Open your books, break down the numbers, give your team an idea of how a salon or spa operates. It’s time to let your staff in. It could be a real eye-opener.

Many salons and spas run on an extremely tight budget in order to turn a profit. With a predominantly commission-based and booth rental compensation structure, most owners see a small profit margin on service income. Generally, salon retail percentages come in at a very disappointing 5%-10%. This is not enough to meet the ever-growing expenses and fund unique benefits programs that the industry is demanding of salons in order to be progressive. Salons and spas that produce retail sales exceeding 20% of their service sales have a better chance of a healthy surplus. Understanding how proceeds from strong retail sales ultimately help the whole salon may increase your employees’ willingness to put forth a greater retail effort.

Understanding the Numbers

In a commission-based salon or spa, the technician might assume that the owner is banking the other half of the commission, sometimes 45%-55%. While most salon owners would agree this is not reality, it may be beneficial to explain the facts to employees. Of course, before the owner can explain the salon’s financial situation, she must have a good grasp of it herself.

The normal expenses an owner incurs and deducts from the salon’s income include payroll, rent, product costs, insurance, advertising, utilities, taxes, printing, and postage. All expenses fall into one of two categories: fixed and variable. Variable expenses fluctuate with income and include payroll, taxes, and cost of goods sold or used for services. Fixed expenses include rent, hourly wages, and insurance.

Unlike with service dollars, with every retail dollar comes the opportunity to net 23%-35% profit. Once an owner understands the dynamics of these numbers, she needs to convey the figures to her staff. It is vital that the staff understands and appreciates these calculations.

Start an Open Book Policy

The industry has become more open in sharing the financial side of matters. The staff that understands income vs. expenses will tend to feel more connected and loyal to the business and more committed to its overall success. Goals are met when everyone knows and understands the need.

“At a recent staff meeting, we shared our salon income vs. expenses with our staff. It was the first time we shared this type of information,” says Cheri Parise, co-owner of Profiles Styling Salon of Cranberry, Pa. “The importance of retailing became clearer than ever. We discussed strategies as a team to help boost sales in this area of our business. It was not because we needed the retail profits to take a luxury vacation; we needed them for the health of our business. The staff finally recognized that. They even asked for goals to be put into place for each individual so that overall our salon goals could be reached.”

Goals can be put into place with the understanding that they are needed to make ends meet. Owners can go even further and break the numbers down by treatment room. Based on expenses, how much does each station or room need to generate to pay for the expenses and produce a surplus?

Good goals for service providers are:

• 25% of service sales in retail sales for hairstylists

• 15% of service sales in retail sales for nail technicians

• 25%-50% of service sales in retail sales for estheticians.

  Make Retail a Focus

  If your retail sales lack luster, pick a timeframe and focus on the individual elements that encompass an effective retail program.

  Customer awareness can be achieved through a retail recommendation program. Technicians need to portray themselves as the professionals educating the clients on the importance of products and how they fit their individual needs. We can no longer leave it to chance whether or not clients will purchase products on their own. If the customer needs a certain product to maintain a service you have provided, you should be recommending it. As nail technicians, it is important to have retail nail products displayed adjacent to the service area. Being able to refer to different products during the service creates more of a client-product bond than waiting until check-out.

  At Hair by Borga in Springdale, Pa., the retail for the nail department is displayed in a creative fashion within arm’s length from the point of service. “We find with the limited nail product selection compared to the hair and skin products, we must have nail retail items displayed in close proximity to the client,” says owner Susan Borga Martucci. “In addition,” says co-owner Nancy Borga Clay, “our recommendations make more of an impact with this type of positioning.”

  Proper consultations ensure you un-cover the needs, wants, and desires of the client. Consultations sometimes lack the type of open-ended questions that encourage dialog between the technician and the client. Repeating back the client’s answers reassures her that you heard her needs. Technicians have to realize that the purpose of recommendations is to fill a need before their sales will even begin to increase.

  Service guarantees are a necessity. “We can only guarantee your professional salon service when professional salon products are used for at-home maintenance.” This saying needs to be on every piece of literature you have — your menu, newsletter, the back of your business card, etc. This type of guarantee is like an insurance policy for your customers. You must also back the recommendation with a “prescription” card (see sample below). Writing down three to four product recommendations for each client visit definitely increases your chances for a sale. Give the client one choice and there is a 50% likelihood she’ll make a purchase. Give her three to four choices and the chance for a sale is pretty certain.

  Product knowledge is a powerful tool. Technicians constantly need to be educated on the retail lines. Industry and product changes are frequent, making it a necessity. Tap your distributor for manufacturer education or education from your sales representative. If timely outside education is not a possibility, conduct retail reviews in your salon or spa. During staff meetings, choose five to 10 products and role-play on the features and benefits. Tap into your coworkers’ strategies for recommending and selling. They may know a certain product inside and out and be able to help you with the sell-through. Also, they can give you ideal client types that the particular product may benefit most.

  Creative and unique promotions drive sales. By marketing your products on a regular basis, the client gets used to the consistency and looks for the next special or what’s new.

  “Every month we have a new focus. It may be a new product, something that has not sold, or a new service that definitely needs retail to support it,” says Judy McCollough, owner of Headlines of Hair Concepts in Butler, Pa. “We believe our consistent 30%-35% of service income in retail sales is attributable partly to our ongoing promotions and incentives for clients.”

  Start using a “magic table.” Choose a table and place it smack dab in the middle of your salon or spa. Every month pick a product or product line and create a display around it. It does not have to be discounted. The main reason to do this type of display is to create chatter and curiosity amongst the staff and clients.

  Retail Profits Fund “Extras”

  Quality benefits programs are what set salons and spas apart. The competition is fierce in our industry for educated and experienced technicians. A strong benefits package can have candidates flocking to your business. Retail profits help fund benefits such as health insurance, 401(k) programs, part-time vacation pay, birthdays off, well and sick days, and substantial education allowances. All of these items are considered extras in even the most well-run salons or spas. When you can provide benefits through enhanced retail sales, you can recruit more successfully.

  The investment you make in your salon or spa’s interior is critical to the long-term financial success of your business. Remodels and updates are necessary to stay ahead of your competition. Trends are linked to the fashion industry and should change every three to four years. All of these improvements cost money. Purchasing the latest retail products and service tools can help a salon or spa stay on top.

  It’s not unusual for an owner to forgo her paycheck for a period of time, especially in a newer business. With healthy retail sales, owners can turn this scenario around quickly. Owners struggling to take a paycheck home can do so much more quickly by increasing this area of the business. Even a small increase in retail profits can sometimes change a negative to a positive on a profit and loss statement.

  For many years, the salon industry has kept the financial side of the business under wraps. Technicians assume if the doors are open, the salon is doing OK. Owners put on a good show for their employees to boost morale.

  But when a salon or spa staff is aware of how the business operates financially, some of the frustration and disappointment can be avoided. In addition, the owners will gain more respect for their roles and the salon employees will be more loyal. Opening your books is a win-win situation for everyone.