Question

Case Study: The Flower Shop

Anastasia owns a successful flower shop. She has been in business for four years and enjoys a good reputation in the community. She is a good marketer and good manager. The shop is in a prominent location with an ample parking lot which thus provides good foot traffic for the business. The shop is opened six days a week from 10am to 5pm. Recently, she has been thinking about extending the flower shop’s hours an extra three hours per opened day. She anticipates the cost to be consistent with historical averages and can forecast a realistic revenue stream.

The costs for the flower shop include the fixed cost of the building lease which is

$2,100 monthly along with interest on loans of $400 per month. The electricity and utilities on a monthly basis average $250. She views this cost as fixed as the heat and refrigeration systems are always on. The additional hours of lights are considered negligible.

The gross cost of compensation, which include wages and benefits, for an hour of labor is $15 per person. She is a good trainer which means she will not need to be on site for all extended hours. The average customer transaction in the store is

$56. She uses this number to estimate the per dollar average variable cost of bringing the raw flowers for sale per customer at 30 cents (.30). She further estimates the per dollar average variable cost of presentation (ex. Wrapping, vase, etc.) at 35 cents (.35).

She estimates that the additional revenue generated for the extended hours on an average basis will be as follows:

Additional Hours:	Average Hourly Revenue:
5pm to 6pm	$200
6pm to 7pm	$140
7pm to 8pm	$60

Q6: Are there other solutions available to Anastasia besides extending the shop hours to increase her business’s profitability?

Answer 1

Some solutions available to Anastasia to increase her profitability besides extending the shop hours are:

• She can reduce the variable cost of working. This can be done by reducing the hours of work of labour. So this will reduce the amount to be paid to the labour per day.
• She can reduce her inventory cost also. The flowers which have negligible sale can be removed from the inventory.
• The option of home delivery should be started. The labour working with her can be used to deliver flowers at clients' location. This will increase her client base.