Unit B 2 -11 Floriculture Horticulture CD

Unit B 2 -11 Floriculture Horticulture CD

Problem Area 2 Floral Design

Lesson 11 Pricing Floral Design Work

Interest Approach Suppose you were to buy this arrangement at a local florist. What do you think it would cost? What if you were to make if yourself. Would it cost just as much? Why or why not? Courtesy of Delmar Publishing

Student Objectives 4 1. Explain the importance of effective buying. 4 2. Explain how to determine the costs for floral arrangements. 4 3. Describe typical pricing strategies.

Vocabulary 4 Broker 4 Net profit 4 Combined pricing 4 Odd end pricing 4 Cost of goods 4 Operating expenses 4 Gross sales 4 Percentage mark-up 4 Hard goods 4 Pricing strategies 4 Labor 4 Ratio mark-up 4 Leader pricing 4 Retail price 4 Multiple price points 4 Tie-in pricing 4 Multiple unit pricing 4 Unit cost of goods 4 Nested baskets 4 Variable ratio mark-up

Vocabulary Continued 4 Wholesale cost of goods or wholesale price 4 Wholesale florist

From Whom Do Florists Buy Goods and Supplies? 4 Effective buying requires knowledge, organization, planning and a degree of flexibility 4 Retail florists must consider several factors in regards to suppliers and their products: – 1. A wholesale florist is a link in the marketing chain between the grower and the retail florist • Often referred to as wholesalers

• Wholesalers may only provide fresh flowers; Or they could supply fresh flowers, supplies and houseplants • In order to deal with a wholesaler, you must have a sales tax number or be tax exempt • Retail florists may use more than one wholesaler due to delivery times, product availability, customer service and getting the best price – 2. Growers are the production end of the florist industry; Can be domestic or foreign

• They will sell direct to retail florists if quantities ordered are large enough – For example, a florist may purchase roses for Valentine's Day direct from the grower because it is cheaper – 3. Flower markets exist in some large cities • All wholesalers will be represented at this market • Florists are able to compare and buy a wider variety of materials

– 4. A broker is an agent who buys flowers and sells them to wholesalers and retailers • May purchase flowers at auction or from the growers • They usually never physically handle the flowers – 5. Other factors to be considered when buying flowers include: – A) knowing who can provide the best quality and price of flowers is valuable to the retail florist

• Retailers need to inspect each shipment and let the suppliers know when satisfaction is not met • Being cooperative and honest will allow for a successful relationship with the supplier; Paying bills on time also builds trust in the relationship – B) buyers need to know bunch sizes for typical flowers • Sizes are usually 10, 25, if not a single stem • Buying in larger quantities may reduce the unit cost of an item

– Ex. Gerbera daisies sold by the stem may be $1. 00; If you buy 40, they may cut the price to $0. 85 • By planning ahead, a florist may save money – C) the florist needs to determine the unit cost of goods • The unit cost of goods is the price of a single item determined by dividing the overall bunch or case price by the number of items in the bunch or case – Used in determining the cost of an arrangement

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

• Hard goods, which are supplies such as ribbon and floral foam, also have unit cost • The unit cost of goods is a wholesale cost not a retail cost – The retail cost is the florist’s selling price, which is determined by marking up the wholesale cost of goods • Another method used is combined pricing, a method of adding the total cost of supplies used in a typical arrangement to the cost of the fresh flowers – This method saves time on frequent purchases

Example of Combined Prices Courtesy of Interstate Publishing

How Is the Price of an Arrangement Determined? 4 The three most common methods of pricing design work are ratio mark-up, variable ratio mark-up and percentage mark-up – The method used varies from shop to shop – Depends on type of shop and the profit strategy

4 A. 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

Ratio Pricing Using Two Methods Typical ratio mark-up Perishables Carnations [email protected]$. 30=$3. 00 x 3 = $9. 00 Leatherleaf [email protected]$. 10=$1. 00 x 3 = $3. 00 Hard goods Vase [email protected]$. 90=$0. 90 x 2 = $1. 80 Floral preserve [email protected]$. 05=$0. 05 = $0. 10 Total: $13. 90 Across the board 3: 1 pricing ratio Perishables Carnations [email protected]$. 30=$3. 00 x 3 = $9. 00 Leatherleaf [email protected]$. 10=$1. 00 x 3 = $3. 00 Hard goods Vase [email protected]$. 90= $0. 90 x 3 = $2. 70 Floral preserve [email protected]$. 05=$0. 05 x 3 = $0. 15 Total: $14. 85 Courtesy of Interstate Publishing

– A major 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

Hourly Wages Concept Chart Amount to be added to Price of Arrangement Time Spent Wage with Benefits (Hours) 1/4 1/2 3/4 1 (Assume $8/hr) $2 $4 $6 $8 Vase arrangement Cost Hours to Complete 1/2 Wages including benefits Total Price (Wage rate + 50%) $3 $6 $9 $12 $15. 00 $6. 00 $21. 00

4 B. 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

Examples of Variable Mark-up Courtesy of Interstate Publishing

Variable Mark-up Courtesy of Interstate Publishing

Mark-up Comparisons Courtesy of Interstate Publishing

Pricing Strategies Continued 4 C. Percentage mark-up is a pricing method that plans for profit – Uses the wholesale cost of goods divided by the cost of goods percentage as reflected in the shop’s financial statement • Requires the florist to analyze the business’ financial statement to determine the percentages of the major factors of gross sales: – 1. Gross sales = total dollar amount that a florist shop sells

– 2. Operating expenses = the costs of running the business – 3. Labor = operating expenses, which involve people and time it takes them to produce the products – 4. Cost of goods = the cost of merchandise and supplies – 5. Net profit = the return on a florist’s investment

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

What Are Pricing Strategies? 4 Pricing strategies are well-planned methods and practices of pricing intended to attract customers to the floral shop and motivate them to buy – Successful strategies can increase sales volume and gross sales 4 Strategies to attract customers - good retailers are always looking for ways to entice the consumer into their shops

– Advertising and window displays are effective methods, along with open houses at various times throughout the year • 1. Leader pricing is a method of offering commonly purchased and recognizable items at a significantly reduced price compared to the competition – This will suggest to the consumer that all other items are reasonably priced – Key is to negotiate good buys from the wholesaler

• 2. Multiple unit pricing is a strategy to encourage the customer to come into the shop and then buy more by offering price breaks for purchasing additional items – For example: one rose for $2. 00 or three for $5. 00 – Bouquet specials and buy-one-get-one-free offers are other examples 4 Strategies to motivate more buys - everything in a store should be priced so that the consumer knows exactly what it costs

– Various stickers and tags can effectively do this – Signs can be created to make consumers aware of specials – Rounding odd prices up make prices easier to understand – Types of pricing: • 1. Odd end pricing = is rounding a product’s price downward – For example: round $13. 00 to $12. 99 – This product will then seem less expensive

• 2. Multiple price points = a method of pricing and displaying several related designs or products in varying sizes and varying prices to provide customer choice • 3. Nested baskets = are a multiple price point concept, using three baskets that fit inside one another and varying the price of each so that the consumer will have more choices • 4. Tie-in pricing = a method to encourage customers to buy related items by offering special discounted prices when the products are purchased at the same time – Ex. Candles and centerpieces

Summary 4 How is wholesaler florist different from a retail florist? 4 What is the job of a broker? 4 What is the unit cost of goods used for? 4 How is gross sales different from net profit? 4 Explain leader pricing. 4 Give an example of multiple unit pricing. 4 Why is odd end pricing so effective? 4 How would tie-in pricing increase profits?