COGS and Business: The Bottom Line

Clear understanding of pricing and cost of goods sold (COGS) are key to your profitability.

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Let’s talk about COGS. One of the most important things to master as a florist is how your business turns a profit. Floral designers (whether owners or employees) must have a clear understanding of how to price by following the industry standard markups on flowers and supplies, but profitability is directly tied to how much your business spends (i.e. your COGS, or cost of goods sold).

I’m a big believer in charging what you’re worth; however, when it comes to turning a profit, it doesn’t matter what you charge if you overbuy.

I’ve never been particularly good with numbers, but I’ve always been able to turn a profit in my floral design business by following the industry standard markups and, most important, by following recipes to help avoid overbuying. I was taught how to price in flower shops, and by following the “flower shop model,” my goal is to maintain a 70 percent profit on the cost of flowers and supplies on every order I make – whether it’s a wedding or a weekly order.

Now, there’s more to COGS than simply the cost of flowers and supplies, of course. COGS includes all of your expenses including labor, overhead, product spoilage, taxes, professional fees, utilities, rent, advertising, etc. All the rest of your COGS will come out of that 70 percent profit.

By keeping track of COGS, you’re able to calculate the real cost of what you’ve sold. It’s essential to keep an eye on spending at all times because you cannot improve what you do not measure.
Don’t be afraid of the real numbers. In business, the numbers don’t lie; they should help guide you. I know a lot of florists who achieve a 70 percent profit by following these standards, and whether you work from home or a shop, this is a realistic aim. In other words, you shouldn’t charge less if you work from home; price like a flower shop.

If you buy a rose for $1 wholesale and mark it up 3x, then you’ll sell it for $3. But if that rose costs you $1.25 the following week, then the retail price increases to $3.75. If you’re worried about this price fluctuation and how it might impact your customers, you might choose to set a standing price of $3.50 or go for a markup closer to 4x on the on the $1 roses, so they’re set at a consistent $4 per stem.

You set the rules in your business, and it’s critical to understand how money comes into your business as well as how and where money goes out.

If you or your employees are less than 100 percent confident in what you charge your customers, you can end up feeling insecure every time you give a quote, and you’ll probably find yourself wondering “Does this arrangement look big enough?” because you’re not sure if you’re worthy of charging this much. This is when florists tend to overfill their work – and overfilling is where you’ll lose money every time.

Remember: It doesn’t matter what you charge if you overbuy. Turning a profit is directly tied to how much you spend, so keep turning a profit so you can keep doing beautiful work.

By Alison Ellis