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Calculate Prices to Protect Profit Margins

You’ve no doubt noticed a significant increase in your cost of goods sold. Reduced product availability and rising freight prices have wreaked havoc on the supply chain and possibly your bottom line as well. In the latest issue of Floral Management, floral accounting expert Paul Goodman, MBA, PFCI, breaks down what’s caused the hike and how to determine how much you need to charge to stay in business.

What Happened?

As begins practically every story in every industry for nearly two years, though there are several factors contributing to increased prices: “They all stem from one source: the pandemic,” says Goodman, founder of Floral Finance Business Services and author of “The Profit-Minded Florist.”

When countries around the globe abruptly mandated lockdowns in mid-March 2020, workers were laid off and production dropped. As businesses gradually reopened, “they hit snags,” Goodman says. “Manufacturers couldn’t produce as much due to limited inputs and a reduced workforce. Delays in shipping snarled what is usually a steady stream of imports. Backlogs at ports in the United States worsened. Growers had to replant crops.” All of this translates into a severely decreased supply of fresh product and hard goods — while, at the same time, demand for floral gifts soared as people sought safe and meaningful ways to connect during months and months of isolation.

What Should You Do?

What you charge depends on how you buy, Goodman says. Shop with a wholesaler? Simply apply your standard markup and you will maintain your profit margins. Ordering directly from a farm requires a little more math. Determine your “total landed cost” (combination of the price of product, plus any international and domestic freight) and then apply your standard markups. “Don’t try to adjust your prices with each price variation,” Goodman says. “Adjust prices only when a pricing trend becomes apparent.”

For more details, including an analysis of freight charges and an easy-to-follow example chart, check out “Price Check” in the November/December issue of Floral Management.

Katie Vincent is a contributing editor for the Society of American Florists.

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