3-1 Milestone Two - Financial Analysis and Pricing Structure (Artifact 2)

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1 3-1 Milestone Two: Financial Analysis and Pricing Structure Memo (Artifact 2) Muhammad Lewis Southern New Hampshire University MKT 700: Marketing Capstone Instructor: Kayla Pierce

2 Financial Analysis and Pricing Structure Memo: Date: December 23, 2023 To: Jamie Green - Jamie’s Floral Delights From: (Mo) Muhammad Lewis Subject: Financial Analysis and Pricing Structure Financial Forecasts Annual Sales and Revenue According to the Society of American Florists, a retail floral shop generates an average of $362,318 in annual revenue, but many florists most likely bring in $200,000 or less in annual sales (Cho, 2020). Since Jamie’s Floral Delights is a start-up venture the sales and revenue for the first year will be projected at $200,000. Additionally, based on the compound annual growth rate (CAGR) of 6.34% provided by Mordor Intelligence (2023) the projected sales and revenue for year two will be $212,680. $200,000 x 6.34% = $12,680 $200,000 + $12,680 = $212,680 Year 1 Annual Sales CAGR Year 2 Annual Sales $200,000 6.34% $212,680

3 Market Share As of 2022, there were 33,477 florist businesses in the US which was a decline of -0.5% from 2021 (IBISWorld, 2023). While there is a decline in the number of florist shops in the US the biggest issue when it comes to market share is that 32% of the market revenue is generated by four companies (IBISWorld, 2023). This does not leave Jamie’s Floral Delights with much room, so the projected market share for the business would be less than 1%. The focus should be more on how the business can grow annual sales and revenue which will eventually lend to an increase in market share over time. Expected Annual Return on Investment To create a projected profit and loss statement for the year ending 12/31/2024, consider the projected sales income for the year and other income that could come from delivery fees and consult fees. The total income for 2024 would be $220,000. Now the average start-up cost for a floral business is between $10,000 - $50,000 (Soard, 2019). Along with expenses for website/advertising, supplies, equipment, and inventory, there are expenses for taxes and other miscellaneous items. The total expense for 2024 would be $87,500 which would generate a net income of $132,500. The expected annual return on investment would be 151.4%. Profit and Loss Statement for the Year Ending 12/31/2024 INCOME % of Total Income Sales Income $200,000 91% Other Income 20,000 9% Total Income $220,000 100% EXPENSES Website/Advertising $5,000 6% Supplies (Vases, Ribbon, etc.) 5,000 6% Equipment 10,000 11%

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4 Inventory (Wholesale Flowers) 10,000 11% Taxes 50,000 57% Misc. 7,500 9% Total Expenses $87,500 40% NET INCOME $132,500 60% Calculation: Expected Annual Return on Investment sales income - cost of the investment/cost of the investment x 100 132,500/87,500 = 1.514 x 100 = 151.4% Break-Even Point The fixed cost for advertising/website, supplies, and equipment is $20,000. While the projected cost of flowers is $10,000 that could change based on the wholesaler, season, customer demand, and type of event. The variable cost per flower is $1.40, based on the purchase of 160 flowers for $225. By using a markup of 350% the sale cost would be $4.90 per flower. This would yield a break-even point of 5,715. In the first year, 5,715 flowers must be sold to break even and cover fixed costs. In the second year, there would be additional expenses, such as the purchase of a small used van for deliveries and the hiring of one part-time worker. This would increase fixed costs and an additional $30,000. If variable cost increase by 3% that would be a break-even point of 13,889. In the second year, 13,889 flowers would need to be sold to break even and cover fixed costs. Year 1 – Break-Even Point Calculation 20,000/ (4.90 – 1.40) = 20,000/3.50 = 5,714.28 Year 2 – Break-Even Point Calculation 50,000/ (5.04 – 1.44) = 50,000/3.60 = 13,888.88

5 Marketing Environment Analysis The flower market represents an 18-billion-dollar global industry that supports millions of people who grow, transport, and sell them (Fredenburgh, n.d.). When COVID hit in March of 2020 the world went into lockdown and as a result, the EU cut flower market lost $1.2 billion in the first six weeks of lockdown (Fredenburgh, n.d.). Even farms in Africa and South America were affected as flower exports from Kenya dropped 85% (Fredenburgh, n.d.). However, good also came out of a bad situation. The flower market was able to grow through online sales because the pandemic caused a surge in e-commerce. This means that Jamies’s Floral Delights can sell and grow in the domestic US market and the international market. Per Mordor Intelligence (2023), the US floral market size will increase from $49.02 billion to $66.6 billion between 2023 and 2028. Jamie’s Floral Delights will be a part of this increase in market size. Marketing the online floral shop will be done through social media sites and a website. By creating a social media presence, the business can have no limitations on gaining customers. Pricing Structure The pricing structure that will be used is cost-based pricing. It’s a pricing strategy that adds a markup to the price of a product. For a start-up floral business, this is the easiest way to keep pricing simple. The markup will range from 350% to 400% with the possibility of an additional 20% of the retail price for labor. While the cost-based pricing structure doesn’t make the customer a part of the calculation (Deland, 2022), for a start-up floral business, this is the easiest

6 way to keep pricing simple. The business will provide a multitude of flower and plant varieties, flower arrangements, and add-ons, so cost-based pricing will be more efficient. The ideal profit margin is 70%. The projected profit margin for year one is 60%. A few things that we can plan to improve on for year two are taking on larger delivery orders, increasing recognition in the wedding and event market, and opening new channels of distribution. A new channel of distribution would be becoming partnered with BloomNation. BloomNation is a Santa Monica-based online marketplace for local florists and allows florists to keep 90% of their sales (Cho, 2020). This will not only help expand business in the US Market but also give a wider presence online.

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7 Reference Guide Cho, H. (2021, April 21). How to Start a Floral Business: Tips on Seed Money, More. NerdWallet. https://www.nerdwallet.com/article/small-business/start-floral-business#:~:text=So %20let's%20say%20you%20run,growers%2C%20wholesalers%20and%20retail%20florists . Deland, A. (2022, August 22). Understanding Pricing Strategies, Price Points And Maximizing Revenue. Forbes. https://www.forbes.com/sites/forbesbusinesscouncil/2022/08/22/ understanding-pricing-strategies-price-points-and-maximizing-revenue/?sh=302120007e96 Fredenburgh, J. (n.d). How the Covid-19 pandemic hit the cut-flower chain . BBC. https://www.bbc.com/future/bespoke/made-on-earth/how-the-covid-19-pandemic-hit-the-cut- flower-chain.html IBISWorld. (2023, December). Florists in the US - Market Size, Industry Analysis, Trends and Forecasts (2023-2028). https://www.ibisworld.com/united-states/market-research-reports/florists-industry/ #FinancialBenchmarks IBISWorld (2023, December 14). Florists in the US - Number of Businesses. https://www.ibisworld.com/industry-statistics/number-of-businesses/florists-united-states/ Mordor Intelligence. (2023). US Floriculture Market Size & Share Analysis - Growth Trends & Forecasts (2023 - 2028). https://www.mordorintelligence.com/industry-reports/united-states- floriculture-market Soard, L. (2019, May 4). The Average Cost in Starting Up a Floral Shop. https://smallbusiness.chron.com/average-cost-starting-up-floral-shop-13355.html

8 We Love Florists. (2021, January 28). Florist Pricing: A Basic Guide to Markup. We Love Florist: A Floristry Resource Website. https://www.weloveflorists.com/2021/01/28/florist- pricing-a-basic-guide-to-markup/

3-1 Milestone Two - Financial Analysis and Pricing Structure (Artifact 2)

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