Understanding Profit and Loss in Your Spa

Understanding Profit and Loss in your Salon or Spa

by Pam Stellema

in Business Development, Financial Management, Salon and Spa Management

The majority of hairdressers and beauty therapists love being creative and caring for their clients. They are passionate about their treatments and their customer service, but unfortunately, that same passion does not seem to extend to “doing the figures” in their business. It’s simply something they don’t enjoy doing, and they find it frustrating and boring.

However, without at least a basic understanding of your figures, what they mean and how they can impact on your success, you may be headed for heartache. When it comes to understanding the numbers in their business, many salon owners adopt the Emu Technique of Business Management (you know what I mean…head in the sand until the issue goes away).

For some reason, the idea of looking at numbers sends a quiver of fear running down many people’s spine, but you don’t have to be an award-winning accountant to understand some basic facts that will help you guide your business in a better direction.

There is really only two ways to make more profit in your salon or spa and that is to either reduce your expenses or increase your revenue.

Decreasing Salon Expenses

One area that is often overlooked is the expenses of the business. This is where things can go horribly wrong for some salon owners. They allow their expenses to get out of hand, with too much outsourcing and money wasted on things that don’t generate a return on the investment made. I have not yet met a business that didn’t need to trim their expenses.

It’s a great idea to talk to your accountant to see how much of your revenue should be eaten up by expenses. If you are over the recommended percentage, you might want to review what you are paying for, and look for ways that you can reduce your costs. Small savings over many areas can amount to quite a lot of money, which in some cases determines whether or not you take home a wage for yourself.

Another area within expenses that shows itself to be a problem is the staff wages. Wages are generally the biggest expense in most salons and spa’s, and while you most definitely need to employ people to help you increase your revenue, you must also be very aware of how much they are returning to your business.

Every staff member has to be making you money, and I personally believe that if their wages are costing more than 30% of their takings (without GST) then you are paying for time that is not being properly utilised.

Even your receptionist should be making money for your salon or spa. In fact, I prefer to no longer call them a receptionist, but instead, I like the term Front Desk Salesperson.

Why is that?

Because it’s their job to sell, sell, sell. They must be able to sell Gift Vouchers, additional treatments at the time of booking, retail products as they are checking out clients, additional appointments to existing client and so much more. Even though they may have other jobs that they must also do, selling should be their number one priority.

Increasing Salon Revenue

By understanding where your money is coming from, you have more opportunities to increase it. If you know what your average client spend is for both services and retail you can create strategies to help you increase those figures.

You can look for ways to attract more clients, retain more clients, get clients to visit the salon more often and also ways to get clients to spend a little more each time they visit. But to do this successfully, you need to know where you currently are so you can set new targets and measure your success.

Often, it takes only very small improvements in each of these areas (as little as 5%) to make a huge difference to your revenue.

So there you have it. The simple formula for a more successful business begins with understanding expenses and revenue.

Now might be a great time to dig out those accountants figures for the last financial year. You may feel a little shaky at first when you start, but you will soon realise that there is power in knowledge. If you can’t figure it out by yourself, talk to your accountant and get him or her to explain what those figures really mean to your financial success.

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Pam Stellema

Pam is an industry experienced coach, salon owner, speaker, author and copywriter.She works beside salon and spa owners to show them how to effectively grow their profits and remain in business for the long-term.
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