Money Matters

Where Have All the Profits Gone?

As a salon owner or manager you may struggle with one question daily: Where does all the money go? You generate plenty of income in services and retail sales, yet there is little left to show for it at the end of the month. To regain control of your profitability, learn about the six profit points that make or break a salon.

There are many business practices related to profitability. Some of them are measurable. You can go to your computer terminal, run a report, and see the direct effect on the bottom line. Some business practices that prevent profitability from being realized can be mistakes carried over from a previous owner or structural mistakes from when you opened. Sometimes they are the result of being a “giver” and leaving nothing for yourself when all is said and done.

There are, however, many profit points that cannot be picked up on the radar. These unseen factors that cut directly into profits can frustrate us because we feel we don’t have a handle on them.

There is good news. Owners and managers do have control over their actions and these actions directly affect profits. It requires systems, consistency, and sometimes even will power to make nail salon ownership seem worth it.

There are six profit points owners have complete control over that can make or break any nail business. These are outlined below, along with the actions owners need to take if they want to regain control of the profitability of their businesses.

Promotions

It costs money to promote any business. It makes good business sense to know whether or not the efforts you are expending on marketing are working. Sometimes we need new traffic, but more often we need to focus our marketing efforts from within to build upon our existing client base. For obvious reasons, marketing internally is more cost-effective. We can use in-store promotions, creative targeted marketing strategies, and VIP programs to keep that existing client base happy and coming back.

In-store promotions cause excitement. Your clients need to experience fun and change when they visit your business. Providing monthly promotions gives the client reason to talk about your business to prospective clients and keeps them spending money in your business. Using targeted marketing campaigns takes thought, but marketing to a focused group can really pay off. You could set up a postcard-size handout and distribute it by hand to all manicure clients who never get pedicures. The offer may include a savings of 25% to entice them to book the pedicure service with you. This way you are promoting to clients who have already tried a service and need to be introduced to additional services.

Recently e-mail marketing has taken a giant leap. Nail salon owners are realizing that this targeted advertising is quick, focused, and costs very little (See “All the News That’s Fit to E-mail” on page 114). Once you have your master list, you just need some time to create the messages and you are ready to go. E-mail ads and specials can be used to fill down time and promote new products and services.

Retention

Probably the biggest indicator of the potential for profitability is the ability to retain clients. Retention is a measurement of true- quality customer service. Are our marketing, training, technical, and management efforts paying off for the client to want to return? Nationally, new client retention rates stand at a staggeringly low 23%-28%. We look at new client retention more closely because we probably spent a lot of time, effort, and money trying to gain new business. Are we retaining the new client? We got them to visit us once and that was the hardest part. Keeping them should have been easy if we have our systems in place. It’s important to know and understand your retention rates. Be accountable and have a system to increase these rates when they sag.

Sometimes we don’t need new clients, we just need to be doing more services on the clients we already see. Remember multiple services keep the client wanting to return.

When reviewing the items that affect retention, we have to think about how well our front desk functions — do we have scripting and booking policies that make sense? Is our consultation thorough and do we uncover all the needs of our clients? Finally, what procedures do we have in place for new client follow-up — do we call or send a thank-you note to new clients? Is there an offer for second visits to get them to return? How about a discount of 10% to new clients who rebook before they leave the salon? All of these things need to be considered when our new-client-retention rates are low.

Cheyenne Cheran, a nail technician at Hair by Borga in Springdale, Pa., says, “I spend extra time with my new clients. We have a protocol with every new client that has to be followed [see sidebar]. For every client who does not come back, 12 more people may get the chance to hear about an unsatisfactory experience.”

Orientation

Are you feeding your new-hires to the wolves? All nail salons and spas must have an orientation system in place. You must have procedures to instruct new-hires how to book clients, how to handle no-shows, and how to perform the services to your salon’s standards.

Businesses without orientation programs lose big when it comes to client retention as well as staff retention. Both cost money. Owners are advised to spend at least one hour per week for several weeks getting new-hires acclimated to your business practices. This one-on-one time also establishes a bond of respect and loyalty, and the employee will be less likely to leave. The value of this orientation process is immeasurable when it comes to profitability.

Forecasting

Do you have a financial plan or do you just fly by the seat of your pants when it comes to managing your money? Goal setting with employees is absolutely necessary — not only to establish a “career-oriented” environment, but also so the owner can cover expenses and price accordingly.

• Set goals with new-hires to make sure you cover the guaranteed hourly wage.

• Review productivity rates to ensure you are making the most per every saleable hour.

• Share retail profit margins with employees to aid in the ongoing effort to increase retail sales.

• Review goals at least every six months to achieve increased sales.

Inventory Turnover

As an owner, inventory is your second biggest expense and fortunately it’s one you have complete control over. As a coach, I cannot stress enough the importance of having a handle on this profit point. This area of budgeting is abused, over-extended, and out of control.

Excessive inventory affects the bottom line severely. When there is too much retail product on the shelf compared to the amount you are actually selling, your profits are being affected.

No owner wants to spend unnecessarily on inventory that is not needed. Patty Yost, owner of the Ultimate Hair Force Studio in Pittsburgh, keeps a close eye on her ordering. “We have a system and we track weekly. That is the only way to get a real handle on things,” she says.

Your salon needs a system for ordering. Know who is doing the ordering and how often. There should be one person in charge of ordering. This lessens the chance of over-ordering and mistakes. You should be ordering based on your sales only. If an item was not sold, a replacement should not be ordered.

Training

Training your team is a 365-day-a-year process. Your policy manual should contain continuing education requirements for employment at your salon. Booth renters also need to be self-motivated to stay current with the industry. Your budget should allow for ongoing training. If your state does not require continuing education credits, you should make a policy in your salon that this is a must.

Owners can help by hosting in-salon workshops and providing videos and books to keep your talent fresh and motivated.

Clients want the latest and the greatest. The quality of services should be a given. Unlike communication skills, which for most are a natural component of our personalities, the technical portion of our services is a direct result of our efforts to be constantly educated.

Focus on these six profit points and watch your bottom line increase. P-R-O-F-I-T — it just takes a little effort and organization on your part. It’s something you cannot afford NOT to do.

Lisa Marie Arnold is a coach and industry speaker on business development and practices for salons and spas. She can be reached through her website, www.lisamariearnold.com.

Keywords:   business     marketing/promotions     service pricing  

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