You Looked at Your Pay System, Perhaps?
so you have built this beautiful Spa/Salon. You have been in business
a few years, you have very capable Providers, and your Client
list is growing yet you are asking yourself "Where are the
profits?" You say to yourself "I have been working hard
now for a long time to make this dream come true, but I havent
seen the pay off", "When does my payday happen?"
this does not sound like anything you have said then read no further.
If your business is as profitable as you expected, then this article
is not for you. If there is nothing broken, then there is nothing
on the other hand your profitability is less than 5%, your "Pay
System" may be the culprit. We can try to "Band-Aid"
the situation with additional sales, increased retail sales, or
"supply charge backs", but how do we fix the problem?
the Spa/Salon business, we sell our "labor", and our
labor is the major component of all we have to sell to our Clients.
This business is not only "labor intense" but that labor
does not come cheap. Labor costs include at least one or more
of the following components:
share of taxes
we add up the cost of our "direct" labor is not unusual
to find that it adds up to 50% to 70% of our service revenue dollar.
If our "other costs" such as indirect labor, rent, utilities,
insurance, advertising, supplies, etc add up to another 35% to
45% then as you can see there is not much room for that little
thing called "profit".
for the record, gratuities and retail commissions are NOT part
of calculating the cost of our labor.
the answer then to pay less? I do not think so, I think the answer
is to pay differently!
other industry that I know of uses such an archaic form of remuneration
as "Commission Based Pay" other than Sales. Every other
business opens its doors to the public and pays employees to be
there in the hope that Customers show up. Grocery clerks do not
get paid a percentage of what comes down the check out belt, Nurses
do not get paid by the bed pan, Factory Workers, Executives, Bank
employees, all get paid by the hour or by salary. In fact many
in the sales world are getting away from commission based pay.
some reason we think this business is different however. We think
standard business principles do not apply to the Spa/Salon business.
Or is it that we are afraid that we might not be able to fill
our capacity and want someone else to "foot the bill"?
do not have the space to go through all the "Hows &
Whys". I do not have the space to explain how changing
your Spa/Salon to this "standard" form of pay will NOT
result in smaller checks for your Provider Staff (in fact will
result in higher earning opportunities). I do not have the space
to explain how this pay system will reduce the overall cost of
labor per treatment. I would be happy go through all of this when
you take one of my seminars or InterAct lectures on the subject.
when I last wrote on this subject I received the following letter:
I recently read a past article you wrote in Dermascope Magazine
Nov/Dec 1999. You discussed in the article about the different
compensation plans used by spas today. We are a new spa, open
for 1 1/2 years with 9 employees and we are seeing some of the
problems you mentioned in your article happening with our spa.
have known for a while that our pay scale was not appropriate
for our spa. However Day Spas are very new in our area and we
have been afraid to make major changes due to the fact that
our employees could go to a salon atmosphere and get paid higher
I would like to use this open forum to address why it is so critically
important to change our pay system, I hope that the answer might
be of interest to us all.
writer is correct indeed, when we "change horses midstream"
we have the danger of losing the staff we have. When I consult
in this area, I spend quite a bit of time analyzing the operation
and figuring the best method to use so as not to upset the operation.
If what your doing right now is NOT working then even if the worst
thing happened and you had to rehire your whole staff (which of
course is a "worst case scenario") you still have NOTHING
me take a minute to outline the problem:
Provider gets his/her certificate and goes to work
industry pays with this absurd commission based pay structure
Providers (the more entrepreneurial ones) like this cutthroat
method of pay and they somehow have the means to survive through
those lean years.
others (the more career or security minded) can not survive
long enough, because they need the security of a steady paycheck,
so they are forced to leave the industry.
our Commission based pay system tends to scare off the "type
of people we need to build a successful business"
tends to attract the type of people that will build a Client
list and call it their own, and often take it down the street,
or worse yet open their own store.
may have been one of those entrepreneurs at one time, but what
we need to remember is "the type of employee we need to
build a successful business with are NOT entrepreneurs like
we hire entrepreneurs we are only asking for "Competition",
"Lack of Team work" "Prima Donnas", "Black-Mail"
and/or "Frustration". We end up with persons that may
be talented but do not fit within our ideal environment. We will
always be in competition with our own staff to try and set that
environment. You may have been told or thought that competition
is a good thing, and when it is business to business that is correct,
but INSIDE our business we need "Team Work" not competition.
I believe the (Spa/Salon) owners got greedy when we were only
willing to pay people when they were busy and not for "waiting"
for the Client. Who did we think we were! Every other business
has to hire people to stand-by when there is NO guarantee that
customer number one will walk through the door of any business,
that is what "good management" and "man-loading"
is all about.
As a consequence, in order to reward good behavior, our commissions
have risen from 25% to now 50-70%, where does it end? Are employees
going to miraculously NOT expect raises someday soon?
We as owners (collectively) are getting exactly what we asked
for and are paying for, "entrepreneurs" that hold our
client list hostage, while asking for more and more money and
instilling a lack of team work", thereby making our bottom
line thinner and thinner.
we need is a NEW pay system that pays and rewards for the behavior
that we want, and puts a disincentive on the behavior we do NOT
want. That pay system should look more like an hourly based or
salary based pay system. Bonuses should be paid to ALL employees
based on a percentage of PROFIT not revenue. With this type of
system everyone in the facility is working toward the same goal,
"the profitability of the whole business" instead of
building his or her own book.
of course, is much easier said than done, yet no matter how difficult,
this should be our goal as an industry that wants to be profitable.
do we find the people to fill those shoes (back to the original
The percentage of career oriented Providers out there may be a
very small fraction of the Provider population, but I emphatically
insist that the success of our business depends on us finding
those people no matter how few they might number.
One of the obvious places to find the people we need is right
out of school, let's get them before the industry has corrupted
them. They will NOT have a client list, but this is a good thing,
building the "facility Client list" is OUR job NOT theirs
and when we build that list within a team environment the client
list will then belong to the house.
If we are building our business on the backs of our "Providers
Client list" then we are just hanging that "Kick Me"
sign on the back of our shirt, because someone will hire them
away from us for the very same reason.
Will we need to loose a few of the present staff to accomplish
this task? Maybe, then again with the right guidance maybe not.
But, if we have a BAD business model to begin with, we can NOT
keep on doing the same thing and expect DIFFERENT results! So,
and I repeat, "If what we are doing now does NOT work
what do we have to lose?"
If you have any questions please feel free to contact me at: email@example.com