January 12, 2020 | By Neil Ducoff | 1 Comment
Any discussion on the pricing of salon/spa services is guaranteed to stir the emotions of owners and service providers. This is especially true when it comes to charging what your time and services are worth.
The industry’s long-term challenge has been keeping pace with the rising costs of doing business. This is especially so with the skyrocketing costs of prime lease space.
Every salon/spa owner knows the importance of “location, location, location.” But being in the right location with the wrong pricing is business suicide.
That’s why in these economic times, getting your service pricing right is so critical.
In its most simplest form, salons and spas sell increments of time in exchange for professional services. The key word is “professional.”
“Professional” means the assurance of specialized knowledge, skills, creativity and experience. It also means location, ambience, amenities, marketplace, brand recognition and other key factors.... Read More
November 24, 2019 | By Neil Ducoff | 1 Comment
I’ve been reviewing salon/spa financial statements for 45 years, starting with my own two salons back in the 70s. Yes, I used to do hair and own salons.
Whenever an owner calls me for help with his or her salon/spa, I ask for the most current Profit and Loss Statement and Balance Sheet. Why? Because I need to know the story of how the company performs and what its state of health is.
The financials also tell me a lot about the owner’s understanding of financials, how much they pay attention to them, and the value they place on them.
In so many ways, a set of financial reports, specifically the Profit and Loss Statement and Balance Sheet, are a numeric readout of the owner’s financial thinking and behavior.
Here are some examples of the story financials tell me:
- I expect to see financial reports that are no more than 30 days old. If the most recent financials are four or five months old, the owner isn’t paying attention to the financials, doesn’t understand them, or sees little value in them. If all I can get is last year’s tax return, there’s a big problem.
- The Profit and Loss Statement must have the percent of income column. The percent of income column is the fastest way to see how the business is performing and where the money is going. If retail sales are less than 10% of total income, there are no systems, focus or accountability for selling retail. The percent of retail and professional product cost tells me if purchasing budgets are being used. The service payroll percent tells me if payroll is within benchmark and if the compensation system needs fixing. An excessively high rent percent tells me the urgency to grow revenue, or if it’s time for a serious conversation with the landlord. Every line item and percent tells a story.
- The Balance Sheet quickly tells me how healthy the company is. If there is little to no cash, the company is in a financial crisis and most likely insolvent. It tells me if there is a cash reserve in separate savings account. It should tell me the total due in Accounts Payable. It tells me how many credit cards have balances and the total in credit card debt. KEY: Excessive credit card debt is a bad sign. It tells me how many loans there are and the principal balance of each. It tells me if the Retained Earnings are positive or negative. Negative Retained Earnings means the company has been operating at a loss for many periods. Lastly, it tells me if the Equity is positive or negative. Negative Equity means the company’s liabilities exceed its assets.
Here are some No-Compromise Leadership insights to ensure that your financials tell a story of success:... Read More
August 19, 2019 | By Neil Ducoff | No Comments
As a salon/spa owner, what’s more important to you, the revenue one service provider brings in, or, the total revenue your company brings in?
The obvious answer is, the total revenue your company brings in.
So why is the industry so obsessed with individual revenues?
Why is it that an individual’s total revenue is the first number discussed in performance reviews?
Why is it that individual revenue numbers get posted for all to see and total salon/spa revenues are rarely posted?
And why is it that so many owners don’t want their employees to know their company’s total sales?
Yes, I get that all those individual “my numbers” add up to total revenues.
I also get that the more an individual brings in, typically determines that individual’s value to the company. So much so, that the more an individual brings in, the less important other critical performance numbers and behaviors become.
So, what’s the BIG challenge spotlighting what each individual brings in, over shining that spotlight on your company’s total revenues? ... Read More
July 28, 2019 | By Neil Ducoff | 2 Comments
In the salon/spa industry, tipping is a blessing and curse. It’s a blessing because the custom of clients giving gratuities can add significantly to salon/spa service providers’ personal income.
It’s a curse for a number of crucial, often misunderstood, reasons:
- IRS Law states, “All tips are income earned at work and therefore subject to the same withholding tax as regular income.” This means every tip dollar must be reported and taxes withheld.
- It doesn’t mean only reporting tips on credit cards and keeping the cash.
- It doesn’t mean reporting 10% of service sales when tipping easily exceeds 15% and higher.
- Owners cannot say, “It’s my employees’ responsibility to report tips on their tax returns — not mine.” As the employer, IRS law clearly states that the employer is responsible for collecting tip income amounts from employees and withholding payroll tax — exactly the same as regular pay.
- As the employer, salon/spas must pay the matching FICA tax on tip income.
- When tips are added to credit card charges, the employer is paying card processing fees.
The restaurant industry stood up for itself — and won... Read More
June 16, 2019 | By Neil Ducoff | No Comments
I’m passionate about the work I do at Strategies, but passion doesn’t pay the bills.
As a business owner, my company needs to be profitable. It needs to cover payroll to ensure the livelihoods of my team members. More importantly, it needs to be profitable so we can fund our growth.
- Profit makes the hard work worthwhile.
- Profit is the return on investment (ROI). In so many ways, profit is your return on risk.
- Profit is how you win the business game.
On the flip side, losing money (negative profit), even if it’s just for a month or so, creates stress.
If the losses continue to the point where you can’t keep current on expenses, the stress can become unbearable. Credit cards max out. You can’t take a paycheck. I call this the “fiery pit of hell.”
In business, winning makes you feel great. Losing makes you feel bad, and eventually, beats you up as your business gets deeper in the financial hole.
For the reasons just stated, creating profit is as essential to your wellbeing as an owner and leader.... Read More
June 3, 2019 | By Neil Ducoff | 12 Comments
Tipping at salons and spas has been a quagmire of issues for, well, pretty much forever.
But in recent years, the migration from cash to plastic, and now electronic payments like ApplePay, means all of us are carrying less cash.
Last year, U.S. Bank did a study and found that 46% of people surveyed used cash less than eight days a month. Further proof that the need for cash is rapidly fading away.
Given that tipping in salons and spas is damn near a sacred practice, owners need a real solution.
More importantly, how your company addresses tipping is directly tied to your service providers’ future compensation, and a significant factor in employee retention. Simply put, it’s time to pay attention.
Let’s start with the three stages of salon/spa owner response to a customer asking, “Can I leave a tip on the credit card?”
Stage 1: DENIAL: No, I am not going to pay those added processing fees. Instead, I’m putting in an ATM and saying, “We don’t accept tips on credit cards.”... Read More
April 28, 2019 | By Neil Ducoff | 2 Comments
You open a salon/spa because you have a passion for the business and vision of what your company can become.
Thoughts of what your salon/spa can sell for is typically one of the cans that keep getting kicked down the road for years.
Sooner or later, that day eventually arrives when selling your company begins to occupy your thoughts.
And when it does, the big questions will always be, what is my salon/spa worth, and what will it sell for?
For as long as I can remember, my passion has been about helping employee-based salon/spa owners to grow companies they can be proud of. Companies that offer growth opportunities for employee and owners alike. And that means companies that are profitable and financially secure.
A few days ago, I received a letter from a coaching client that I haven’t heard from in a few years. It was a “thank you” letter.... Read More
April 7, 2019 | By Neil Ducoff | No Comments
If you had to describe what the work of “leadership” really means, what would you say?
Clearly, it’s about vision, inspiring people, achieving excellence, creating profit and more extremely worthy elements.
But what exactly is the work of being a leader? If you were training a new member of your leadership team, what would you train them to do?
FACT: The work of leadership, even in its most basic application, is massively complex because it is perpetually changing.
If your business is struggling financially, the work of leadership needs to be specifically applied to identify and fix the problem to regain cash flow and profit.
If your business is strong and growing, the work of leadership needs to be specifically applied to developing new and better systems to support its growth.
If your business suffers from employee turnover, which is a major problem in the salon/spa industry, the work of leadership needs to be reengineered to allow a new culture to emerge that is free of toxic waste.... Read More
February 11, 2019 | By Neil Ducoff | No Comments
That final line on a Profit and Loss Statement is often regarded as the Holy Grail of business.
And why shouldn’t it be? After all the income is tallied and all the expenses are paid, what remains is Net Profit. If it’s positive, you won. If it’s negative, you lost.
You work hard to get those few percentage points to appear on that bottom line. The problem is that many owners don’t fully understand the dynamics of Net Profit.
Don’t stop reading! You need to make it through the next few paragraphs and it will all make sense.
The one statement that Strategies hammers away at, in coaching and seminars, is that “Profit isn’t cash.”
FACT: Net Profit is a measurement for a period of time — a month, a quarter or a year.... Read More
January 28, 2019 | By Neil Ducoff | 4 Comments
Scenario 1: Your salon/spa is growing, but at a snail’s pace. Most service providers are hitting or exceeding their critical numbers. (Productivity rate, client retention rates, prebook, frequency of visit, number of first-time clients, retail, etc.) Cash flow is tight. They’re wondering where their reward is. You’re wondering the same thing yourself.
Scenario 2: You set and communicate critical numbers for your new talent and rising stars. Because they’re new or developing, you set their critical numbers to reflect minimum expectations. Like in Scenario 1, growth is slow and cash flow is tight.
Prevailing industry thinking
Set critical number expectations based on an individual’s level of experience and performance. Newbies have low critical number expectations. Top “producers” have high critical number expectations. Everyone else is placed accordingly between the low and high levels.... Read More
January 7, 2019 | By Neil Ducoff | 4 Comments
Driving your salon/spa’s prebook rate has a dramatic impact on productivity rate by filling future appointment time slots.
The merging of your prebook consistency and first-visit and existing client retention rates, literally supercharges your salon/spa’s productivity rate. It’s the orchestrated outcome of pre-selling time on the appointment book and fulfilling and exceeding client expectations.
FACT 1: Prebooking is the process of professional guidance to schedule future service appointments.
FACT 2: First-time and existing client retention rates are direct and indisputable measurements of the quality of your salon/spa’s technical ability’s and customer service systems.
FACT3: Your salon/spa can have impressive prebook and client retention rates … and still be missing the dynamic impact even minor increases in Frequency of Visit can have on total revenues.
Frequency of Visit (FOV) defined: Frequency of visit is the average number of service purchases clients make per year at your salon/spa.... Read More
December 10, 2018 | By Neil Ducoff | 1 Comment
The countdown is on for the biggest gift card opportunity of the year.
In fact, when salons and spas turn their selling systems on and fuel them with “sense of urgency,” gift card revenues can be absolutely amazing.
How amazing? It’s totally possible to generate as little as 10% to as much as 100% and more of total monthly revenues.
The difference between putting a drop in the gift card bucket and having it overflowing cash all comes down to systems, leadership and focus.
Here are six of the most important No-Compromise Leadership insights all owners need to understand and remember to make this the best gift card season ever:
- What gift cards really are: The gift card game is all about pre-selling services — not filling buckets of cash. The only thing missing in a gift card transaction is the pre-booked appointment and the name of the client. KEY: If your motivation and focus on gift card sales is on “cash” rather than the pre-selling of services, you need to rethink your gift card strategy.
- What gift cards are not: Cash from gift card sales IS NOT spendable cash you can use to clear up debt or to catch up on expenses. Simply put, if your motivation to drive gift card sales is to bail yourself out of debt, you need a viable cash-management strategy to fix and prevent the issues that created the cash crisis. Spending gift card cash today simply kicks the cash-flow crisis down the road to when gift card redemption occurs. KEY: At the point of redemption, all of the payroll, product, operating expenses and more kick in. If the gift card cash is gone — your cash crisis instantly returns with a vengeance.
- Gift card information flow: Selling gift cards is 100% a selling game. Games need goals. Games need a scoreboard. If you don’t have a separate gift card scoreboard — make one. It can be a simple “bucket” that you and your team color in EVERY day at morning huddle. KEY: Your front desk and guest services team are your gift card sales team. As you count down the days to the holidays, do quick morning and mid-day huddles to brief them on where you are and what needs more focus. Coach your team to win the gift card game.
- Games need “plays”: In a salon/spa, a play is a script. Scripts are short opening and closing statements that your front desk and guest services team can use to present gift card solutions to clients at check-in and most definitely, at checkout. KEY: Keep scripts simple for check-in and checkout. Role play to build confidence and consistency.
- Gift card station/desk: If you have the space, consider setting up a gift card station, or desk, devoted 100% to selling gift cards. Decorate it with gift-wrapped boxes, gift bags and holiday ornaments. Make it obvious that you’re serious about selling gift cards. Have your best gift card sales closers there to great, present clients with your gift card solutions and to close the sale. KEY: Every service provider should have a simple script to remind clients to visit your gift card station/desk to purchase GC’s for loved ones and friends. Also, keep in mind that business owners and professionals love the simplicity and ease of buying gift cards for employees.
- Cash management: The worst way to manage gift card sales is to deposit the cash into your business checking account. It’s going to get spent. The best strategy is to deposit or transfer daily gift card sales into a separate savings account where it will stay safe until needed when redemptions occur. KEY: Transfer gift card cash reserves back into your business checking account as needed when gift cards are redeemed. The absolute best gift card game is to diligently manage cash flow and see how much gift card cash you can leave in savings.
Here’s my challenge to you: If you’re not playing the gift card game hard and fast, why not? As long as you stay focused on the pre-selling of services, gift cards are nothing short of an amazing business opportunity.... Read More
December 3, 2018 | By Neil Ducoff | 1 Comment
The Definition: A Critical Number is a number that, when moved in the right direction, has a profound and lasting impact on the company.
For salons and spas, the following Critical Numbers are the five primary growth indicators:
- Productivity Rate: The ratio of service hours available for sale versus service hours sold. The higher your productivity rate, the more efficiently service payroll hours are being utilized.
- Prebook Rate: The percentage of clients that checkout with a future appointment. Salon/spas sell time in the form of service hours. The more time that is sold in advance through prebooking, the easier it is to maintain an optimum productivity rate.
- First-Time Retention Rate: The percentage of first-time clients in one month that return for a second visit within 90 days. It doesn’t matter who the client returns to as long as he or she returns to the company.
- Existing Client Retention Rate: The percentage of clients in one month, that have been to the salon/spa two or more times, that return for another visit within 90 days. It doesn’t matter who the client returns to as long as he or she returns to the company.
- Frequency of Visit: The average number of service visits clients make per year to your salon/spa. Increasing your company’s overall frequency of visit by one visit can truly have a profound impact on revenues.
Depending on where your salon/spa needs measurable improvement, you can add any number or percentage to your Critical Numbers.... Read More
October 22, 2018 | By Neil Ducoff | 2 Comments
For salon/spa owners, the closest thing to owning a home with no mortgage is owning and operating a business that is 100% debt free.
The concept of being debt free runs contrary to typical business thinking. If you want to open a salon/spa, you’re going to need financing. So, you go to your bank, or some lending entity, and, if qualified, secure a loan.
Next, you use the loan proceeds to build out space, buy equipment, furniture and fixtures. Hopefully you saved some of that borrowed money for operating expenses, marketing and payroll.
So, from day one, you have to make that monthly loan payment plus interest.
Next comes credit card debt. Those easy-to-use pieces of plastic with preset credit lines that entice you every few months to take cash advances with no interest for six months or so.
Next thing you know, you’ve got balances on multiple credit cards charging loan-shark interest rates and minimum monthly payments that barely reduce the principal balance.... Read More
September 24, 2018 | By Neil Ducoff | No Comments
FACT: Profitability is a planned outcome. Profit doesn’t happen by chance, working harder or by hope.
Many salon/spa owners are not overly fond of numbers, but all owners want and love profit.
There’s nothing more stressful than attempting to operate a salon/spa that is perpetually short of cash and struggling to be profitable.
It’s one thing to get behind on bills, rent and barely make payroll. Getting behind on payroll taxes is where things get just plain ugly.
Going into more debt to plug leaks, that were never managed in the first place, is as dangerous as it is unsustainable. Trying to pay off yesterday’s bad decisions with today’s cash flow is a ticking time bomb.
So, to give all owners a dose of financial reality, I put together the following 13-point profitability checklist:
- Can you read and understand every line item on your financial reports? This includes your Balance Sheet, Income Statement, and Statement of Cash Flows. If not, what’s your plan to learn how? This is non-negotiable.
- How often should you receive complete financial reports on your company? If it’s not at least monthly (that’s only twelve sets of financials a year) it’s not often enough. At Strategies, we’ve been running weekly financial reports for almost 25 years.
- How much time lapses from the end of the month until you receive your financial reports? If this exceeds two weeks, it’s too long. Find out why and address it. If you have a bookkeeper, there’s no excuse not to have timely reports within days after the end of the month. Any good in-house accounting software and a competent bookkeeper should be able to produce timely weekly financials. This is non-negotiable.
- Do you have a cash-flow plan that guides your revenue targets and expense budgets? If not, why not? Financial reports tell you the score during and after the game ends. Your cash-flow plan is your financial playbook. Follow the plan, be fiscally responsible, and your financial reports will improve. You cannot grow a business without following a cash-flow plan. This is non-negotiable. The plan is simply a “best guess.” The more you do it and work your plan, the better you can predict the future.
- Do you live your cash-flow plan and budget? Living your cash-flow plan means using it to make all financial and spending decisions. No sense creating a budget if the discipline to follow it isn’t embedded in your leadership thinking.
- Do you have weekly cash-flow planning meetings? If not, why not? Having a cash-flow plan is pointless without comparing it to actual revenues and expenses. Are you over or behind projections? Why? What do you need to do today or over the next week to correct or get back on track? This is why I prefer weekly over monthly financials. I don’t want to find at the end of the month that we were overspending mid-month.
- Do employees know the score? If your response to, “Hey boss, how’re we doing?” is “Not good enough,” the people doing the work have no idea where the salon/spa is at or what they need to do to make it better.
- Does your company require “purchase orders” to control spending? A purchase order is simply a list of what’s being purchased and the total cost. The total cost of the order is either within budget or over budget and needs to be reduced.
- Is your payroll percentage under control? What is the ideal target payroll percent for your salon/spa? What will it take to achieve this? Is your pay system overdue for an overhaul?
- Do you know your “cost per hour” for services? How do you know if your services are priced right if you don’t know the cost? The only way for a service business to be profitable is having a realistic profit margin on your cost per hour to arrive at the optimum selling price. Sadly, most owners don’t know how to calculate their cost per hour. If you’re one of them, contact us at Strategies.
- Are your inventory levels under control? Money that’s tied up in excess inventory is a cash drain. What’s the plan to get inventory under control?
- Are you turning your inventory as often as you need to? Slow inventory turns in retail kills cash flow. Inventory should turn four to six times a year or more.
- As the leader of your salon/spa, are you setting the right example to create a fiscally responsible business culture? If not, why not?
Here’s my challenge to you: There is no debating that the profitability begins with the right leadership thinking, disciplines and culture. It cannot be faked or given lip service. Salon/spa owners must live it, inspire it and relentlessly build a fiscally responsible culture to support it.... Read More
June 18, 2018 | By Neil Ducoff | No Comments
As many of you know, just over one year ago, I was hit by a van while riding my bike. I was injured pretty badly. Thankfully, I’m fine now.
Early this year, I started training for the 150-mile MS Cape Cod Getaway Ride that I missed last year. This will be my ninth time doing this ride. Since 2008, I’ve raised over $55,000 for MS.
My cycling coach constantly reminded me not to obsess over where my fitness was before the accident, but to focus on incremental improvement gains.
For my cycling and fitness comeback, all I could do was work on getting better and stronger. It wasn’t until a week ago that I actually compared my level of fitness today to pre-accident.
I’m happy to report that I am back to pre-accident fitness. I just focused on incremental gains and made my comeback.
I’m sharing my comeback story because many salon/spa owners get so stuck in their current critical numbers to the point where growth opportunities are missed.
At Strategies, we understand that there are unique differences in the critical numbers between salons, spas, massage, medspa, nails, lash extensions and other related companies.... Read More
May 21, 2018 | By Neil Ducoff | 2 Comments
You don’t need to be a fortune teller to accurately project achievable monthly salon/spa goals.
You don’t need to be a Tony Robbins to lead and inspire your team to hit goal.
What you do need is clarity on your leadership role, responsibilities and level of engagement that makes “hitting goal” your team’s priority.
Red flags start flying when I hear owners and managers make any of the following five statements:
- “We haven’t hit goal in a long time.”
- “I have no idea if the goals we set are doable.”
- “My team gives up when they see we’re going to miss goal.”
- “I keep lowering the goal so the team can hit it.”
- “I have some employees that could care less about the company’s monthly goal.”
If you have ever uttered any of the previous statements, contamination and dysfunction is present in your salon/spa culture.
Why? Because each one of the five statements identifies a disconnect between you, your team, and what your salon/spa must achieve to remain relevant and financially sustainable.... Read More
April 16, 2018 | By Neil Ducoff | 1 Comment
As far back as I can remember, industry professionals have been saying that salon and spa pricing hasn’t kept pace with inflation. Few if any argue against it.
There’s another battle cry that goes with the “we’re not charging enough” thinking that sounds like, “Salon/spa net profits of +/-5% is pretty dismal.” In fact, too many salons and spas are notoriously unprofitable. Again, few if any argue this fact.
With service prices lagging behind and profitability looking bleak, it makes one wonder why anyone would want to open a salon/spa.
The service PRICING challenge
Charging what “you ARE worth”: There is an apparent self-esteem/personal worth issue that tends to get in the way. If one has the passion and perseverance to go through school, take countless advanced education courses and work hard to hone the skills of his or her trade, why not charge for your expertise?
If you’re an owner that bet the ranch to build a beautiful salon/spa, deal with all the stresses of being an employer, juggle finances and create a viable and unique brand, why not charge a price point reflective of this?... Read More
April 9, 2018 | By Neil Ducoff | No Comments
The dilemma at salons and spas is how all the “teamwork” talk grinds to a halt when it comes to shared ownership to achieve the company’s monthly and annual revenue goals.
The fundamental essence of teamwork is a united effort to win.
Teamwork is about igniting the energy and passion of all team members into a formidable force that’s capable of achieving far more than working independently.
The challenge: The vast majority of salons and spas set individual weekly/monthly service and retail goals for service providers. The “company goal” is rarely or never shared, if known at all.
The outcome: When the workday begins, each service provider is focused on his or her individual goal because no company goal exists. Total salon/spa revenue is simply the sum total of individual performance.
FACT: It’s hard to achieve a company goal when team members are competing against each other. It sounds like…... Read More
April 2, 2018 | By Neil Ducoff | 7 Comments
There are many reasons for starting a salon/spa business. If you’re a hairstylist, esthetician, massage therapist or nail technician, the motivation is your passion for the work.
Of course being a service provider in your own company makes a ton of sense, but that’s about you creating a job for yourself.
The entrepreneurial reason to start a business is to create and grow something of value. Your salon/spa business is, first and foremost, an investment.
In many ways, it’s no different than buying a home. You want your home (an Asset) to appreciate in value and grow Equity (Asset – Liabilities = Equity).
The Challenge: Too many salon/spa owners focus the bulk of their energy on growing revenues, but revenues do not directly translate into value creation or equity.
To create value and grow equity, owners must understand the relationship between their Profit & Loss Statement and Balance Sheet.
More importantly, owners must understand why and how a Balance Sheet defines how healthy the salon/spa business is. Why? Because a business can be busy, broke and worthless.... Read More
March 26, 2018 | By Neil Ducoff | 1 Comment
I know what it’s like to look at bills and payroll that need to get paid knowing that the balance in the checking account isn’t even close to what’s needed.
That was many decades ago. I never allowed myself, or my company, to be in that situation again.
A business without enough cash to sustain itself is beyond stressful. It’s gut wrenching.
Borrowing money, especially on credit cards, to pay bills and meet payroll without a plan to fix the bleeding just digs a deeper financial hole.
When the owner has to stop taking paychecks, the stress level elevates to demoralization.
What you just read is every reason to create the systems and disciplines to build your salon/spa cash reserve.
There’s a reason that I always refer to cash reserves as “sleep well at night money.”
There’s a reason that Strategies training and coaching makes cash-flow management a non-negotiable.... Read More
October 1, 2017 | By Neil Ducoff | No Comments
Becoming a salon/spa owner is a guaranteed way to test what you’re made of.
Becoming an owner is an intoxicating mixture of vision, dreams and the confidence that with total control you can build a truly extraordinary business.
In so many ways, it’s more about the vision and potential opportunities than the making of money.
But, as all owners come to realize, there’s a ton of not-so-inspiring stuff that comes along with the actual “owning and leading” your own business.
That not-so-inspiring stuff can be summed up in two words — financial stress.
Financial stress in business can be nothing short of scary and gut wrenching. It causes sleepless nights, fear that bills won’t be paid, and the indecision of an uncertain future.
At Strategies, we get calls from owners in financial stress every day. All the stories sound like, “The money comes in and it all goes out — there’s nothing left over.”... Read More
June 5, 2017 | By Neil Ducoff | 2 Comments
In an industry almost entirely driven by skilled, creative and passionate professionals, it’s easy to understand that there is a significant lack of interest in “the numbers” side of business.
So much so, that it’s not unusual to hear service providers say, “I don’t care about the numbers, I just want to do my work,” when owners and managers try to share financial and critical numbers with staff.
At Strategies, our business is coaching owners of employee-based salons and spas to grow successful and sustainable companies. For a business to be “successful and sustainable,” it must not only be profitable, it must have sufficient cash reserves. Remember, “Profit is not cash.”
FACT #1: Financial literacy — understanding financial reports and financial management — is a non-negotiable for ALL businesses – large and small.
FACT #2: There are many “busy” salons and spas that bring in a lot of money that are barely profitable and are tight for cash.... Read More
December 26, 2016 | By Neil Ducoff | 11 Comments
My apologies to all employee-based salons/spas with W2 employees for having to write this post…you are salon/spa owners that properly follow IRS tax laws by withholding payroll taxes from your employees’ paychecks.
This blog post was written for all the salons/spas in our industry that classify workers as 1099. This includes stylists, estheticians, nail techs, massage therapists, support staff, etc.
I use the term “worker” because a 1099 worker IS NOT an employee.
There are two reasons why salon/spa owners classify workers as 1099:
- Owners don’t want to be bothered with collecting, depositing employee withholding tax and paying the employer’s required payroll taxes. It’s so much easier pushing the tax burden on their “employees.” If it were that easy for a business to avoid payroll taxes – no company would have employees. FACT: It’s not that easy.
- Didn’t know. Didn’t care. Followed bad advice. These excuses are not a viable defense if IRS determines that you misclassified W2 employees as 1099 Independent Contractors. If you have any degree of control over workers with respect to supervision, schedules, performance standards, training, products used to do the work, dress code, etc. … the workers are W2 employees.
As the business owner, you will be liable for your back payroll withholding and employer taxes … plus interest and penalties.... Read More
November 14, 2016 | By Bruce Hourigan | No Comments
When you get a letter like this from the IRS, they’re not sending you a birthday card.
I was lucky enough to be selected for an IRS audit of my salons. This happened not because they found any problems on my return, but instead, our salons were chosen as part of a Market Segment Specialization Program (MSSP) study. The IRS was updating their information on how to audit “beauty businesses”. This information was then distributed to IRS agents throughout the United States. The IRS also chose two other salons in the area for the study, a 6 chair salon and a 2 chair salon (those lucky owners!).
The IRS agent was a pleasant gentleman and certainly not what I expected. He was polite, professional and had a sense of humor. During our first meeting he stated, “We are not auditing you for anything you did wrong. You just happen to fit the model of a salon we need for our study.”... Read More
October 10, 2016 | By Neil Ducoff | 7 Comments
I first heard about product cost deductions in the early 1970s. Over forty years later, the product cost deduction pitch to staff hasn’t changed … but the industry most definitely has.
The pitch typically sounds like: “We’re going to raise service prices ten percent. The increase will be deducted from your service total before your commission is applied. The increase is to cover professional product cost. You will still make the same money.”
This is what service providers typically hear: “We’re doing the work. We’re not making commission on the price increase. We got a pay cut. Product cost is the salon/spa’s problem … not ours.”
Here’s the truth:... Read More
May 30, 2016 | By Neil Ducoff | 1 Comment
Why is it such a challenge for owners and staff to discuss service pricing with clients?
Why do owners have so much anxiety about doing a necessary and justified price increase?
The cost reality
There is a value to all of the training, experience and dedication to deliver the services salons and spas provide to clients … none of which is free of charge to the business.
- First and foremost, there is the cost of service payroll.
- There are guest services and administrative payroll costs.
- There is the cost of continuing technical and business education.
- There is a cost to using the finest professional products.
- There are overhead costs in the form of rent, utilities, insurance, maintenance, advertising, etc.
- There is the cost to build out and equip an attractive facility.
- There is the cost and repayment of debt that financed the start-up and/or periodic upgrading.
- There is the need for the business to generate a fair profit on revenues.
- Finally, there are the ever-increasing costs of doing business that eat away at profit.
Salons and spas sell time in exchange for services. Every hour that is sold … or unsold … has a cost. That means every service hour MUST be priced according to its “cost per hour + desired profit margin.”... 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
November 30, 2015 | By Neil Ducoff | 2 Comments
Any discussion on salon/spa service pricing can quickly turn into a debate based on historic practices, entitlement, ego and emotions. That being said, what follows is sure to open a “can of worms” debate.
A debate is a formal discussion of opposing viewpoints where the best debater is crowned the winner. My intent is not to win a debate, but to create an awareness of the issues and practices that do more to compromise and complicate salon/spa pricing than help it.
But, if anyone wants to debate, sound business practices will beat entitlement, ego and emotional arguments every time.
As you will read, most of the service pricing issues are more salon related than spa. Why? Because there is a heck of a lot more entitlement, ego and emotional stuff that exists on the salon side of the industry. Spa pricing is more consistent across service providers … even those with many years of experience. That’s so not true on the salon side where many price levels can exist within the same salon and are justified by the size of stylist’s clientele and years of experience.... Read More
November 23, 2015 | By Neil Ducoff | No Comments
Getting busier and working harder can drive top-line revenue, but more revenue is no guarantee that profit will occur. The process of creating profit is far more complex than selling more services and products and then checking that last line on your Profit & Loss Statement to see if Net Profit is positive or negative. Unfortunately, too many owners leave profit to hope, good luck and a favorable nod from the business gods. Of course, creating profit takes hard work, but it takes hard work and focus on the right things at the right time. Only then do you have the best chance of finding your salon/spa’s profit sweet spot.
Profit is the end result of a number of critical operational and financial disciplines. Think of it as an on going dialing in of systems, performance, information flow and a relentless commitment to paying attention to your numbers.
Here is a 7-point No-Compromise Leadership hit list that will help you dial-in and lock-in your salon/spa’s profit sweet spot:... Read More
November 9, 2015 | By Neil Ducoff | 3 Comments
Profit is simply a measurement of business performance. It’s the reward for generating revenues, doing great work and staying within budget. Job security, advancement, better benefits, being able to invest in the best training, getting the best equipment, etc., are all part of profitability. Realizing all of the amazing opportunities that profitability can deliver will require a no-compromise sense of urgency. Urgency is paramount to achieving profitability.
When a salon/spa business culture takes a lethargic, lack-of-urgency approach to profitability, it gets in its own way. It’s akin to letting go of the controls that allow leadership to guide business activities toward its profitability goals. The cash-flow plan is demoted to the “optional task list,” or evolves into nothing more than an annual ritual that is rarely, if ever, looked at or put into play. Reviewing financial reports or having cash-flow planning meetings happens when it happens, if at all. Financial discipline and consistency is out the window.... Read More
July 24, 2015 | By Neil Ducoff | 9 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
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
April 7, 2014 | By Neil Ducoff | No Comments
At Strategies, every aspect of our business training and coaching is focused on what we call The Four Business Outcomes: productivity, profitability, staff retention and customer loyalty. Business success, and your success as a leader, is defined not only by the proficiency and mastery of each outcome, but by how equally you balance and synchronize The Four Business Outcomes. Think of each Outcome as one of the four powerful jet engines on a Boeing 747. Maximum efficiency and thrust to lift the 875,000 pound jetliner with over 500 passengers and cargo requires all four engines to be in sync. Should one engine underperform or fail, the performance and safety of the entire jetliner is compromised.
Outcomes are an end result. High productivity rates are an outcome. Impressive Balance Sheets and Profit & Loss Statements are outcomes. A unified and cohesive company culture with little employee turnover is an outcome. Fiercely loyal customers and high client retention rates are outcomes. In order to produce extraordinary outcomes, you’ve got to get the drivers right.... Read More
March 24, 2014 | By Neil Ducoff | No Comments
The best-of-the-best are committed to doing the “work” of business. They don’t avoid the stuff they don’t like or the tough stuff that defines a leader’s determination to win. Just like profitability, success is an outcome. Leaders and companies that master the disciplines of success stand out from their competition.
Using a simple grading system of 1 to 10 (10 being truly outstanding), each characteristic listed below establishes a benchmark that you can use to quickly assess the viability of any business … including yours. Using this approach, a score of 10 for each characteristic will yield a perfect score of 100.
Characteristic Number 1 – Leadership: First and foremost, the owner of a successful business functions as a businessperson. This means that the owner is engaged, accountable and drives performance by paying attention to the business. That being said, it’s easy to identify owners that are so engrossed in their non-leadership work that the business is essentially free-floating without direction, structure or systems. This is the equivalent of trying to run a business by remote control. It just doesn’t work.... Read More
December 16, 2013 | By Neil Ducoff | 6 Comments
My Monday Morning Wake-Ups are seeded by the challenges and issues of leaders I encounter in my work. Maybe it’s the shorter days of the winter solstice, the stress of the Holiday Season, or the wrapping up of 2013, but there is definitely an “I lost my passion” flu bug going around. It’s turning up in calls and emails coming into Strategies offices, in classes, and in coaching calls. I’m even getting Facebook messages from exasperated leaders and owners seeking hope for a cure. The common theme of this flu bug is simply a loss of passion for leadership and business.... Read More
December 2, 2013 | By Neil Ducoff | 6 Comments
A box I had been waiting for arrived at Strategies. It contained a hundred copies of the November/December issue of Salon Today magazine. And there I was – on the cover of each and every issue. It was great to finally see which photo the editors selected for the cover. I was delighted with the choice and the layout. I’ve never been on the cover of a magazine or the focus of a feature article. Gazing at this pile of magazines on the conference room table created a strange mixture of pride, accomplishment and a deep sense of humbleness as 40+ years of hard work flashed through my mind. Through an array of emotions, one word kept surfacing – “legacy.”... Read More
November 18, 2013 | By Neil Ducoff | 2 Comments
This blog post is for all leaders.
It doesn’t matter how new, old, small or large your salon/spa is, financial literacy matters.
Because too many leaders think they can run profitable companies without paying attention to their financial reports.
As a company that is coaching and teaching salon/spa owners every day, we are consistently finding that owners and leaders cannot answer the most critical … and simple … financial questions.
And this is not a new phenomenon. But this consistent exposure through our coaching and training work, and over hundreds of complimentary coaching sessions by Strategies coaches and myself has us seeing red flags flying all over the place. ... Read More
September 9, 2013 | By Neil Ducoff | No Comments
I’m writing this Monday Morning Wake Up on September 6th in St. Louis, MO. I’m here to speak at Jack Stack’s 21st Annual Gathering of Games. It’s my fifth time speaking at this conference, which is the only one devoted entirely to the open-book business model. The first edition of Jack’s book, The Great Game of Business, was published in May 1992, one year before I started Strategies. To this day, it is my all-time favorite business book. To me, open-book management just makes sense. It’s how I run Strategies, it’s what we teach in our courses, and it’s what we coach our clients to do.... Read More
June 17, 2013 | By Neil Ducoff | 4 Comments
I was in Livermore, CA, last week doing a private No-Compromise Leadership training session for a client and friend. I stayed over an extra day so we could do a bike ride through the beautiful vineyards and countryside. While riding, we got into a discussion about time management. I said, “Manage time like money. Think of all the stuff you need to accomplish as if they are line items on a Profit and Loss Statement. Income is your time. Now, what would you do differently?”
Time truly is like money. We only have so much of it and always wish we had more. If we are frugal with it, we can maximize our time, invest it wisely, and be incredibly productive. We can squander our time by being disorganized, lazy, and a master of procrastination. Lastly, we can allow our time to be stolen by others simply because we let them. Like money, time will disappear if you don’t pay attention and budget it like the precious resource it is. (more…)... Read More
February 11, 2013 | By Neil Ducoff | 3 Comments
One of the great mysteries in business is why profit isn’t cash. Well, it’s not really a mystery – profit is more like an abstraction that requires further interpretation to fully understand its meaning. We can all agree that creating profit is a good thing and that negative profit (loss) is a bad thing. However, the mind games begin when there is profit but no money in the checking account. And why don’t you go out of business when your profit and loss statements keep showing negative profit? The answer is simple: profit isn’t cash. Hmmm … perhaps it is a mystery after all.... Read More
October 8, 2012 | By Neil Ducoff | 6 Comments
Profit is a strange little beast. Leaders fight for it – and obsess over it – but profit doesn’t mean cash in the bank. It’s like profit is some sort of sick mind game where you can be profitable and broke at the same time. Even crazier is that profit can be negative for extended periods and you’re still in business. And the ultimate body blow is when you have to pay taxes profit even though there’s little or no cash. Clearly it’s better to show a profit than a loss, but wouldn’t it be nice if you could get some control over that little beast?
July 9, 2012 | By Neil Ducoff | 10 Comments
You can lead a company that delivers extraordinary customer service, generates impressive sales, and from all outward appearances appears wildly successful – but if your company is fighting cash flow, it’s functioning under extreme financial stress. Cash is the fuel of business. If the business is starved for cash and running on fumes, it is officially in survival mode and begging for relief. It is the toughest position for any leader to be in because it is often unclear and complicated which path to take to lead the company back to daylight and fiscal stability.
Fact: Cash is king – but you knew that. Cash gives a company power and options that cash-starved companies just don’t have. Cash is “sleep good at night money” because it creates a sense of security. Cash is truly precious. So, with all the upsides to building cash reserves, why do so many leaders focus on driving everything but cash flow?... Read More
May 3, 2012 | By Bruce Hourigan | No Comments
You’d never open a salon without the proper tools — state-of-the-art scissors, top-of-the-line blow dryers and, of course, fabulous, effective products. Similarly, no one would try to run a spa without massage tables, pedi chairs and wonderful scrubs and lotions.
Unfortunately, many owners do try to run their salons and spas without the proper business tools needed to be profitable and successful.
Many salons and spas struggle with cash-flow and figuring out what’s coming in (and going out). Without a clear financial picture, it’s impossible to plan for steady growth, as expenses always pop up. Many owners (maybe even you) start using their personal credit cards to pay the bills — even to cover payroll. It’s impossible to build a strong business without a realistic cash-flow plan.
Numerous other owners and managers grapple with staff concerns, from hiring to pay design to performance evaluations. Some owners have leadership issues, uncertain how to translate their vision to their employees so that everyone is working toward the same goals. Proper communication is one of the first steps in building a successful business, yet it is one of the basics that many salon and spa owners believe they don’t have time for. A culture where employees want to do their best, stay and grow is one of the hallmarks of a thriving, profitable business.... Read More
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