331 Why Your Salon Is Busy But Not Profitable

Hey, it's Anthony here and welcome back to the Grow My Cellon Business Podcast. This is part two of our series on the five pillars of Salon Success. Now last week we talked about the number one mistake that keeps Salon owners stuck, trying to solve business problems by being a better technician instead of developing business skills. When we introduce the five pillars framework, management, money, marketing, and team or the HR side of being in business, and the final one is what I call super stylist, which is all about what happens when the client is in your chair. Sometimes I refer to that as the moment of truth, where either everything comes together or it doesn't. Anyway, today we're going to do a deep dive on one of those pillars and that's the money pillar. Because here's what I know after 20+ years of coaching Salon owners in many different countries. You can have the best systems in the world, the most talented team and a brilliant marketing strategy. But if you don't understand your numbers, you will stay stuck. So today I'm going to show you exactly why your Salon is busy but not necessarily profitable and more importantly how to fix it. So let's dive straight in. So have you ever had your busiest month ever and then struggled to pay the bills? I certainly know some people that are like that after December being their busiest month ever and then here we are in January and they're struggling to pay their bills. You know how it goes? The appointment book is completely full. There's tons of colour services in December, great retail sales, but when you check your bank account at the end of the month, there's barely anything left. When you were left thinking how is this even possible, we were slammed. If you've experienced this, you're not alone. In fact, this is probably the number one complaint that I hear from Salon owners everywhere. Antony, I'm so busy. Why am I still not making any money? And it's one of the most confusing and frustrating experiences you can have as a business owner. As logically, it doesn't really make sense. More clients should equal more money. More services should equal more profit, but here's the reality, being busy does not equal being profitable. And let me say that again, being busy does not equal being profitable. You can have a fully booked Salon, every chair filled, every stylus working and still not make money. How does that happen? Well, it's because most Salon owners don't understand the difference between revenue and profit. They say revenue coming in and they assume that they're doing well, but they don't see all the money that goes out. They don't understand what their costs are. They don't know their profit margins and they don't track the right numbers. So effectively, they're flying blind. And when you're flying blind, you make decisions based on hope, certainly not based on data. You guess at your pricing. You hope expenses don't get too high. You cross your fingers that there will be enough money at the end of the month to pay the bills, but that's not a strategy. That's gambling and it's exhausting, but here's the good news. This isn't because you're bad at business. This isn't because you're not smart enough. This is simply because you're operating with incomplete information. You were never taught how to understand the financial side of your business, hair school or beauty school or whatever you call it, taught you how to do hair, not how to read a profit and loss statement. Your apprenticeship taught you the technical skills, not how to price for profit. So you're trying to run a business without the financial literacy to do it well. And that's what we're going to fix today. There are three specific money problems that keep Salon owners busy but broke, so let me walk you through each one. The first problem is that most Salon owners have no idea if they're actually profitable, and I mean that literally. If I asked you right now, are you profitable, what would you say? You see, most Salon owners would say something like, well, there's money in the bank account, so I think so or they'll say, well, look, I need to check with the accountant to get that information or we're doing okay. I mean, we're covering our expenses or they'll say, look, I'm not really sure. I haven't looked at the numbers recently. You see, most Salon owners judge their profitability by looking at their bank balance. If there's money there, they assume things are fine. If there's not much money there, they start to panic. But that's not how profitability works. Because your bank balance doesn't tell you if you're profitable. Your bank balance just tells you if you have cash right now. You could have a healthy bank balance and be losing money every single month. How is that possible? Well, because maybe you haven't paid your quarterly taxes yet. We haven't paid your rent for the month or you took out a loan that temporarily boosted your cash situation. You see, your bank balance is really a lagging indicator of what's happening. It's not showing you the real picture. What you need to look at is your profit and loss statement. Sometimes that's just called the P&L. Now, this is a document that shows you all the money that came in. Sometimes no one has the revenue or total sales and all the money that went out, no one has the expenses. And what's left over is either the profit you made or the loss you made. Here's the problem. Most salon owners don't even look at their P&L. Why is that? Well, probably because they don't understand it. They open it up. They see a bunch of numbers and categories and they feel a bit overwhelmed, so they close it and go back to just checking their bank balance. And that's how you end up being busy but broke. Because you're making decisions without actually knowing if you're making any money. Let me give you a real example. Let me say that your salon did $50,000 pounds euro, whatever, in revenue last month. Now that sounds all right, okay, on the surface, depends how many staff you've got, etc. But let's use $50,000 in revenue last month as a benchmark. But what were your expenses? If your expenses were $52,000, then you just lost $2,000. Even though you had a busy month with $50,000 in sales, you see, revenue and profit are not the same thing. Revenue is the money coming in. Profit is what's left after you pay all your expenses, including what you pay yourself. And if you don't know the difference, you'll think that you're doing well when you're actually losing money every single month. That's problem number one. You don't actually know if you're profitable because you're not looking at the right numbers. Now, the second problem is pricing. Your salon owners are underpricing their services, some cases significantly, and they don't even realise it. Here's how most salon owners will price their services. They look at what their competitors are charging. They look at what they think their clients will pay. They factor in a vague sense of what feels right, and they pick a number somewhere in that range, usually at the lower end because they're scared. They're scared that if the price is too high, clients won't come. They're scared that they'll lose clients if they raise their prices. They're scared that they're not worth charging premium prices, so they price based on fair, not based on math. But you also need to factor in your market positioning. Are you a budget salon, a mid-tier salon, a premium salon? You see, if you're positioning yourself as a premium salon, you might price a particular service at say $85 or $95 or whatever it is. If you're mid-tier, maybe for the same service, it's only $75, and if you're a budget salon, perhaps you price it at $40. But here's what most salon owners do. They skip all of that. They just look at what the salon down the street is charging and they match it or go a couple of bucks above it or below it. Well they charge what they were charging five years ago and they never adjust for inflation or rising costs and as a result, they're underpricing by $10, $15, sometimes $20 as a service. Now let me explain to you what that costs you. Let's say that you're underpricing by just $10 per service and you do 20 services a week. That's $200 per week in loss revenue. That's $10,400 per year. Just from underpricing by $10. Now let's multiply that by every stylist in the salon. If you have four stylists all underpricing by $10 per service, you're losing over $40,000 per year in revenue, just from one simple pricing mistake. That's problem number two. You're pricing based on fair, not on math. And it's costing you tens of thousands of dollars every single year. The third problem is that most salon owners are tracking the wrong numbers or they're not tracking numbers at all more likely. Here's what most salon owners might track. Total revenue. How much money came in this month and the number of clients, particularly if they're a barbershop, how many people came through the door. And often that's about it but those numbers don't tell you anything or they certainly don't tell you much about profitability. Revenue doesn't tell you if you made money. It just tells you how much you sold. The number of clients doesn't tell you if those clients were profitable just so they showed up. Here are the numbers that you should be tracking. Number one profit divided by your total revenue. So if you made $50,000 in revenue and had $45,000 in expenses, then your profit is $5,000. Your profit margin is 10%. Now the industry benchmark for a healthy salon is more likely to be around the 10% mark but some are at 15 or 20% profit margin. However, most of them are more likely to be at or around the 5% mark. Now if you're below that, you need to either increase your revenue or decrease your expenses and you need to do it in a hurry. The second point is average ticket or average bill or average docket. This is the average amount each client spends per visit. Now you calculate this by dividing the total revenue by the number of client visits. So if you did $50,000 in revenue with 200 clients visits, your average ticket is $50,000 divided by $200 equals $250. Now if your average ticket is low, it means that you're either underpricing or not up selling services or not selling retail. And number three is client retention rate. Now this means the percentage of clients who come back after their first visit. The industry average is only 40%. That means that 60% of new clients never even come back. Now if your retention rate is below 50%, you have a massive leak in your business. You're spending money to attract clients who disappear after one visit. Number four is the cost per service. Now this is how much it costs you to deliver each service. And this includes product costs, labor costs and allocated overhead. Now if you don't know this number and very few sell on owners do to be honest with you, then you cannot price accurately. You could be losing money on every single service and not even realize it. At number five is understanding the revenue per hour for each stylist. This tells you how productive each stylist is. And you calculate this by dividing the total service revenue by the hours that they worked. So if one stylist is generating $80 per hour and another is only generating $40 per hour, you need to understand why is it the pricing? Is it skill level? Is it the services that they're often? That number reveals the productivity gaps, the leaks within your business. You see most sell on owners are flying blind because they're not tracking the numbers that actually matter. They're looking at revenue and thinking we did well this month, but they're not looking at profit margin or average ticket or retention rate or cost per service or productivity. And those are the numbers that determine whether you're actually making money or not. There's a saying what gets measured gets managed. If you're not measuring the right things, you can't manage them. And if you can't manage them, you can't improve them. That's problem number three. You don't track the right numbers so you can't make informed decisions. So those are the three money problems keeping you busy, but in all likelihood broke. Number one, you don't actually know if you're profitable because you're not looking at your P&L. Number two, pricing based on fare instead of on math. And number three, you don't track the right numbers. Now here's a good news, fixing the money pillar problems isn't that complicated, but it does require education. You need to learn how to read your financial statements. You need to understand profit margins and break even points and cost per service. And you need to learn how to price for profit instead of pricing based on what your competitors charge. And you need to start tracking the numbers that actually matter. These are skills and like all skills, they can be learned. You weren't born knowing how to cut here or do color. You learned those skills. The same is true for financial literacy. You can learn this stuff and when you do everything changes because once you understand your numbers, you can make smart decisions, you know, exactly what to charge. You know where money is being wasted and you know which service is profitable and which aren't. And so you stop guessing and you start operating with confidence. And that's when your salon becomes genuinely profitable, not just busy. Now, in the three, three part video training that I mentioned last week, video two goes way deeper into the money pillar. We break down how to read your P&L and what the sixth growth KPIs are in the benchmarks that you should be hitting in your business. It's a complete deep dive into the money pillar, completely free. The link is in the show notes of today's podcast, but here's the thing. The money pillar is just one of five pillars and all five pillars work together. You can master your money, but if you don't have systems, you'll still be overwhelmed. You can have great systems, but if you can't retain clients, you'll still struggle. And you can retain clients, but if your team is underperforming, you'll hit a ceiling. It's just a matter of when. They all work together. And that's why I created Business School Intensive. Now Business School Intensive is a 12 month program where we work through all five pillars systematically, one quarter at a time, with personal coaching and accountability. Quarter one is all about management, quarter two is all about money, quarter three marketing and the skills of the super stylist, and quarter four is all about team or the HR side of your business. 12 months, five pillars, complete transformation. Applications are open right now, but we're limited to only 10 salon owners. And at the time of recording, we currently already have two spots filled. And applications will close on January the 28th or when we hit 10 people, whichever comes first. So if you're serious about mastering your money and the other four pillars, then this is your chance. All the details are at growmysalonbusiness.com/courses. So here's what I want you to do right now. If you haven't watched the three part video training yet, then go and do that. There's a link in the show notes that'll take you there. Video two breaks down the money pillar in more detail. And if you're ready for the full transformation, or five pillars with coaching and accountability, then apply for business school intensive or enrolled directly in the money course. Because here's the reality. You can keep guessing at your pricing, you can keep avoiding your financial reports, you can keep hoping there's enough money at the end of the month, or you can learn the skills that make you genuinely profitable. That choice is yours. Now next week, I'm going to come back with the final episode in this series. And I'm going to share with you the complete transformation story of a salon owner who is exactly where you might be right now, overwhelmed, working 60 hour weeks, confused about money, stuck as the busiest person in her business. And then everything changed. This is the story of what's possible when you master all five pillars systematically. You won't want to miss it. So until then, go and watch the free training, master your money. Let's build something incredible together. I'll see you next week.