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Dynamics of Salon & Spa Productivity Rates
August 24, 2015 | By Neil Ducoff | 3 Comments
Productivity is about a consistent, efficient and proficient output rate in a specified time. If it needs to be accomplished – its productivity rate can be measured. In a service business, achieving and maintaining an optimal productivity rate can mean operating in the glow of profitability or the stress of mounting losses. The challenge is that creating those extraordinary customer service experiences at the optimal productivity rate requires a level of leadership, coordination and systemization that many leaders don’t fully comprehend. Dialing in an automated production line and dialing in a team of people are two extremely different processes.
You may be able to “set and forget” a machine’s productivity rate … but you simply cannot “set and forget” the productivity rate of people. Machines are built to be task specific … people, even those with natural abilities, require training and skill development. Machines can run 24/7 … people need breaks and have limits to their workday. Machines live at work … people can be late for work, have absentee issues, and some actually forget to show up. Machines don’t procrastinate or avoid doing their work … some people do. There are some similarities; Machines age and break down … so do people. Machines quit working … so do people. All things considered, leading a team of people to be productive is, and always will be, an ongoing process.
Here are six No-Compromise Leadership insights into the dynamics of productivity rates in a service business:
- Productivity is a team sport: The benchmark for productivity rate is +/-85 percent (hours sold divided by hours available for sale). The most effective way to drive a company’s productivity rate is a “team-based approach” that has “everyone is responsible for every hour the company has available for sale” embedded in its culture. The team drives the productivity rate by holding everyone accountable. Target and current productivity rates are part of every daily huddle. Commission-based businesses are notorious for having lower productivity rates due to the ease of over-staffing and the false assumption that commission will motivate all employees to “get busy.” By design, the “I/me/mine” commission mentality makes shared accountability to driving the company’s productivity rate impossible.
- Strategically buy and sell time: In a service business, in order to sell time to consumers, you buy time from employees in the form of pay. Buy too much time and your payroll costs will devour cash flow and kill profits. Buy too little time to meet demand and revenue opportunities will slip by with each tick of the clock. It is the ever-changing dynamics of salable time, talent and demand that makes driving your productivity rate anything but a “set it and forget it” process. Leaders must look downrange and plan for seasonal and growth opportunities and threats. Leaders must also manage the ongoing realities of absenteeism, turnover, vacations, maternity leave and other factors that impact productivity rates. When the largest single cost on a Profit and Loss Statement is payroll, you must be relentlessly strategic about managing and planning salable time, talent and demand.
- Productivity rate and cost per service hour: Every hour a service business has available for sale has a cost. It’s no different than the cost of inventory on a retail shelf. Every hour … no matter what the method of compensation … has a payroll cost. Every hour has a cost for product, administration and guest services payroll, rent, insurance, education, utilities and more. The lower the company’s productivity rate, the higher the cost for each hour the company has available for sale. Why? Because all of the costs of doing business must be covered by fewer sold hours. Likewise, the higher the productivity rate, the costs of doing business are spread more efficiently over a greater number of sold hours. If you don’t know or understand your company’s cost per service hour, you’re missing the key to setting accurate and profitable service prices.
- Never squander time: Selling time fills the revenue bucket. Idle time drains the profit bucket because idle time is pure cost. Service businesses that live within the productivity rate benchmark of +/- 85 percent rely on scheduling systems that avoid or limit the accumulation of unsellable time. For example, fifteen-minute gaps on the appointment book can rarely be sold. One of the biggest offenders of squandering time are service providers that do not, or cannot, complete services within established time standards. If your services are priced using the cost per hour + profit formula, any service that exceeds the standard is costing the company money – not making the company money. It is a skill, technique and confidence issue that can only be addressed through skill certification training and coaching. How much time is your company squandering?
- Navigating limited resources: The dilemma for smaller service businesses is the availability of resources to quickly and effectively train service providers to deliver quality work within acceptable time standards. This typically adds to greatly extended … and costly … training programs that can last a year or more. The cost-effective solution is concentrated training and mentoring to prepare new employees to deliver a limited selection of quality services. Even the hiring of experienced service providers is no guarantee that their “experience” will deliver to the standards of quality that your company promises to deliver. Training and development in a service business is a cost of doing business. If you are not budgeting the financial, personnel and time resources, you will also be compromising your productivity rate.
- Emotional dynamics: We humans are emotional beings. When we’re down and distracted by life … productivity rates will suffer. When a team of otherwise competent people falls off their game, it is the leader’s responsibility to recharge their emotional fuel tank and get them back in the game. This is why daily huddles are vitally important. This is why it is essential that a company have a basic monthly scoreboard that is updated at huddle to ensure that everyone knows the score and what needs to be done today. This is why a little “yes we can” inspiration at the right time can lift a team out of its funk to hit goal.
There is nothing mechanical and simple about driving and maintaining a company’s productivity rate. It requires constant attention to the multitude of details that are occurring each day while you are looking and planning downrange. The moment you stop paying attention … or gamble with the “set and forget” tactic … your productivity rate slips into the costly danger zone.