The letters R.O.I stand for ‘Return On Investment’. If you’re a salon owner you have probably invested ten’s if not hundred’s of thousands of dollars, pounds or euros into your business, so are you getting a R.O.I. a return on the investment?
Let me explain…
Let’s assume that you invested 100,000 into opening your salon, for the design and fit out and marketing etc. You invested it into your business, so is it giving you a return on the investment? I’m not talking about your salary, I’m talking about the profit that’s over and above the salary you pay yourself.
Another way to look at it is, imagine if I asked you to invest 100,000 into a business I wanted to start, you would say “What do I get in return?” you would expect me to say something like, “I’ll guarantee you 10% or whatever the interest rate and I’ll pay back the full loan over 5 years”
So ask yourself this; You weren’t lending me the money, you lent it to yourself to start your business so are you demanding and getting a return on the investment?
Some salon owners will say yes, so congratulations! Others, in fact, most of them won’t be able to say ‘yes’, or more frightening still they won’t know one way or the other what their profit margin is or isn’t.
If the answer is no…
…then all you have done by opening a salon and investing 100,000 into it is you have bought yourself a job, and probably not a well paid one at that.
In my experience working with many salon owners the world over, most of them are ‘lifestyle’ businesses, meaning that the owner works very hard in the business, usually behind the chair doing the most clients and they pay themselves a reasonable salary and have a nice lifestyle, but the business makes very little, if any profit.
A business like that is a “lifestyle business”
The R.O.I in financial terms is negligible and the only real return on investment for the owner is that they are their own boss, master of their own destiny and the freedom that comes with it, they can choose when or if they can take a holiday.
But, from a financial point of view an investment that doesn’t generate a real financial return is a disaster because the owner has literally bought themselves a job!
If they had invested the same 100,000 in the share market or a long term deposit with a bank or even buying a property, you would expect a return on the investment of at least 5% maybe 10% a year or hopefully even more…
Demand it from yourself!
The key message is this: When you invest money into a business, whether it’s yours or someone else’s you should get a return on the investment. When you realise that it will force you to think differently about your business and the decisions you make.