Compensation is the spa's biggest expense. If you get it wrong, your are in big trouble.
Service labor comprises well over 50% of your total revenue; 30-40% for technician labor, followed by support labor, taxes, etc. and finally the owner. Your service comp plan will make or break you. The maximum for labor (payroll, taxes, vacation, health insurance, owner) should be 62%. 58% is better. Rent and utilities should be 6% and supplies 4-7% (ideal rent is $16 - $18/ft). Most spas have a general overhead average of about 40% (includes support labor, but not technical labor).
Traditional spa and salon comp plans
Independent Contractors - Not recommended.
Booth Rental - No quality control, no teamwork.
Commission
Most common
Typical range 40-65% of service, 10% on branded retail
+ Easy to manage, simple to understand
+ You don't have to pay people unless there's a sale
+ Encourages higher sales by techs
- Eats profits
- Forces clients to pay higher prices
- Only source of pay increases exept higher volume or bigger cut
- Price increases are automatically shared
- Does not reward teamwork
Salary + Commission - Relatively new. Works well. Example - $8-12/hour plus 10-20% commission on services and retail. Good if the spa is busy. Cash intensive at the beginning.
Salary + Incentive or Bonus - Mainly for management. Incents managers to control costs and increase volume.
Reality Check Examples
Service Sale: "Before"
$100
Signature Massage
($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: 68%, GPM 32%
($40)
Spa Overhead Expense (40%)
($2)
PROFIT/LOSS
Reduce the Cost of Sales
$100
Signature Massage
($35)
Commission Cost of Sale
($3.5)
Payroll Burden (10% of payroll minimum)
($7)
Product Cost (varies with type of service)
$54.50
GROSS PROFIT (Cost of Sales: 46%, GPM 54%
($40)
Spa Overhead Expense (40%)
$14.50
PROFIT/LOSS
Retail Sale: "Before"
$100
Branded Product Sale
($50)
50% Product Cost of Goods
($1)
Cost of Shipping, Stocking
($10)
10% Sales Commission
($1)
Commission Payroll Burden
$38
GROSS PROFIT (COGS 62%)
($40)
Spa Overhead Expense (40%)
($2)
PROFIT/LOSS
Retail Sale: "After"
$100
High Margin (Private Label) Product Sale
($30)
30-40% Product Cost of Goods
($15)
15% Sales Commission (a 50% raise!)
($4.50)
Commission Payroll Burden
$50.50
GROSS PROFIT (COGS 49%)
($40)
Spa Overhead Expense (40%)
$10.50
PROFIT/LOSS
For a 4,000 square-foot spa, Lisa suggests 2 skin lines, one nail line, 1 massage line and 1 lifestyle line.
The Compensation Prescription
A comp plan that rewards the right behaviors
Customer Retention +Spa Retention = TOTAL RETENTION
Retail Ratio (define which ratio)
Attendance, meeting attendance, on time performance
Advance Skill / knowledge / certifications
Pay more for performance, make the numbers clear and measure for a period of time
Professional Career Management
"I will pay part of my potential income to a spa who will take care of my career: educate me, improve my skills, respect me, increase my productivity,; provide a fun workplace; hire great co-workers, trainied managers and outstanding support staff."
Appeals to a more mature worker
Include paid vacations, health insurance
Advancement with Accountability
Carefully Controlled Cost of Sales
Reward the Keys to Profit
Productivity
Retail Sales
Customer Retention
A customer's willingness to refer is the greatest indicator of a company's profitability.
Who's keeping clients is a good KPI
Good spa software tracks this (client tracking software does not)
A client is "retained" after the third visit
"Good Citizenship"
on time
stays late
helpful
goes to meetings
etc.
Comprehensive Comp Plans Include
Employee perks
Monthly Treatments
Random bonuses for top performers
Variety of earning opportunities
Such as team bonuses and contests
Top quality training and education
Quarterly in each department
Employee discount programs
Emplyee and family discounts
Buying Clubs
Benefits (just like a "real" employee)
Paid vacations, health insurance (50% for line and 100% for management)
Win-Win Comp: The Treatment Plan Rate Plan
A treatment rate is a flat rate that is considered appropriate and fair pay, based on the time, skill, knowledge and effor required to deliver a given service
Treatment rates are not directly tied to the service price
Sample Treatment Rates
60 min Services
Bronze Level 0-1 yr 30% mass, 28% esty
Silver Level 1-3 yr 32% mass, 30% esty
Gold Level 3-5 yr 34% mass, 32% esty
Platinum Level 5+ yr 36% mass, 34% esty
Classic Massage
$85
$25.20
$27.20
$28.90
$30.60
Deep Tissue
$95
n/a
$30.40
$32.30
$34.20
Classic Facial
$85
$21.00
$24.00
$27.20
$28.90
Microderm Treatment
$105
n/a
$24.70
$29.40
$31.50
Retail Profit Sharing
Adjustable commission is based on gross profit of product
The higher the gross profit, the higher the commission
Begin with the end in mind: PROFIT
Example: profit increase of 28% after conversion
Before comp conversion
Total Spa Revenue
$90 1 hour Classic Facial
50% service commission
a
35% retail ratio
a a
10% retail commission
Product COGS
EE Comp per hour
Spa Gross Profit
GPM
a
$45.00 (50% comm)
a
$48 retail sale
$138 ticket
$4.80
$24.00
$49.80
$64.20
46%
After comp conversion
Total Spa Revenue
$90 1 hour Classic Facial
treatment rate $27 per hour
a
40% retail ratio
a a
20% retail commission
Product COGS
EE Comp per hour
Spa Gross Profit
GPM
basic esty x rate
$27.00 treatment rate
a
$60 retail sale
$150 ticket
$12.00
$22.00
$39.00
$89.00
59%
Take the first steps...
Get an accurate evaluation of your current financials. Can you ever make money with your pay plan?
Are your prices set correctly? You may be able to increase.
Determine an acceptable level of profit for YOU. Design a comp plan around a profit goal.
Expect turnover. Grandfather key techs. EE's understand that they get a pay cut if you go out of business, too
You may have to treat conversion as a "mini startup."
Get help if you're doing a major conversion!
Lisa Starr has more than 25 years experience in the beauty industry and is currently the principal East Coast business consultant for Preston Wynne Success Systems.
Article ID: 267
Created:
December 4, 2006
Modified:
December 4, 2006
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April 11, 2007 at 4:27am