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Keep It Simple

The more confused things seem, the simpler the answer. I’m currently working with a client who owns several spas and salons. The business has undergone some changes and has downsized. In the process, there was a level of administration that may have worked for a larger organization that wasn’t working under the current structure. Information flow between the remaining businesses was confusing, and it seemed like the business had lost touch with the basics of building guest relationships and managing profitability. Financially, the confusion was obvious. There were too many people looking at the information, and none of the pertinent information necessary for decision-making was getting to the owner. Too many cooks, too many bosses and nobody taking care of the guest.

What do you think it was like to be an employee in this situation? Owner in panic is not a fun place to work. If it isn’t a fun place to work, employees leave to work in other spas. Employee attrition reflects how well the guest is taken care of. Unsatisfied guests go elsewhere. It’s as simple as that. 

Let’s talk about what we are doing to turn this confusion around. With all these hands in the financial pie, the information is inaccurate, confusing, and can’t be trusted. I boiled it down this way: 

Re-connect with your guests. Every day, look at your schedule. How many guests are on your book? Do you know them? If yes, great. If not, go make some friends. Greet them; make sure their service is great. Be the role model of amazing hospitality and phenomenal guest service. Let your staff see you doing this. Thank your guests; personally re-book their next service. Tell them about your “Bring-a-Buddy” promotion. Call them afterwards or send them a note to let them know how important they are to you. Don’t forget, these guests are your assets. Make sure you have a personal relationship with them. 

Look at the sales that are recorded every day. Does it line up with your scheduling book? Do a manual calculation to make sure that the money collected for all of the previous day’s sales in your book are actually making it into the bank. 

Do your retail sales line up with your purchases? Overall are your purchases for retail about 50% of what you are selling? 

What about your professional/back bar product? Is the value of the professional product you are using more than 12% of the selling price of the service? Any waste? Is too much product being kept in the treatment rooms? 

Study your labor daily. Make sure that the total cost of your labor (including payroll taxes) does not exceed 42% of Service plus Retail Sales. 

If you chose not to manage your retail purchases, back bar purchases, labor and other direct costs individually, then multiply your total sales (service plus retail) by 65% and make sure the total amount you spend for these items does not exceed this. 

Likewise, make sure all of your overhead expenses (rent, advertising, office supplies, insurance, repair & maintenance, equipment leases, administrative wages etc.) do not exceed 30% of retail plus service sales. 

Once we are operating this way, we can look at ways to increase sales and lower costs. 

Assuming total sales of $25,000 (85% Service, 15% Retail), this is what these financial puzzle pieces need to look like:

graph 1.jpg

Manage these numbers this way, and you will be profitable.

As always, if you have questions, call us at 888.727.5489