Real world business for the economic buffs

by divorced one like Bush

I thought for something a little different during the holiday respite and assuming there will be no major economic calamities, maybe some readers would like a real world small business experience. This post deals with the world of flower wire services and just what it costs you and what you are getting. It is also a lesson in buying local, especially now that the web allows one to do long distance local buying. It is a lesson reflecting the issue of the middle man economy that we created over the last 3 decades and earning money from brand control, market access control. It is a lesson in a lost bit of wisdom regarding labor. It is a lesson in what is happening with pricing regarding value and purchasing power. I leave it all up to you to see these lessons and maybe others. Mostly, I thought it would be fun to see what the thoughts would be if this was your business situation regarding the world of money.

A local flower shop is considered a retail business. This is true but, it is also a manufacturing business. The shop actually takes raw materials and combines them with some finished materiels using skilled labor (as in educated) and then gets it out the door. We have a sales department (the same one doing the manufacturing), shipping and receiving, maintenance, accounting…

Frankly, without the individually owned shops where all the labor is performed to produce the product, Teleflora and FTD could not exist…just like any other business that doesn’t actually take raw material and input value by inputting labor. I can exist without them, but they can not exist without me. Kind of like the banking/finance issue I raise a short time ago. I can live without a bank (as the prior owners proved), but they can not live without me. This is not a healthly economic model.

I have crunched my numbers regarding Teleflora and FTD. The following is a comparison of 2007 with 2008, January through November. I specifically separate out my wire service money as if it is it’s own business. Most shops do not account for the wire services in this manor. In fact, they are told to account for the wire service business in a way that blends all the costs and profits such that it is very difficult to break it out.

I like to check to see just what I have to work with per order received after all expenses related to processing costs and advertising. I include for processing membership dues, fees related to use of the network, quality fees, senders cut, etc. I do not include any advertising or purchase of supplies (containers, mailers).
On the income side I included the total incoming dollars plus my commission on outgoing plus rebates.

Interestingly enough, both FTD and Teleflora after cost for processing and advertising gave very similar working dollar amounts for 2008, with a 5% benefit in 2007 for Teleflora.

FTD: $32.19/order (08) 484 orders in, $33.34/order (07) 527 orders in
Tele: $32.48/order (08) 335 orders in, $35.03/order (07) 399 orders in

These are the dollar amounts retail I had on average to work with. These amounts would be equivalent to a person walking in and purchasing an item for $32 to $35 dollars.

The cost of being with FTD and Teleflora as a percent of the gross income their brands generate is:
FTD 38% (08), 34% (07)
Tele 38% (08), 31% (07)

This is the percentage of every dollar coming my way (excluding the 80% for orders sent) that has to be expensed for every order I receive and for every commission I earn.

The increase of percentage for FTD is via processing cost increases of 3.8% and advertising of 13%.
The increase of percentage for Teleflora is via processing cost increase of 23.9% and a decrease of advertising by 3.3%. I do know that we did not participate in the Thanksgiving program for Teleflora.

The gross dollar amount averages as follows:
FTD $51.92/order (08), $50.52 (07)
Tele $52.39 (08), $50.77 (07)
Thus, the customer is paying more but the middle man wire service is leaving the one who will actually produce the item less money. This model of business is the predominate model of our economy. It is about gaining revenue by controlling access to the market in both directions, not about actually increasing productivity or that fantasy model of building a better mouse trap.

The dollar amount per order to me without advertising cost is:
FTD $37.79/order (08), $37.88/order (07)
Tele $42.18/order (08), $43.44/order (07)

Thus Teleflora spent on advertising 23%/order this year and 19.4% last year. I guess they are trying to promote their brand, but it has left me with 7.3% less per order with 16% fewer orders.

FTD spent 14.8%/order this year and 12%/order last year. FTD is not promoting as much as Teleflora, but I have 3.4% less per order with 8.2% fewer orders. My costs were controlled better by FTD, but then they were already high last year.

So, first off, it is very expensive to be with these two services. I can run my shop on a factor of 0.4. This is the number used to calculate the minimum retail price such that I have all my expenses covered and a 10% profit. Interestingly enough, this is only 2 points more than it costs to be in FTD or Teleflora as of this year. Or you could say it is only 2 points more than it cost FTD and Teleflora to run their operations and all they are is the middle man.

Now, here is where it gets bad. For me to cover my expenses of just having the shop in place and functioning so that FTD and Teleflora can use me, I have the following wholesale values on average to work with:
FTD $12.88/order (08), $13.34/order (07)
Tele $12.99/order (08), $14.01/order (07)

In my shop, had the orders come directly to us, my working wholesale values would be:
FTD $20.77 (08), $20.21 (07)
Tele $20.96 (08), $20.31 (07)
In both cases, the customer having spent more this year would have actually gotten more, not less.

Some would say that running both is losing me money. Not necessarily, especially now that both are running equal as to the cost of doing business with them. Infact, for the 10 yrs I have had the shop, they have been very similar in costs. Not including sales made of their product could be considered a fault in the numbers in that there is the good will benefit of customers coming to my shop do to the brands and being that I’m accounting these as a separate business, that money should be counted. However, if neither existed, I would still be selling something to the customer and probably at a lower wholesale cost to me as to the containers. At the same time, for all their orders received for their specials, I’m still paying the cost of doing business with them. Thus, it would make the numbers larger, but the ratios would not change much because it is still my costs to make their product and get it out the door for them on top of paying their brand costs; currently 38%.
So, what are you thinking?

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