May 13, 2019 | By Neil Ducoff | 1 Comment
The pay method you choose for your salon, spa, medspa or barbershop is one of the most important decisions you can make for your business, as it has a HUGE impact on everyone’s financial well-being, your culture and more.
In this blog post, we’re going to breakdown one of the powerful (yet occasionally misunderstood) salon/spa compensation systems: Team-Based Pay.
And who better to explain it to you than the person who literally invented Team-Based Pay for the beauty industry, Strategies Founder & CEO, Neil Ducoff.
Let’s dig in!
Team-Based Pay (TBP) is not just a pay method
To understand the true power of Team-Based Pay, it’s important to understand that it is much more than just a pay method. It’s a comprehensive business model based on proven systems, best business practices and applied leadership. The Team-Based Pay method creates the foundation that supports all the systems that make Team-Based Pay such an effective business model.... Read More
April 1, 2019 | By Neil Ducoff | 1 Comment
The new big question salon/spa owners are asking is, “How will we be able to afford these new minimum wage laws?”
Well, like any other mandated increase in the cost of doing business, you figure it out. You make adjustments. You find a way to make it work.
The fact is, paying minimum wage is the law. If attendance is mandatory, employees must be paid. (Huddles, meetings, training, etc.) That’s only fair and honest.
And paying commission doesn’t mean a salon/spa isn’t required to pay minimum wage.
The formula is simple: Total earnings per week divided by hours worked = Average Hourly Rate. Note: Hours worked means all hours the employee is at work — not just time servicing clients.
If the Average Hourly Rate for that week is less than the Federal or State minimum wage, the employee is due additional compensation.
Some states allow tips to be averaged in. Make sure you know and understand the minimum wage laws in your state. Don’t assume anything.... Read More
February 18, 2019 | By Neil Ducoff | 5 Comments
As the owner of a salon/spa, managing employee payroll is always a top priority.
But what about how you, the salon/spa owner, should pay yourself?
As an owner, there are many considerations, and many differences of opinion, on how an owner should be paid.
The following questions are just the tip of the iceberg on owner pay:
- How should you get paid and how much?
- If the business is profitable, how much of that should you take?
- What if you’re also a busy service provider?
- What if you’re a full-time leader/manager?
- What if you have a partner(s)?
One thing we know for sure is that owners don’t get to keep all the money that’s left over after service providers are paid.
To bring some clarity to owner’s pay, or to benchmark how you currently pay yourself, I offer you these No-Compromise Leadership strategies:
- The sacrificial paycheck: The stark reality of being the business owner is that when cash flow is tight, owner’s must sacrifice their paychecks so employees can get theirs. In these stressful times, some owners continue to take paychecks but not cash them. The problem with this approach is that withholding tax on those paychecks still needs to be paid on time. The other problem, depending on the length and severity of the cash crisis, is that all, or some, of those uncashed paychecks may never be cashable. KEY: The best strategy, and unfortunately the most painful, is to not take a paycheck until cash flow recovers. And the only way cash flow recovers is to drive revenue and lock down spending with a cash-flow budget.
- 10% of Total Income: This is a very subjective benchmark for owner’s pay. First, it is based on an owner whose full-time responsibility is the leadership of the company, not generating revenue servicing clients. Second, it is based on the fiscal and budgetary expense management of the company. Simply put, the 10% is in no way an “owner’s commission rate” on total company income. Quite the contrary. It is a salary that is budgeted into the company’s monthly and annual cash-flow projection. KEY: The 10% is only sustainable if monthly sales projections are met and expenses are strictly managed. So, if an owner wants to make a $100,000 annual salary, without servicing clients, the salon/spa must be doing at least $1 million in total revenue.
- Service provider owners: This is where the differences of opinion are varied and wide. When most service provider owners open their salon/spa, they need to be revenue producers. As the company grows, the challenge then becomes balancing their passion for the work and revenue generating with leadership responsibilities. When an owner bases their compensation on a commission rate on revenue their hands generate, they can easily fall into the “bought yourself a job” scenario. My recommendation is for service provider owners to budget themselves a salary that is allocated based on time devoted to leadership/administration responsibilities and time servicing clients. Leadership/administration pay goes under “Officer’s Salary” and service time goes under “Cost of Sales” in Service Payroll. Owners pay based on time allocated to work responsibilities rather than “commission” just makes sense and reduces the chance that leadership responsibilities get shortchanged for the sake of revenue. KEY THOUGHT: If you or your company needs the revenue your hands generate to survive, you have a major problem. You’re stuck. Your company is free floating.
- Profit, cash reserves and distributions: Profit is often described as the owner’s “second paycheck.” Yeah, wouldn’t that be nice. But that thinking is an invitation to a cash crisis. Why? Because profit isn’t cash. (Read this blog post learn why.) Cash reserves equal to three to four months operating expenses is not only prudent, it’s smart business planning. KEY: When all the bills are paid, debt principle is current and asset purchases are planned and managed — and cash reserves are sufficient — you can take an owner’s distribution. How much depends on the factors I just stated. And yes, distributions are taxable income. The only exception is at year end when corporate tax returns are completed, taxes have been paid on profit, and disbursable cash after taxes is available. Your accountant should be able to provide that amount.
- Owner bonuses: If, under your leadership, your company is growing, hitting goals and creating profit, you can take a bonus. It can be quarterly, year-end, or based on hitting certain growth targets. KEY: Bonus amounts must be manageable, budgeted and never compromise prudent cash reserves.
- Corporate partnerships: I put the word “corporate” in there because every business entity should be incorporated. Corporate entities (LLC, Sub S or C-Corp), often referred to as the “corporate shield,” legally separate personal assets from the company. When it comes to partnerships, clarity and fairness must prevail. Again, I don’t like that service provider owners work on commission. KEY: Partners should receive a salary based on clearly defined responsibilities because the moment one partner perceives that he or she is carrying more of the load, the partnership will sour. Distributions are made based on the percentage of stock ownership and in accordance with the criteria stated in the previous bullet on distributions.
- Zero profit strategies are dumb: I have to throw this one in here because it is, like I said, dumb. There are accountants that recommend driving profit to zero, or a loss, to avoid income tax. True, part of an accountant’s job is to recommend strategies that minimize income tax. But driving profit to zero or negative is foolish and compromises the financial integrity of the company. KEY: You can’t build cash reserves without creating profit. You can’t create a financially sustainable company with zero profit. You can’t finance growth with financials and tax returns that show a history of zero profit and losses. If your accountant recommends “zero profit” — get a new accountant.
Here’s my challenge to you: When it comes to how you get paid, think about the bigger picture of business ownership and growth.... Read More
July 9, 2018 | By Neil Ducoff | 3 Comments
You hire a service provider to work full time. Full time, according to basic labor law, is 40 hours a week.
- If this full-time service provider is scheduled to be at work for 40 hours, the employee needs to be compensated for all 40 hours at no less than minimum wage.
- If you hire a service provider to work part time, the employee needs to be compensated for all part-time hours worked at no less than minimum wage.
You’re probably thinking that this is pretty basic employer/employee information that all salon/spa owners understand.
Unfortunately, it’s not always fully understood.
When it comes to service provider compensation, the prevailing thinking at most salons/spas is, “I only want to pay them when their hands are generating money.”
What does it mean when a salon/spa only wants to pay service providers when their hands are generating money?
It usually means the following:... Read More
May 28, 2018 | By Neil Ducoff | 3 Comments
I used the word “wacky” in the title because when it comes to employees and pay, things can definitely get pretty wacky.
Here are some givens about employee pay expectations:
- There is a high emotional component to what an individual gets paid.
- There are employees that feel they should be paid significantly more, even though their performance and behavior say otherwise.
- There are employees that want to be paid more, but are unwilling to do more — or want to do less.
- There are employees that feel underpaid that never address the issue with owners/leadership, become resentful and devolve into a “problem employee.”
- There are employees that consistently deliver their best efforts, strive to advance themselves, and have earned the right to have conversation about their pay.
- Employees that view work as a “job” and do enough to get by, will rarely achieve their pay expectations.
- Employees that view work as a “career” and apply the necessary determination and commitment to advance themselves, are most likely to achieve their pay expectations.
As all salon/spa owners know, managing employees is an ongoing and challenging responsibility. Work needs to be done, bills need to be paid, problems need to be addressed and employees need/want to be acknowledged.... Read More
August 21, 2017 | By Neil Ducoff | No Comments
Salon and spa owners want to hire, grow and retain the best people … but that’s easier said than done.
Owners want to pay their people the best they possibly can … but that’s easier said than done.
Owners want, need and expect the highest levels of employee productivity in terms of technical and customer service excellence … but that’s easier said than done.
And of course, after all the hard work, long hours and stress, owners hope for at least a 10% net profit … but that’s easier said than done.
The Four P’s — People, Pay, Productivity and Profit — are a perpetual business juggling act. Here’s why:
- The universal owner frustration is, “I can’t find great employees.” Yet, “great employees” are out there. Like prospecting for gold, owners must relentlessly sift through what doesn’t fit to find their employee gold nuggets.
- High employee turnover, and the dreaded “walkout,” are not only an industry nemesis, they are symptoms of the leadership, career and culture deficiencies of the prevailing commission business model.
PAY... Read More
March 27, 2017 | By Neil Ducoff | No Comments
The last time I checked, there were still only one hundred pennies in a dollar.
In business, if you spend less than one hundred pennies of every dollar, you have profit. If you spend more than one hundred pennies you have negative profit and lose money.
At salons and spas, the largest single expense will always be service payroll. And like any expense, payroll costs must be controlled in order to be sustainable.
About fifty years ago, the professional beauty industry got itself into trouble when creative stylists began opening salons without the know how to design compensation systems or manage finances and cash flow.
Commission was the no-brainer go-to compensation system of choice.
What could be simpler than paying a stylist a percentage of what they bring in? Commission will motivate them to build their clientele. And what could be more super simpler than a 50/50 commission split? No one gets paid unless they ring up a sale.... Read More
September 12, 2016 | By Neil Ducoff | 1 Comment
A phone call comes in for a position you want to fill. The prospective employee says, “I’m interested in the [service provider] position you have open. What commission rate do you pay?”
I have never understood why, in the salon/spa industry, the pay conversation can begin before an owner has a chance to say, “Tell me a little about your experience.”
Hiring a stylist, colorist, esthetician, massage therapist, nail tech or any other technical position, is all about finding the right fit in terms of skill, personality and culture. It’s an investment of time, energy and resources to create the right opportunity for the right individual.
It’s imperative to ensure that these pieces fit before the pay conversation begins.
The intricacies of hiring an employee is diametrically opposed to renting a booth or suite where the service provider’s ability to pay rent is paramount.... Read More
June 6, 2016 | By Neil Ducoff | No Comments
Warning: The following may be a tough pill for many salon and spa owners to swallow… but it’s one that needs to be swallowed nonetheless.
Ready? Let’s talk salon and spa service payroll costs:
The Strategies benchmark for service payroll (not commission rate) is 30 to 35 percent of total revenue (Service Sales + Retail Sales = Total Revenue) … as it appears on a Profit and Loss Statement.
Each and every time we post this benchmark on the Strategies Salon/Spa Idea Exchange Facebook discussion group, owners say, “No one will work for that commission rate.”
And of course, stylists and other service providers post high attitude comments like, “I would NEVER give 65 percent of what I bring in to the owner.” Others say, “Based on my skill and experience, I would be insulted to be offered such a low commission rate.”
Disconnect on Service Payroll Percent
No matter how many times we clarify that our benchmark of 30 to 35 percent of total revenue has nothing to do with commission rates … it is clear that many owners and service providers are have difficulty understanding that we are referring to the total payroll cost for all service providers to the business.... Read More
February 22, 2016 | By Neil Ducoff | No Comments
Owners of employee-based salons often refer to booth rental and suites as the cancer of the industry.
I used to think that way too, but not anymore.
For owners, it’s an emotional subject because they invest time and resources in training, developing and building the clientele of their service providers. When a busy employee leaves and takes their clients with them … the hole it leaves in the business and its cash flow really hurts.
In many ways, building up service providers only to have them leave with “their” clients seems like the definition of insanity. Yet, just like a duck shoot at a carnival, the process continues to repeat itself.... Read More
December 21, 2015 | By Neil Ducoff | 1 Comment
Consider the annual income of three salon/spa employees from entry-level to senior service provider. If the-entry-level employee is making $10 an hour and working 40 hours per week, the annual gross income will be $20,800. A mid level service provider at a rate of $20 an hour, working 40 hours per week, will earn $41,600. A master level service provider at $45 an hour, working 40 hours per week, will earn $93,600. (Tip income is not included.)
Now, let’s go shopping for a new car in the $20,800 price range. There is a wide selection of economy-priced cars on the market today. From an expectation point of view, you want a decent level of quality, performance, comfort and some nice features like Bluetooth phone connectivity. You know your expectations must be in line with your budget – but you also will not accept any car that doesn’t meet your minimum expectations. QUESTION: When paying an entry-level service provider $20,800, why would you accept anything less than your minimum expectations?... Read More
August 3, 2015 | By Neil Ducoff | No Comments
If you have a business, you have payroll expense. Even if you work alone, after all the expenses are paid, you are the payroll expense. Machines and computers may automate, speed and simplify many aspects of work, but a business is still about people. And when a business has people, payroll is and always will be the largest expense category.
Payroll buys a complex array of talent, thinking and behavior. People have ideas, dreams, passion, skills, courage, imagination and other purely human qualities that give a business life and meaning. People are also the most challenging aspect to leading and growing a successful company – especially in a service business where quality and excellence is dependent on how well the service experience is executed.
Here is my No-Compromise Leadership anatomy of payroll expense:... Read More
July 24, 2015 | By Neil Ducoff | 8 Comments
This question is routinely posted in discussion forums. And just as routinely, and with the best intentions, the same old responses begin piling up.
Some suggest 45%, some 50%, and some even 60% and higher.
Some suggest sliding commission pay scales. Others advocate commission with product charges. Heck, it’s even assumed that if a salon isn’t booth rental, then it’s a “commission salon.”
FACT #1: The question, “What’s a good commission rate?” is the wrong question. The question itself identifies a lack of understanding of the financial realities of a salon/spa business.
FACT #2: The correct question is … “What percentage of my salon/spa’s total revenues can it afford in service payroll expense?”
The days of 50% commission are long gone. The days of 60/40 commission split rates in salons (40% to the salon) never should have happened because it is financial suicide for the business.
Total service payroll (hands that do the work) for the business must live between 30% to 35% of business’ Total Revenue (Service + Retail Sales) – as it appears on your Profit and Loss Statement. (Again, that’s 30-35% of the company’s Total Revenue, which is very different than 30-35% commission per service provider.) Once you understand what THAT number is … you can design your pay system.... Read More
June 15, 2015 | By Neil Ducoff | No Comments
There is a way things are done. Industries have their way of doing things. Businesses have a way of doing things. People have a way of doing things. This “way” is the accepted way. Deviate from the accepted “way “and you risk being labeled a renegade, troublemaker or just a plain old nutcase. But what if the tried and true “way” lost its potency? What if the “way” is flawed? What if there was a “different” way that was more effective, efficient, productive, stimulating, motivating, exciting and revolutionary? What if this different way was the breakthrough you’ve been hoping and searching for? And what if your response to this breakthrough way was, “This isn’t the way things are done.”? Poof … you watched opportunity pass you by.
In business, traditional ways of doing things are merely proven and accepted habits. When time, circumstance and new thinking merge, those habits are challenged. The flaws are revealed. A different way … a better way … emerges. The early adaptors are the pioneers. They question what is and challenge status quo. They figure it out. They make it work. Eventually, other leaders take notice. People take notice. Buyers take notice. Yet, competitors and naysayers label the new way a fad. They don’t “believe” in it. Well, fire wasn’t a fad. The internal combustion engine wasn’t a fad. The Apple I computer wasn’t a fad … nor was the iPod, iPhone or iPad. Total Quality Management wasn’t a fad. Open-Book Management wasn’t a fad.... Read More
February 16, 2015 | By Neil Ducoff | 9 Comments
There was a “lively” thread on Strategies Idea Exchange forum on Facebook. A group member posted, “I just spoke to an owner who files a 1099 for her staff, but doesn’t call it ‘rental’. She lets stylists make their own schedules, she provides products and all services are booked through the receptionist. She pays commission. Does this make sense? I’ve never heard of classifying someone as an “Independent Contractor” while paying commission.” The thread quickly grew to over 65 comments, became quite heated … and one poster that resorted to profanity got booted and blocked from Strategies Idea Exchange.
I have been involved in the independent contractor versus employee debate for what seems like forever. The debate is about two diametrically opposed business models – Employee Based or Independent Contractor (classified as 1099). One business model employs individuals to do the work. The other model leases, or rents space to individuals to do their own work. Seems pretty easy, doesn’t it? Well, it’s not. The IRS has very clear and specific guidelines to classify workers as independent contractors or employees.... Read More
February 2, 2015 | By Neil Ducoff | No Comments
In its most simplistic state, a compensation system buys time from an individual performing work. That’s the easy part; everything beyond this point becomes progressively more complicated. Can the individual perform the work and deliver on expectations? Can the individual fit the company’s unique culture? Does the individual have the desire and drive to grow and excel? Is the individual coachable and adaptable to change? Will the individual show up on time … or show up at all? Will you feel like you’re getting your money’s worth every time you hand over a paycheck?
As previously stated, buying time from individuals is the easy part. Designing the components of a compensation system that drive the right outcomes is the tough part. There is a “layering effect” that begins with the actual dollars to be paid for the work and compounds all the way up to a career and income growth path. Every layer is a joint effort that links the thinking and behavior of employees and leadership in order to create the right outcomes. The concept of “pay for performance” is seriously shortsighted. It sets both employees and leaders up for frustration and failure because just paying for performance – handing out a paycheck – is no guarantee that genuine work will occur.... Read More
June 3, 2013 | By Neil Ducoff | No Comments
As a leader, you are responsible for harnessing and orchestrating the talents and capabilities of employees into a high performance team. To do so requires an ongoing commitment to training, coaching, evaluating, mentoring, and inspiring individuals to achieve their full potential – so in turn, your team can achieve its full potential. Yes, people work for money, but studies consistently show that money is not the prime motivator for job satisfaction and impressive performance.
Individual financial incentives motivate employees in the short-term picture, but emphasizing financial rewards leads employees to focus on personal gain at the expense of teamwork. Avoiding the short-term and producing the right outcomes over the long-term requires preparation. This means planning, discipline, and execution. Preparation shapes and defines your company’s culture. Preparation pulls a team together into a cohesive entity capable of achieving the extraordinary. It’s about the team, pride, quality, and winning. (more…)... Read More
May 13, 2013 | By Neil Ducoff | 8 Comments
Being the leader of a business is perhaps one of the most complex, rewarding, and often brutally frustrating professions. Leaders are constantly held accountable, subjected to relentless demands, and must always be at the top of their game. A true leader works tirelessly to drive the Four Business Outcomes: productivity, profitability, staff retention, and customer loyalty. But when you peel away all of the trappings of leadership, what it really comes down to is believing in people – and that’s where things start to get interesting.
A leader’s job is to achieve results through the work of others. They keep people and teams on task. They maintain order, direction, and momentum. But would you want to work for a leader who is solely driven by the numbers, in an organization where people are simply the means to an end? In turn, would you want to be that kind of leader? You will get your results, but at what cost to those you lead; and at what cost to the work environment, or company culture? (more…)... Read More
June 25, 2012 | By Neil Ducoff | 8 Comments
I just returned from Oklahoma City where I converted Richard and Jan Hill’s three Eden Salon & Spas from commission to Team-Based Pay. I’ve been doing TBP conversions for over 35 years. I have done them for salons, spas, manufacturing companies and high-end retail stores. And for over 35 years, I have been at the epicenter of the often heated debate between commission and non-commission believers. My usual response to, “I don’t believe in TBP,” is, “It’s not a religion – it’s a compensation system.” Then again, if I’m perceived as some “TBP Guru” on a global crusade converting commission companies to TBP, then perhaps their perception is somewhat true. Commission believers see their method as a prime motivator to perform. TBP believers see their method as a means to create a dynamic culture.... Read More
May 17, 2012 | By Neil Ducoff | No Comments
Pay is always a hot-button issue. With the news about JCPenney Salons eliminating commission, the rumors are flying fast and furious. Don’t be motivated by fear when it comes to your pay system. Separate fact from fiction, starting now:
- The right pay system is about more than just a dollar figure. It’s about fostering a positive culture where your staff works as a team and is dedicated to helping the business grow. They enjoy coming to work every day — and you do, too.
- You can’t achieve consistent bottom-line proﬁts when your payroll percentage is a variable and ever-growing expense. You won’t grow when you are held hostage to commissions. If a salon/spa/medspa’s service payroll exceeds 40 percent of gross revenues (service and retail), it has a payroll problem.
- Team-Based Pay is a pay system; it’s not a religion. Team-Based Pay is an hourly and/or salary program, which ties a team bonus to the achievement of critical numbers, such as revenue, gross margin, client retention and productivity. Just doing hourly/salary is NOT Team-Based Pay. Individual growth is tied to overall performance – not just the employee’s ability to generate revenue. A Team-Based Pay system is designed to reward the right behaviors and performance – those that support the company’s goals and culture.
- An employee’s compensation should be based on more than just specific tasks. Successful compensation programs take into consideration a wide variety of skills and behaviors: attitude, technical skill advancement, attendance, teamwork, retail recommendations, integrity, cooperation, and customer service.
- No pay cuts or hour reductions. Successful pay conversions are executed with integrity and fairness.
- A successful compensation system must meet five non-negotiable criteria:
- It must ﬁt the ﬁnancial reality of the business.
- It must be controllable, not a large “ﬁxed percentage” of revenue.
- It must encourage and reward the actions that are consistent with the vision and culture of the business.
- It must give clear guidelines and pathways for individual growth.
- It must inspire and reward team and the attainment of the company’s overall performance and revenue goals.
March 22, 2012 | By nducoff | No Comments
When the owner of a salon or spa isn’t taking a paycheck, it’s more than business; it’s personal. When you’re feeling stuck and your debt is out of control, it may seem as though all is lost — it’s not!
Need a little encouragement? Start here:
- Take some time and reconnect with your passion for the beauty industry and think about what your long-term goals are for your company.
- Realize that there is a path to achieving your dream. You can do it by holding yourself accountable to doing the work, developing a sense of urgency for tasks and renewing your commitment to your business. It may not be easy, but it is very possible.
- Learn the tools that you need to build strength and structure in your salon or spa.
Here’s a quick to-do list:... Read More