Florists! Don't let overheads hang over you head!

It's time that time of year to get your pricing and expenses in order!  Don't let those pesky overheads hang over you head!

‍Overheads are expenses that are not directly attributable to a specific product/event.  Think rent, marketing, insurance, etc.  Overhead rates will vary greatly between floral businesses.  For example, floral businesses with a retail location will likely have the higher overhead costs as compared to event-only home studio florists.

This article will walk you through the process of calculating overhead rate, which is the percentage of your total revenue that your overheads make up. Why do you need to know this?   Your overhead rate helps you spread these costs proportionally across your product and helps calculate event profitability.

The overhead rate formula is simple:  Total Overheads divided by Total Sales.

For example, if your Overheads total $15,000 and your gross sales are $150,000, then your Overhead rate is 10% (15,000/150,000 = 0.2 or 20%).  With this overhead rate, we can now proportionally spread these $25,000 in costs across our events. For example, on a $3,000 we would know that $300 would be the overhead allocation ($3000 * 10%). Not a small number right?  Now you can take $3,000 price - $300 overhead allocation - COGS - labor to see what your event profitability actually is. If it's low, or god forbid negative, this is the wake up call to raise your pricing (see our pricing blog post here).

Ok, let get to calculating your unique overhead rate.

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Step 1: Add up your annual overhead costs

Compile a comprehensive list of your overhead expenses and add them together to get your Annual Gross Overhead Expense.  If you have monthly costs (ex. Internet bill), multiply that number by 12 to annualize the cost.  You may have some variable expenses, like marketing (photoshoots, etc).  In these cases estimate a reasonable budget for the year.

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Here is a list of overhead categories to help you get started:

• Administrative salaries
• You (/staff’s) time is likely split between administrative and design (event specific) duties.  In these cases, estimate the percentage of admin time and multiply that by your salary.  For example, if 50% of your time is admin, and your desired salary is $60,000, then add $30,000 to your overheads ($60K * 50% = $30K)
• Rent (consider not including if you work out of your home)
• Mortgage payments - if your business owns the property
• Insurances
• Property taxes (if applicable) 
• Office supplies
• Advertising (photo shoots, wedding wire, etc)
• Training (classes, etc)
• Utilities

Step 2: Estimate next year's Gross Sales

Start with what you made last year.  Do you expect next year's revenue to be higher or lower?  Here are some considerations.

• 2022 was a boom year with an estimated 2.5 mln weddings, 20% higher than the 10 year average. This likely won’t happen in 2023.
• Inflation is rising and a potential recession looms.  During the Great Recession in 2008 wedding budgets fell by 10%+.  

Conservatively, you should expect your sales to be flat if not lower for 2023.

Step 3: Calculate your Overhead Rate

Take your Estimated Annual Overhead Expense and divide it by your Estimated Gross Sales.  You may want to consider adding a margin of error to avoid not covering your overheads by the end of the year.  For example, if your Overhead rate is 25%, consider bumping it up to 27 - 30% before plugging it into your flower pricing formula. 

Now that you've got your Overhead Rate, let FlowerBuddy help you put it into practice. FlowerBuddy helps you calculate all of your event expenses, pricing, and profitability. If you build out your event in FlowerBuddy you will clearly see a profit number from which you can deduct your overhead rate number from.