Percentages, averages, and ratios may make your head spin, but they’re the fastest, easiest way to keep a finger on the pulse of your salon’s business health. Learn how to run the numbers as well as what they mean.
How’s business? Industry consultants say most salon owners have no idea-and we have to agree. Certainly, the long list of top salons we called couldn’t get beyond “Great!” and “Busy!”
“How’s you client retention?” we asked. “I’m not sure,” they answered. “Salon productivity?” we quizzed. “Not sure.”
“Average service ticket?” we tried again. “Don’t know,” they admitted.
Percentages and averages may make your head spin, but business statistics are the equivalent of vital signs when it comes to revealing the health of your business. Without the numbers, you have no idea if your salon is on the verge of collapse or ready for a marathon run on growth.
Not having a head for numbers is no excuse these days: Salon software will compute these statistics in mere moments, and many consulting and training companies also offer programs that not only do the calculations but provide an arsenal of tools and templates for stacking the numbers in your favor.
Those tools are handy, but the numbers only provide a diagnosis. It’s up to you to find ways to remedy any problems that become apparent. “What the numbers mean is the hard part,” says Susie Fields Carder, co-founder and vice president of salon Training International in Oceanside, Calif. “What does it mean if you have 40% client retention?” According to Carder, it means the entire staff needs to evaluate the customer experience.
“Focus on specific behaviors instead of the problem,” agrees Kate Troc, president of 20/20 Foresight, a salon and spa consulting firm in Bolingbrook, Ill. “We spend so much time in this industry saying we have to sell more retail, when what we really need to do is focus on the behaviors that will grow retail sales.”
SALON PROFITABILITY: X- (Y + Z) = A
X- gross sales
Y = fixed expenses
Z= variable expenses
A = gross profit
The numbers game begins and ends with profitability-how much money do you have left at the end of the day? Industry pundits peg average salon profitability at anywhere from 5%-7%, a disastrous number from a business perspective. According to Neil Ducoff, founder, publisher and “guru” profit margin-above and beyond any income they might generate with their own clientele.
First, use the equation below to determine your salon’s historical profitability-say, for the past 12 months-to learn where you are now. Then set a goal for where you want to be and start plotting your path to profitability.
Start with your past history to project sales for the coming month.
Then, calculate your variable expenses (expenses that fluctuate based on sales, such as payroll, professional product usage, and cost of retail goods) as a percentage of sales. Finally, add up your fixed expenses (expenses that remain roughly the same regardless of sales, such as the owner’s salary rent, utilities, benefits, and education). Subtract both your fixed sales) from projected sales.
If the amount remaining as profit doesn’t equal 15% or more of sales, get ready to tinker. But think before you act. First, analysis every expense with an eye toward lowering your cost of doing business without impacting your customer service levels. For example, could you trim professional product costs?
Next explore ways to grow sales. Many of the calculations that follow can help you to identify short-and long-term growth opportunities, then plan a course of action to make your business boom.
AVERAGE SERVICE TICKET: - X/Y = Z
X= total service sales
Y = number of clients serviced
Z = average service ticket
Measure how well your staff is servicing it’s by calculating your average service ticket. It it equals the price of your base service, you know your staff isn’t consulting with clients and making, personalized service recommendations based on their needs and wants.
Ducoff insists that most salons could boost their service ticket average by $5 or more if staff members simply charge for every service they provide. Carder agrees: “Usually there are some repairs and not charging for those is a huge problem in the nail industry.”
|Help Is on the Way - Don’t have a head for business? These companies offer user-friendly tools that help salon owners groom their business for profitability.
|Salon Business Strategies offers Strategies magazine, personalized salon and spa consulting and coaching as well as a Salon and Spa Business CD and downloaded management tools online (sales forecast, pay calculation, and cash flow). Visit.www.strategiespub.com.
|In addition to salon and spa management seminars, training, and business consulting and coaching, Salon Training offers Your Beauty Network.com, a subscription-based business resource that includes management tools accessible online Visit.www.YourBeauty/Network.com.
|This month, 20/20 Foresight rolls out Career Pathing for Salons and Spas, a CD that provides diagnostic tools and templates for everything from multilevel pricing to performance appraisals to compensation structures.
|Minton Business Solutions offers Pathway To Profit a CD-ROM containing 12 business management systems. Plan you business using sales forecasts income and cash flow projections, and analysis of your retail lines, service, equipment and floorspace. Visit .www.minitonweb.com/products.htm.
Start every service with a mini-consultation. “We teach everyone a needs assessment,” Carder explains. “Study it. Own it and make three to four recommendations for every client. Do it for every client, every time. Life changes a lot in two to three weeks. Ask how her nails were. If she complains of chipping or yellowing advise her to book an appointment for a new full set.
“If your average service ticket is your base price, you’re an average salon,” she continues “The top 10% do three to four times the base price.” If your nail department doesn’t offer any services that equal three times your base price, grab this opportunity to create a few.
“As a rule, the average service ticket should be 20% higher than your base price, and I would shoot for 50% higher,” says Troc.
AVERAGE RETAIL TICKET
X /Y = Z
“I’m not a salesperson.” How many times have you heard that line? However many, your answer should remain the same: Salon retailing is not about hawking products but about meeting clients’ needs and providing solutions to their problems.
Carder advises owners to set the standard by making retailing a mandatory part of the salon experience. “Tell people exactly what they have to produce to work for you,” she says. Next, set standard operating procedures and incentives. For example, she recommends making retail sales percentages another criteria of pay increases, along with productivity and client retention.
Retail goals will vary depending on the type of service and the amount of home care recommended between visits. For nail technicians, the average retail ticket should equal 15% of the service ticket. “For hairdressers it’s 25%, for estheticians it’s 100% and for massage therapists it’s 5%,” adds Carder. Tie retail sales to advancement with 15% the minimum to move past the first level. Then raise it to 17%, 18% and 20% she advises.
For your part provide a retail selection that supports their efforts. Go beyond polishes, files and hand creams with bath and body products, skin care, costume jewelry, and perhaps even hair care.
“If clients aren’t buying much, you’re not selling the right stuff,” Troc says. “Stock consumable items that aren’t that expensive and that customers see as fun.” With the right product mix retail can equal 20%-25% of sales. Track which items are hot and which are not, and adjust your selections accordingly.
The perceived value of salon products lies largely with the professional recommendation. Provide your entire staff-including front desk coordinators-with regular product knowledge classes. Connect at least three clear features and benefits with each professional product, and role-play retail recommendations.
Ducoff advocates the retail prescription, whereby the service provider verbally recommends a product based on the client’s specific needs, then finishes the appointment by writing out that recommendation for the client. As the client prepares to pay simply ask if she’d like to take those products home today. Ducoff says salon clients have doubled their retail sales using this approach.
SALES BY REVENUE STREAM: X/Y = Z
X = total sales in each category
Y = Gross salon sales
Z = sales by revenue stream
“It’s great to hit your gross sales goals, but where is the revenue coming from?” Carder asks. “I find that nails and massage get swept under the rug in a full-service salon,” Regardless of whether yours is a full-service or nails-only salon. Carder advises not only calculating total nail sales, but breaking it down by individual service. “Analyze what percentage are full sets and how many are pink-and-whites.” She says. “If pink-and-white fills are $10 more, how many fill clients can you convert?” she asks.
If a high percentage of a particular tech’s clients will pay the premium, she essentially loses $10 every time a regular fill client sits down. “Start weaning those clients to another tech and getting clients in who are wiling to pay the higher price,” Carder says.
For example, if a facial or massage room eats up 10% of your service area but only contributes 2% over your overall service revenues, you know that you either need to build the service or convert the space for a high-demand, high-revenue service like pedicures.
As you examine sales by revenue stream, look for peaks and valleys, which will reveal the seasonality of services. If pedicures peak in the summer months will facials fill up for fall? Look for ways to smooth the seasonal differences through marketing and promotions or to leverage them via a versatile staff and space.