The Rules for Running a Profitable Business
The queens of business consulting, Keri Davis and Karla Lopez-Martinez from Beauty Backbone, are here to share their secrets for setting up systems that will allow you to lead a more profitable salon.
We introduced you to Keri and Karla on the Beyond The Technique podcast, but if you missed their previous interviews, we’ll give you a quick recap: Keri is the owner and founder of the repute Gila Rut Salon group in Southern California where Karla actually began her journey as an assistant. Karla quickly moved up the ranks at Gila Rut to eventually become the co-owner of their second location.
With the help of Gila Rut’s educational director, Jonatan Rizo, Keri and Karla founded Beauty Backbone, a digital education platform for owners by owners. Beauty Backbone teaches salon owners the secrets to educating, directing operations, managing finances, and instilling leadership skills in your team. Keri and Karla have had years of experience in perfecting their profitability, and now they’re here to help you do the same.
First Thing’s First: Why Is Being Profitable Important?
Did you know that the industry average is as low as 3%? We can do so much better if we just aim higher and really crunch our numbers.
At Gila Rut, Keri and Karla are always chasing 10% profitability. For them, it starts with having systems in place that can support that profitable goal. You have to budget and actually stick to your plan. How? Accountability.
Educate your team. Make sure everyone understands why you make the decisions you do when it comes to expenses. The transparency will help your entire team stay on track.
Why Is It So Hard for Salons to Earn a Solid Profit?
When Keri opened her first salon, she realized that she had no idea how to read a P and L, or profit and loss statement. Of course, she was swept away by all of the other tasks that come with managing a team while still doing hair behind the chair and it was difficult for her to find the time to go back to teach herself something new.
To this day Keri wishes that she had been better about planning ahead and really understood the value in knowing what was coming in as revenue and what’s going out as an expense. That’s what helps you make decisions and run a good business.
Want to Earn a Higher Profitability? Look at the Whole Picture.
Keri and Karla have been serving as consultants for other salon owners all over and the first thing they do when starting a session with a new salon owner is dive into their P and L from start to finish because every number tells a story.
Once you’ve pulled the numbers, it’s time to dive in. Where are you with your retail per client ticket? How are your retention rates? How about pre-booking?
Work to understand what’s driving sales and figure out where you stand in relation to the industry’s benchmarks for success.
You’ve Got to Keep Your Payroll in Check
Payroll is the biggest expense that salon owners have. Keri believes that payroll, not including taxes, should not exceed 45% of service sales.
It’s the biggest expense and it takes the longest to adjust because you can’t just go in and kill off your front line or decrease everybody’s pay. Like any adjustment, there is a process to lowering these numbers and achieving a higher profitability. You have to take that number down while maintaining the people that you have and brining new people on at a lower rate.
Right off the bat, you want to be looking at your front desk payroll. If you have a manager on duty it should exceed no more than 8% of your total sales. If there’s no manager on duty it shouldn’t go above 6%.
Keri and Karla give their managers a spreadsheet that lists the specific number of hours allocated for front desk payroll, for assistants, and so on.
A Great Way to Raise Profitability Is to Focus on Add-ons
At first, raising your total dollars per day sounds pretty difficult. You’re still working with the same number of hours. You can’t fit in any additional clients, especially if your schedule is already consistently double-booked. How much more can you do?
The trick is to think about the additional services you can provide without adding any extra time. Have a client in the shampoo bowls? Add a glaze and give them a brow wax. Doing a men’s cut? Tack on a beard trim.
As Keri says, you don’t always have control over how many clients come in, but you do have control over your offerings, so ramp up the add-ons!
What Happens After You Reach Your Profitability Goal?
Keri reminds us that there are two components to your profitability percentage. One being your actual profit and the other being cash flow. It can’t go all in your pocket because you need a kind of safety net, a buffer.
How you pay yourself as a salon owner should also depend on your role at the salon. If you’re still behind the chair it’s going to look much different than if you’re strictly serving as the owner and handling operations. Regardless, you basically have to build yourself a realistic salary based on your breakeven number. If you wait to pay yourself, you’ll never see the money.
At the end of the day, if you want to reach your business goals, you have to write down where you want to go and how you plan to get there.
If you’d like to learn more about increasing your profitability, listen to the podcast that inspired this blog, episode 178, and don’t forget to check out Keri and Karla’s digital platform, Beauty Backbone, for the ultimate in-depth guide to taking your business to the next level.