If there were just ‘3 numbers’ to focus on what would they be?
I remember the day when I first got computerised at the salon front desk, ohh the sense of control and order that all those reports gave me. The problem was, that being completely honest that like so many salon owners I didn’t know what to do with all the information except look at it!
Like so many salon owners I was in a state of ‘information overload’ and that leads to the inevitable analysis paralysis, “What did it all mean and what was I meant to do with it?”
The danger is that ‘you do nothing with it’ and therefore render your shiny new point of sale system to be nothing more than a glorified cash register. Huge mistake! Once you have the information in your hands that is just the beginning.
The challenge for many salon owners is two fold,
firstly knowing ‘what numbers are the important numbers to track' and secondly knowing how to drive those numbers in the right direction!
The problem is that there isn't a right set of numbers that everyone should focus on, it really depends on the business model you have. For example, if you are a fashionable boutique salon then ‘re-bookings’ are probably important to your business so tracking your ‘re-bookings’ at both a salon and individual level is important.
On the other hand if you were a budget salon in shopping mall that doesn’t work on fixed appointments then tracking re-bookings would probably be a waste of time.
If you have a barbershop then tracking colour percentage probably isn’t that important, but tracking client retention is, whereas if you had a salon in a hotel or resort then client retention may not be important.
So the first thing to do is decide what numbers are the most important numbers for you to focus on at both an individual and a salon level.
So, at a salon level if there were just 3 numbers to focus on what would they be? Well, I have settled on these 3
1. Total weekly revenue in products and services
2. Weekly break-even point
3. Employee costs as a percentage of total revenue
So let’s talk about each, one at a time.
The first number is
Your total weekly revenue in products and services and is easy to find out. Your ‘point of sale’ system will give you a 100% accurate summary of all transactions and break it down in many different ways.
As a salon owner you need to know that number and whether it’s going up, down or plateauing.
However, the second number I chose
is your weekly ‘break-even’ figure and that is a little more difficult and probably won't be as exact.
Finding out an exact weekly break-even figure for a previous financial year is easy as you will have an exact set of historical numbers to work on, all you need do is get your ‘Profit and Loss report’ for the previous year and divide the total expenses by 52 [weeks in the year]. The answer will give you an exact average weekly break-even figure for the previous year.
If you were to plot that fixed weekly break-even figure as a line on a graph and were then to plot next to it week by week your total revenue you would see that some weeks you made a profit, some weeks you broke even and some weeks you may have made a loss.
If you want to find out a ‘break-even’ point for the current year, start by using the previous years Profit & Loss and the break-even figure as a benchmark go through the expenses line by line and adjust where necessary up or down [depending on changes that have happened or anticipated changes in your business, for example changing staff numbers, rent increases etc] to come up with a best guess total expenses figure for the current year. Again, divide that figure by 52 to get a new estimated weekly break-even figure for the current year.
Remember this weekly break-even figure isn’t allowing for profit, it is purely ‘break-even’ so hitting it means you are surviving …just. What you should do is factor in and add on an additional amount for profit as either a ‘set dollar amount’ or as a percentage, for example add another 10% on top after all expenses are paid and that is the projected profit.
My third most important number
to track as a salon owner is ‘Total Employee costs as a percentage of revenue’. The reason this number is so important is that this is the ‘one number’ that you must control, it is the ‘one number’ that if you get it wrong it will sink your boat, and fast!
Typically, ‘Total Employee costs’ including the owners income, will average around the 50% mark and depending on the country you are in it will include, pensions, annual holiday pay, sick pay etc if you get it wrong and you are overstaffed for the level of productivity you will immediately be eating up the portion that should have been profit. Get it horribly wrong and you will not survive.
Knowing your numbers is the first step to controlling them. Don’t use your point of sale system as a glorified till, use it to produce information that allows you to market, manage, and control every area of your business.
If you need help with understanding your numbers and think that ‘one to one’ coaching might help you then email me at firstname.lastname@example.org and we can discuss if coaching would be right for you.
Thank you for watching…