“How to calculate your prices to ensure you make your desired net profit”
There is no “industry standard” markup in the floral industry. At least there isn’t according to the literal definition of the phrase “industry standard.”
Since starting our floral studio, Twisted Willow Design, in St. Louis, Mo., six years ago and opening Curate five years ago, I’ve worked with thousands of innovative florists on their invoicing, proposals and profit margins. I’ve seen scores of Excel sheets formatted in every way, shape and form. And I’ve heard hundreds of “industry standard” markups, ranging from 2x to 6x for fresh florals and hard-good markups from 20 percent to 70 percent COGS (cost of goods sold), and labor charges ranging from 15 percent to 50 percent.
While using any of these “industry standard” markups may not be wrong, it is important to understand that the 2.8x floral markup used by a florist in Pickneyville will not yield the same results as it will for a florist in San Francisco. This is why I advocate for calculating markups based on your specific situation and build a system for handling a large variety of pricing profiles.
So How Should You Determine Your Markup?
Just as you wouldn’t buy flowers before you know the style of the event, you shouldn’t create a markup without knowing what you need your profit to be. Begin with the end in mind.
- Determine Your Profit Goal: How much do you want to make this year in cleared profit? $50k? $200k? Let’s get honest here: It doesn’t matter what your revenue is. Don’t get fooled by wire reports or tax returns saying that you did hundreds of thousands of dollars in business. What matters is that you’re feeding your family. Determine what profit you need for it to be worth staying in the industry.
For the purpose of this step-by-step process, let’s say that you’re the sole owner of a wedding and event floral shop who wants a net profit of $100,000 for the year.
- Estimate Demand: Once you have determined your desired profit, you need to consider your demand for the recent year and ask yourself if you can make that happen. If you did 100 weddings last year, plan on doing that again this year (unless you can accurately predict more or less). If you’re just now starting, plan on something much smaller than you’d like, and be surprised if it changes. Demand: 100 weddings. Profit needed per event: $1,000.
- Calculate Overhead: Overhead items are things that, most of the time, are over your head (your fixed costs). That could include the rent or mortgage on your shop (the roof is over your head), your accounting fees (because it’s over your head), your marketing costs, your website costs – basically any costs that recur every month regardless if you do any business or not. For this example, let’s say that you have $30,000 of overhead annually. Your overhead divided by 100 events would be $300 per event. Overhead: $30,000. Overhead per event: $300.
- Calculate Your Markup: Continuing with our example, if you have a $2,000 wedding and you desire a profit of $1,000, that leaves $1,000 for your overhead and COGS. With overhead of $300 per event, you have $700 for your variable costs: flowers, hard goods, labor, etc.
- Continually Make Adjustments: Once you have everything together, you’ll probably realize that you don’t have everything together. There are going to be overhead expenses that you didn’t detect, or maybe you overestimated the number of events you’ll do. This is when you’ll start to play offense (raise your markups) or defense (find better-priced goods). It’s good to come back to this once a year to make sure that you’re still profiting what you should.