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Finding Balance: People, Pay, Productivity & Profit
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.
- Compensation thinking in the industry is a historic and massive mess. Employees say, “60%+ for me and 40% or less for the owner is fair.” Sorry employees, you never had to deal with the financial realities of running a business. And for all owners that say, “I pay 60% commission and do well,” you’re probably an overbooked and overworked service provider that would earn more if you were an employee in your own business. RELATED: Check out this blog post on Where the Money Really Goes in a Salon/Spa.
- Pay based on a percentage of sales may reward “hustle,” but it also rewards the wrong behaviors like attitude, attendance, low client retention rates, retail indifference and more. Even worse, percentage pay is about employees building their own followings, not client loyalty to your business and brand. Translation: Your most important business asset doesn’t belong to you.
- You can’t fix high service payroll costs with product cost deductions, sliding scales, higher sales and hope. The payroll elephant in your business living room needs to be replaced with a modern, proven pay system that rewards overall performance while maintaining fiscal responsibility. This doesn’t mean paying great employees less, it means paying them better for the right performance, because you’re not paying others for the wrong performance.
- Employees don’t quit because the method of pay is going to change. They quit because of trust issues. They quit because of a contaminated culture. They quit because of the absence of growth opportunities. They quit because of the lack of employee benefits. They quit because of a lack of thoroughly understanding the benefit of the new pay system. They quit because they quit a long time ago and never left.
- And yes, sometimes it’s just time for an employee to seek out new opportunities or to open his/her own salon or spa.
- In the salon/spa business, it’s all about selling time efficiently and aggressively. How efficiently you sell time is measured by your company’s overall Productivity Rate (Service Hours Sold ÷ Service Hours Available = Productivity Rate). Commission makes it easy to overstaff, which lowers your Productivity Rate. It also means more service providers competing against each other for available clients.
- PERFORMANCE FACT 1: The key to balancing people, pay and profit is to control and maintain an efficient overall Productivity Rate. The closer your overall Productivity Rate is to the 80% range, the more efficient your company.
- PERFORMANCE FACT 2: Maintaining an ideal Productivity Rate with a controlled non-commission pay system means you can pay fewer people better. Remember, pay based on overall performance is dramatically different than a “if you do this … you make that” straight or sliding scale commission. RELATED: Download our free Team-Based Pay White Paper report to discover how a pay program like this can benefit you and your staff.
- Profit doesn’t happen by working harder to drive revenue. Creating Profit requires an entirely different business skill set called “Financial Literacy.” Financial Literacy is about planning and managing your company’s cash flow to create Net Profit on your Profit and Loss Statement, and to create the healthiest Balance Sheet possible.
- Leadership of People, Pay and Performance gives you the ability to manage for Profit. All four P’s must be in balance. That’s the work of leadership. Got it?
Here’s my challenge to you:
You have two choices…
- You can choose to do everything in your power to learn and master your ability to create balance in the Four P’s. That means making the tough decisions that your company needs you to make. It means advancing your knowledge of what it takes to grow a truly dynamic and profitable salon/spa business beyond the industry’s antiquated systems that drive high payroll costs and feed booth rental/suites.
- You can choose to focus on less than all four P’s because doing so is more within your comfort zone. You don’t like numbers so why bother learning cash-flow management and how to create Profit and a healthy Balance Sheet. You’re uncomfortable with holding employees accountable … so why learn how to truly be a No-Compromise Leader. You’re afraid to implement the changes your salon/spa desperately needs because of possible push-back or confrontation … so you continue to tolerate the intolerable.
Which choice will you make?