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My Concern for the Reopening of Salons/Spas

May 18, 2020 | By Neil Ducoff | 8 Comments

First, some background…

My passion is for business and the leadership and systems that make a business productive and profitable.

I believe in transparency, shared accountability and the unlimited potential of a team-based culture.

The salon/spa industry has been the focus of my career for over 50 years. My track record, and the 26+ year track record of Strategies, of helping owners build the companies, cultures and profitability they never thought possible, is impeccable.

I’m sharing all the above not to boast, but to get your attention and to understand what I need to share…because I believe this may be the most important blog post I’ve ever written.

FACT: Salons and spas are historically known for their lack of profitability and high employee turnover.

Fast forward to today

Since mid-February, our industry and economy has been shaken to its core by COVID-19. All previous national crises and recessions pale in comparison. Never before have all non-essential businesses been ordered to close for a month or more. Never before have such massive federal loans and relief funds been poured into small businesses and individuals.

MY CONCERN FOR THE REOPENING OF SALONS/SPAS (after everyone’s health and safety): If your salon/spa was not in a good financial position when it closed, it will not be in a good financial position when it reopens.

Yes, if you got a PPP or EIDL loan, it will help you get your doors open again. However, the loans cannot fix the possible lack of financial discipline, spending, years of accumulated credit card and loan debt. Again, the financial challenges you entered the COVID-19 shutdown with, will NOT go away.

The one and only fix: For over 26 years, Strategies has been relentlessly teaching financial literacy (how to read and understand your Profit & Loss Statement and Balance Sheet to make smart decisions).

A non-negotiable tool: An essential tool of financial literacy is the knowledge and discipline of building and living a Cash-Flow Plan. (One year of projected monthly service and retail sales and all budgeted expenses.)

UNDISPUTED TRUTH 1: Without a monthly Cash-Flow Plan to focus efforts on achieving monthly revenue goals, and budgetary disciplines to control spending — your business is flying financially blind.

UNDISPUTED TRUTH 2: Many past and present Strategies coaching clients entered this crisis in good financial shape with cash reserves. They understand their financials and follow the disciplines of building and living their monthly Cash-Flow Plans.

A Cash-Flow Plan helps you answer these critical questions:

  • How will you cover 100% of your business expenses if reopening regulations limit the number of employees and clients allowed in your facility?
  • What if employees choose to remain on unemployment, are afraid to return to work, or decide to work elsewhere?
  • If you lack the necessary financial skills, how will you effectively manage the use of your PPP and EIDL loans? More importantly, how will you manage the monthly payments when they begin?

(If you need help building your cash-flow plan, we can help. Learn more here.)

Is your business model broken? It might be …

Over my career, I’ve been called idealistic, a pioneer, and I’m sure, a whacko. Why? Because I teach, preach and coach this thing called Team-Based Pay.

Paying commission never made sense to me for the salon/spa industry. Whoever came up with the idea that paying stylists, estheticians, massage therapists, nail techs, etc., 40%, 50%, or 60+ commission, didn’t understand that there are only 100 pennies in a dollar.

FACT: The days of high commission rates are long gone.

Whoever thought commission was a good idea (fixed, sliding scale, whatever), didn’t understand that when payroll is a fixed percentage of service, you cannot control payroll costs AND adjust for increases in operating expenses. Increases in product and operating costs shrink profit.

NOTE: Implementing a product charge (a price increase that is not commissionable) is a pay conversion that almost always rocks the boat. The typical commission employee response is that “they’re getting cheated out of the price increase.”

The other commission fallacy is that it’s the prime motivator for service providers to “grow their business/clientele/income.”

FACT: Commission is not the universal motivator owners believe it to be. If it was, all employees would be hustling to be booked solid, up-selling services, selling retail, pre-booking almost every client, have high first-time and existing client rates, showing up for work on time, working within time standards, and the list goes on.

Acid test #1: If your salon/spa needs this week’s service sales to cover last week’s payroll, do you believe that it’s time to implement a new business model?

Acid test #2: As the owner, if you would make more money being an employee in your company, do you believe that it’s time to implement a new business model?

Acid test #3: Look at your appointment book. If all those scheduled clients are more loyal to the names at the top of each column than your company brand, do you believe that it’s time to implement a new business model?

Team-Based Pay (TBP) is NOT some weird, off the wall, pay method. It is a proven business model that compensates employees based on overall performance (client retention to the salon/spa, attitude, teamwork, etc.) not just service revenue.

  • TBP is so much more than an hourly-based pay system.
  • No, employees are NOT all paid the same hourly rate. I have no idea where that assumption came from — it doesn’t make sense.
  • No one gets a pay cut when converting from commission to TBP.
  • Because it’s a fixed payroll amount, a salon/spa can easily adjust for increases in operating expenses.
  • Productivity rate is a key driver on TBP. Why? Because it doesn’t make sense to have employees on payroll with nothing to do. TBP is about efficiently managing your revenue producing hours.
  • When salon/spa revenues increase, without adding additional employees (it’s that productivity rate factor), raises can be budgeted in to reward employees — even those that are booked solid.
  • On TBP, all employees are responsible for every hour that’s available for sale. It’s that teamwork thing … and it works.
  • Commission is about building “individual clienteles.” TBP is about growing a company.

Converting to TBP is a process that requires at least four to six months of coaching and training on systems, leadership and financial responsibilities that make TBP work.

The big mistake some owners make is to convert commission to hourly pay and that’s that. Without the TBP systems in place, their worst fear becomes a reality — no one is motivated to work. The best example is the extra $600 a week for unemployment and employees choosing to stay home and just collect.

There is so much more to the Team-Based Pay business model than paying hourly. (Download our free Team-Based Pay Fact Sheet here.)

THE GOAL: Employee-based salons and spas must be as opposite of booth rental and suites as possible — and that means “team based.” You cannot be fully team based on commission. Why? Because nothing about commission is team based.

Agree with me or not … the current employee-based commission model is broken, and has been for a long time. It is irresponsible for me to say otherwise. It’s time for change.

Here’s my challenge to you: Find out more about how we help salons/spas create thriving team-based businesses. Our approach goes far beyond getting clients rescheduled and following safety and sanitizing protocols.

We’d like to help you create and navigate a strategic game plan that guides you through recovery, and onward towards creating sustained long-term growth. (See examples below.)

The best way to get started is to schedule a free Zoom coaching strategy session with one of our Certified Strategies Coaches. This will give you a chance to discuss where you’re stuck, where you want to go, and to start mapping out a plan to help you get there.

Schedule a free coaching session here.

Curious about what can Strategies do for your recovery efforts? Here are some things we’re currently working on with new and existing Strategies Coaching Membership clients:

  • Paycheck Protection Program (PPP) forgiveness planning, funds usage and payback
  • EIDL loan strategies, funds usage and payback
  • Detailed revenue forecasting, budgeting and monitoring using Strategies proven Cash-Flow Planning tools
  • Profit & Loss Statement and Balance Sheet assessment and financial literacy training
  • Service pricing verification to ensure profitability using Strategies Cost-per-Hour + Profit Margin tools
  • Critical number benchmarking and evaluation
  • Culture and leadership assessment
  • Compensation assessment to control payroll costs and reward the right performance and behaviors
  • Owner DISC assessment and review (plans available for complete team DISC assessments)

This quote, from Tom Peters, captures exactly where salon/spa owners are today:

“You remind yourself every day that this crisis isn’t just something to ‘get through’— it is the Final Exam of leadership competence and character. People often make great leaps in a short period during difficult times.”

We are entering a period of positive and profound change for the salon/spa industry. Strategies is committed to doing everything possible to support a better, brighter and profitable future for all of us.

You can do this … and we can help. You’re not alone in this battle. Schedule your free Zoom coaching session now, and let’s start mapping out a plan.


Categories: Coronavirus , Leadership , Team-Based Pay

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Comments

  1. Thank you Neil,
    This was a great article and one that needed to be said. I am proud to say that our staff received UE because they were TBP team members and not independent contractors nor commission based pay. It made it super easy for them to go on and super easy for them to understand what the PPP means for the business and for them. Though some very part timers did make more on UE thanks to the additional $600.00 all still want to be part of our team and are proud of what that means especially when they see other friends in the industry not receiving help.

  2. Neil, this is an excellent and concise summary of what every business owner should be considering at this time. Even if the salon was financially sound prior to this isolation period, your clear messages should be considered by every owner. Thanks for continuing to be a positive voice for business management. Malibu C will share this with as many business owners as we can to ensure it is heard. Thanks!

  3. Neil,
    Thanks for the great article. I love the passion with which you deliver this message.
    If someone is absolutely not convinced, let me give a personal example.
    August will be our celebration of 32 years in business. Sometime in the early 90’s I reached out to you for some direction on converting our pay structure from commission based to team-based. At the time, we didn’t have the technology that we have now, so you sent me a box of material…a box! Inside that box were many different printed materials that walked and talked me through the necessity of the change and also how to convert, step by step. We lost not 1 person during that conversion. We practiced what we preached and it was hard. There is a lot of work involved in team based pay, but it makes you keep your finger on the pulse of your company at all times. By 2000 we had built our own building all the while with money in the bank and a dynamic team. In 2003, our building burned to the ground, but because of the knowledge we had from Strategies, we had purchased interruption insurance that enabled us to pay our team while we were temporarily dislocated. Our TEAM, came together, we found a temp space, were only out for 12 days, and the first week in the temp space, was our best revenue week in the history of the company up until that time. The team based pay, also benefits your customers who know and support your brand, therefore, a potential tragedy, became our best week ever!
    3 months later we rebuilt our building, realized that our business had grown, both staff and customers and knew we needed to move. We bought more property, built a larger building and in 2005, sold our first building and started operations at the new location.
    Starting in 2009, our area of N Texas experienced a huge boom in suite rentals and over the course of the next 5 years, we lost a total of 42 people to booth rent! I have my own theory about that and I have my own statistics about that as well – only 5 are still doing hair full-time!
    We weathered that storm, all the while staying true to a team-based salon, practicing our training program, driving our customers to experience a true team and continued to hire on a team-based pay model.
    Here we are in May of 2020, having just re-opened last Monday after being mandated to close for 52 days. We are still standing. We worked six days last week to get our customers in, our team is being paid overtime to do so and we had our best revenue week since 2008!
    We also owe only $15K on our building and would have had it paid off today, May 18, but my banker reached out to us, offered no payments in April, interest only ($90) for May, June,and put us on a payment plan of 4 equal payments starting July, at 4.3% interest.
    We chose not to take PPP, EIDL or any other programs, because I don’t want another monthly payment after we get back to some reality.
    I’m not saying all of this to say, Yay for us. I’m writing you to thank you for being as passionate about your message as you were almost 30 years ago, when I first reached out to you. I’m so grateful for the direction.
    Thank you,
    Thank you.
    Bruce McGaha
    Mouton’s Salon

  4. So looking at re opening. Large loyal older clients. Many afraid to come back. The book looks 50% . For myself and the other esthetician’s. So what gives? I can’t have three of us at that productivity rate. Ideas?

    1. Hi Nicola,
      You’re absolutely right. If you can’t find a way for clients to feel comfortable returning at this time, you need to reduce hours. If you received a PPP loan, this is what those funds were meant to be used for … to keep employees on payroll. Consider getting your employees on the phones to talk to clients about how safe your facility is. If this brings in a few more clients, awesome. If you just can’t keep your employees business, you have some tough decisions to make. I’m sure you know this already. — Neil

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