=human activity that produces a good or service

  2. Mark-up: an amount added to the cost of an item or service to determine the selling price.

  3. Overhead: expenses and the general cost s of running a business.

  4. Operating expenses: all general and administrative costs, such as rent, utilities, insurance, fuel, etc. that are a necessary part of doing business.

  5. Floral Design Pricing Strategies

  6. What would this arrangement cost?

  7. What would this arrangement cost?

  8. What would this arrangement cost?

  9. What would this arrangement cost?

  10. Effective Buying • Flowers are seasonal, in order to make keep the cost of arrangements at a minimum, know when flowers are at their cheapest. • Takes flexibility • Know traditional sizes of bunches • Reduces overall cost

  11. Determining the Unit Cost of Goods of an Item Small design vase: $18.00 per case  36 (vases per case) = $0.50 per vase Tulips: $7.50 per bunch  (tulips per bunch) = $0.75 per tulip Courtesy of Interstate Publishing

  12. Example of Combined Prices Courtesy of Interstate Publishing

  13. How Is the Price of an Arrangement Determined? • The three most common methods of pricing design work are: • Ratio mark-up • Variable ratio mark-up • Percentage mark-up

  14. Ratio mark-up is a method of pricing based on a predetermined increase from the wholesale cost of goods • The selling price is called the retail price • Ratio for hard goods is 2:1; Ratio for perishable items is 3:1 • In other words, multiply foam by 2 and fresh flowers by 3 • Ratios vary from store to store; Will often be higher for more labor intensive work

  15. Ratio Pricing Using Two Methods Typical ratio mark-up Perishables Carnations 10@$.30=$3.00 x3 = $9.00 Leatherleaf 10@$.10=$1.00 x3 = $3.00 Hard goods Vase 1@$.90=$0.90 x2 = $1.80 Floral preserve 1@$.05=$0.05 = $0.10 Total: $13.90 Across the board 3:1 pricing ratio Perishables Carnations 10@$.30=$3.00 x3 = $9.00 Leatherleaf 10@$.10=$1.00 x3 = $3.00 Hard goods Vase 1@$.90= $0.90 x3 = $2.70 Floral preserve 1@$.05=$0.05 x3 = $0.15 Total: $14.85 Courtesy of Interstate Publishing

  16. Draw back to this system is that no net profit is planned and no overhead costs are incorporated into the calculations • Labor may be added based on an hourly wage, but benefits may be added as well • For example: the labor wage may be $8.00 an hour, but with benefits added, the cost of labor might actually be $12.00 • Another method is to add a flat 10 to 20% charge to the final price to cover labor and overhead expenses

  17. Hourly Wages Concept Chart Amount to be added to Price of Arrangement Time Spent Wage Wage with Benefits (Hours) (Assume $8/hr) (Wage rate + 50%) 1/4 $2 $3 1/2 $4 $6 3/4 $6 $9 1 $8 $12 Vase arrangement Cost $15.00 Hours to Complete 1/2- Wages including benefits $6.00 Total Price $21.00

  18. Variable ratio mark-up has different mark-ups depending upon two factors: type of design/type of flower and labor required to make it • Advantage is that the labor is included in the calculations • Disadvantage is that net profit is still a guess; May cause confusion with employees

  19. Examples of Variable Mark-up Courtesy of Interstate Publishing

  20. Variable Mark-up Courtesy of Interstate Publishing

  21. Pricing Strategies Continued Percentage mark-up is a pricing method that plans for profit • Wholesale cost of goods is used multiplied by a set mark-up percentage. • Advantage= if a customer wants to spend $30.00 you can determine how much product to use

  22. Gross sales = total dollar amount that a florist shop sells Operating expenses = the costs of running the business Labor= operating expenses, which involve people and time it takes them to produce the products Cost of goods = the cost of merchandise and supplies Net profit = the return on a florist’s investment

  23. Determining the Price of an Arrangement Using Percentage Mark-up Wholesale cost of goods = $6.00 Cost of Goods Percentage = 30% $6.00  .30 = $18.00 Retail cost = $18.00 If the consumer wants to spend $30.00, then calculate the wholesale cost of goods to use: $30.00 x 30% = $10.00 Wholesale cost of goods = $10.00 Courtesy of Interstate Publishing

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