Spa and salon operators are no different than any other business owners in setting goals; hopefully, both sales and profits can continue to grow. However, some spa compensation plans are not designed to support that goal. Does that include yours?
The business model for salons and spas is fairly straightforward; for a single-unit operation, we know that if fixed expenses are kept at certain levels, and the largest expense, labor, is well-managed, the business can attain net profits of 5% to 8% of revenues.
But the challenge to the model comes from the size of that labor chunk. If the business is using a traditional commission structure, a portion of all revenue is shared with the technical staff, usually a percentage amount, or range. That percentage portion ranges from the mid-30’s in some states to 45-50% in much of the country, to as high as 60% in areas surrounding New York City. And that is just for the technical staff! Support staff typically costs an additional 10-12% of revenue, and when you add payroll taxes, you see businesses that are spending as much as 75% of their revenue on payroll. Needless to say, employee benefits are not an option in this scenario. Profits are typically not an option either!
But beyond the challenge to profits, these plans also can have the unintended effect of keeping revenue growth flat, especially once the spa business matures and utilization rates settle in the 40% range. While spa and salon technicians profess interest in earning more income, what we see happening in fact is that when their earnings reach a comfortable level, their interest in earning more money subsides a bit. Predictable, consistent income levels make life comfortable, and since higher earnings would require working longer hours, performing more services, or working harder at retailing, technicians opt to just settle where they are.
Tiered compensation plans can be structured in a way that helps to fuel the desire to increase earnings, but the tiers have to be more all-encompassing than just earning a few more percentage points in service commission. Escalating the amount the technician earns per service is still the cornerstone, but should be accompanied by other benefits that can incent sales-oriented behaviors. Some options would include increases in retail commission (along with higher performance expectations), the ability to perform higher priced services at upper tier levels, and other perks such as preferred work schedules and education stipends.
Additionally, if you create a plan that is not based on percentage commission, but rather fixed rate per service, then your leverage over your margin increases as retail prices do. Fixed price plans allow you to pay different rates for different treatments, and the skills required to perform them. Having tiers in your plan provides a more clear career path, especially for the newer staff members. Be sure to set your tiers far enough apart that it would take an employee 12-18 months to progress from one level to the next. Monitor performance monthly, and celebrate forward momentum. Making sure your technical staff members are spread across tiers ensures that you have a range of profit margins, as well as creating constant movement forward among the staff. These internal mechanisms help to ensure that everyone is focused on growing sales, not just you!
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