When you are young, you have no idea how things in high school can be applied in the future. Certainly, I had no idea that a little algebra and geometry(my 2nd least favorite subject after Chemistry) to name just a few subjects would be quite handy in the wedding profession. Often in our professionally career, we wing it.
I know I wing it sometimes. And there's just no excuses other than procrastination and disorganization. But for some of you, perhaps no one taught you how to manage your buys and expenses. I know that no one taught me and I had to learn it the hard way. Trial, error and past experiences in retail.
Here's a look behind the scenes.
When I have a small wedding, I just go to the market and spend. And overspending happens quite easily because the difference between 2 bunches of roses and 4 bunches of roses could be $50 at cost. No big deal. Looking at the big picture, I say, no worries, $50 to make a client happy is a minor offense. However, if you do that 52 times a year that's quite a difference.
Right?
When I first started working, I had the most incredible mentor. I won't say who she or he is because I don't want to embarrass them but I noticed that after our weekly events there would be buckets of flowers left over. A bucket might hold 3 bunches of flowers so that means that after each event there would be an average of 15 bunches of flowers. If those flowers happened to be roses, can you imagine what the cost would be after each event? Now, if you don't know your math, you will never understand the extent and the calamity of this issue.
So here it is
15 bunches of roses at $25.00 a bunch(cost) = $375.00
52 weeks(assuming you do a buy once a week) x $375 = $19,500
Now, to some big and large floral shop this might not be a huge number but for a small business who runs let's say a $200K business --- this is huge.
Learning to quantify what that means is something that is rarely taught but can make a big difference.
Let's dig further.
Shall we say that your expenses are 80% a year which means that your expenses equal $160K(on gross sales of $200). If you didn't over spend and overbuy by $19,500 on goods and if you were able to reduce it by half, then you would have spent $9,750 on additional flowers and goods as opposed to $19,500. Easily, your gross margin would have increased. The original gross margin was 20%, but if you reduced your expenses by $9,750 then your overall expenses went from $160,000 to $150,250, thus your gross margin on sales of $200K is now 24.875% versus 20%. Buy reducing your expenses, you improved your margin by 4.875%. Having a background in finance, that's a good improvement on your balance sheet.
Say you have been in business for 10 years. Now take the concept of "overbuying" over a longer period and you have just walked away from how much profit?
10 years x $19,500 = $195,000
Don't know about you but in my neck of the woods, you can use that for a lot of things like a better space, a couple new van leases, and additional helpers. Or you can pocket that and put that away for retirement.
By simply knowing a few key components
1) Gross Margin in $ and %
2) Gross Sales in $
3) Annual Expenses in $
You can analyze your business and understand where you need to save and be more efficient.
Saving even 1% on your gross margin could be significant over a course of many years.
Note: if you are constantly "overbuying" then you might want to understand why. A couple things to think about -- did you not charge enough from the very start and that's why you over spent or are you not following a set recipe thus you buy a few bunches more of every ingredient and end up with leftovers.
When you write your orders, you might need to think about a recipe if you aren't already.
If you have left over flowers, it's important after an event to understand what happened. For us, we have good weeks and we have not so good weeks. But I know that for most weddings, we have barely 1 bucket of flowers left over and the only time that we really had too much was when we were doing large round balls - 24 inch balls - where one calculation mistake meant that I overbought 24+ bunches of carnations.
I'll talk more next month about other business factors but just remember,
a little math can go a long way. A little budgeting can go even further than you expect. And when you price things right and use a form or grocery list when you do your buys, you are more likely to stick to your budget.
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