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Your PresenterWynne Business provides consulting and education, includinglive seminars and on-site team trainings for the spa and salonindustry• Lisa M. Starr – 20+ years experience in salon & spa industry – Senior Consultant, Wynne Business – Community Ambassador, Gramercy One – Consultant, educator, writer, presenter
What IS “Compensation”? • Money • Benefits • Perks • Education • Opportunity • …anything that creates value for your employee
Good Comp Plans…• Reward employees fairly for their personal contribution• Use objective measurements for advancement• Incent behaviors that benefit the company• Help retain good employees• Contribute to company profitability
Dysfunctional Comp Plans…• Don’t reward the right behaviors – “every man for himself”• Are not objective – play favorites• Are not consistent• Cause the company to lose money• Are not communicated clearly• Create too much turnover…or none at all
Traditional Beauty Compensation• We have a 40+ year old compensation Owner model Overhead• Forget your peers; listen to your P & L• What worked in the ‘70s doesn’t work now! Support Service Labor Labor, Taxes, Benefi ts
Current CommonCompensation Plans• Straight or Graduated Commission• Hourly + Commission• Hourly + Incentive or Bonus• Fee for service• Independent contractors• Booth rental (not really a comp plan)
Straight Hourly Rate• Creates complacency• Does not reward or motivate sales• Raises are expected but not co-created by increased productivity• Not sales-oriented!
Hourly + Commission PROS CONS• Provides stability for staff • Very difficult to budget in spas with heavy • Easy to set base or volume fluctuations commission too high• Managers can use team • Can encourage members for other complacency functions during slow • Creates cash flow periods pressures, especially for startups and small businesses
Commission: The Most CommonForm of CompensationPROS: CONS:• Easy to manage, simple • Forces clients to pay higher to understand prices • Only source of pay increases is• You don’t have to pay higher volume or bigger cut people unless there’s a • Prices increases are sale automatically shared• Encourages higher sales • Does not reward teamwork by techs • Connects what client pays to• Typical range: 40-60% of what tech earns service, 10% retail
Reality Check: How to losemoney on your comp planSERVICE SALE: “BEFORE”$100 Spa LaLa Signature Facial($50) Commission Cost of Sale ($5) Payroll burden (10% of payroll minimum) ($7) Product Cost (varies with type of service) $38 GROSS PROFIT (Cost of Sales: 62%, GPM 38%) $40 Spa Overhead Expense* (40%) ($2) PROFIT/LOSS * typical overhead ratio for upscale spas & salons
Controlling COGS• Labor is your single biggest cost of doing business• The wrong compensation plan will enrich your staff and leave you little room for error
The Only Way Out:Reduce Cost of SalesIncrease service gross profit to 50%+SERVICE SALE: “AFTER”$100 Spa LaLa Signature Facial($35) Labor Cost of Sale($3.50) Payroll burden (10% of payroll minimum) ($7) Product Cost (varies with type of service)$54.50 GROSS PROFIT (Cost of Sales: 45.5%, GPM 54.5%)$40 Spa Overhead Expense (40%)$14.50 PROFIT/LOSS
The Prescription• A comp plan that rewards the right behaviors• Carefully controlled COGS• Advancement with accountability• Clear career path
Start With the Big Picture…• New or established location• Owner or technician, or both• Overhead costs• Same pay rate for everyone, or levels• Expected profit
…and Work Backwards100% Minus: 38% - Average day spa overhead expense 12% - Support staff 5% - Profit 45% left to pay technicians(including taxes & benefits)
How to Apportion?• 45% total compensation for techs – Example; tech grosses 40k • Payroll taxes 3-4% • Paid vacation 2% • Contribution to health insurance 4-5% • Education/401k 1-2% • 33% left for direct pay
Win-Win Compensation:The Treatment Rate Plan• A treatment rate is a flat rate $ that is considered appropriate and fair pay, based on the time, skill, knowledge and effort required to deliver a given service• Treatment rates are not directly tied to the service price
Advancement:Who Moves Ahead, and Why?• Seniority: “Doing time” or building the company• Senior staff members must be held to a higher standard• Knowing what you know, would you enthusiastically rehire this person?• “She has 10 years of experience”: Is it the same year repeated 10 times?
Reward the Keys to Profit• Average ticket• Retailing ratios• Customer retention – Studies show: customer’s willingness to refer is greatest indicator of a company’s profitability• “Good citizenship” – Good communications skills = lower tech turnover, less refereeing by manager
An example of advancement scoring inactionESTHETICIAN Retail to Repeat Productivity Average Ticket Report DatesSara Smith Service % Retention 2/1/10-2/1/11Weighted score 3.5 3.5 1.5 1.5 OBJECTIVE: SCORE 10 POINTS OR MORE TO ADVANCEGoal at Level 2 52% 20% 60% $105Actual 46.62% 25% 62% $106.98 3.14 4.38 1.55 1.53 10.59 points 90% of goal 125% of goal 103% of goal 93% of goal 90% of 3.5 pts. 125% of 3.5 pts. 103% of 1.5 pts. 93% of 1.5 pts Sara needs 10 points to move up a level. She has attended 80% of staff meetings and has a positive Time Away bank. Sara moves up to Level 3
Example: Profit Increase of 39% After Conversion BEFORE$92 Facial 50% svc 35% retail 10% ret Product Esty comp Spa Gross GPM comm ratio comm COGS Profit $46 $49 sale $141 tkt $4.90 $24.50 $50.90 $65.60 46% AFTER$92 Facial Tx Rate 40% retail 20% ret ratio comm $27.60 $61 sale $153 tkt $12.20 $22.00 $39.80 $91.20 60%
Service Charges• Where did they come from?• Two types – Deduction from revenues • Back bar charge, amenity charge – Added to clients bill • Automatic gratuity • Often shared with support
Comprehensive CompensationPlans Include:• Employee perks• Variety of earning opportunities• Top quality training and education• Employee discount programs• Benefits (just like a “real” employer!)
Creative Rewards• 1% of retail sales per quarter allocated for continuing education• Resource partners asked to participate in rewarding top performers• Paid days off or wellness days for no call- outs in 3 months• Gift cards or spa swap with other spas• Pay for licensing• Motivational speakers• Friends and family service vouchers
Recruiting• Focus on annual earnings• Highlight benefits• Establish career path• Biggest source is happy staff members
Testing the Waters• Job Fair• Craigslist• Local community paper• Local beauty schools• Coffee shops, bookstores
Your Company Culture:Valued or Worthless?• If your culture stinks, no one will pay you for it• Mutual respect between functional teams is key• Excellent leadership skills required
Take the First Step…• Get an accurate evaluation of your current financials. Can you ever make money with your pay plan?• New spas; create detailed, realistic projections• Determine an acceptable level of profit for you. Design a compensation plan around a profit goal.
Considerations• Software – Payroll should not be complicated – Review your options• Service Menu – Pricing strategies – Updates• Cost of upheaval• Cost of doing nothing
Communication Plan• No surprises• Frank & honest• Group meeting• Individual meetings• Time frame• Clear behavioral guidelines
Don’t Try This Alone!• Expect turnover; grandfather key technicians• Technicians understand that they get a pay cut if you go out of business, too!• Are your prices set correctly? You may be able to increase• You may have to treat conversion as a “mini startup”
Industry Hourly Wages Personal Care Beauty Salons & Hair, Nail and Skin Barber Shops Care Services Annual Annual Annual Year Hourly Year Hourly Year Hourly 2007 $ 13.94 2007 $ 14.01 2007 $ 13.74 2008 $ 14.77 2008 $ 14.79 2008 $ 14.49 2009 $ 15.46 2009 $ 15.85 2009 $ 15.42 2010 $ 15.57 2010 $ 16.15 2010 $ 15.64 *Source, Bureau of Labor Statistics
Comparison of Professionally Licensed Occupations Occupation Average Years Educational $ % of revenue Education Investment generated paid to Required license holder Cosmetologist 1 $6-8K 40-60%Dental Hygienist 2 $20-30K 33% CPA 4-5 $40-60K 33-40% Attorney 7 $100-150K 25-30%Medical Doctor 8+ $300K 40-45%
ControllingCompensationThanks for your attention! Questions? Lisa Starr at email@example.com Gramercyone.com/blog Facebook.com/GramercyOne