How to Set Salon Targets That Actually Make a Profit

Let me guess, your team is hitting their targets but you're still not making any money. How does that happen? Well it's because your targets were never built on profit in the first place. Today let me show you how to fix it. All I build your salon. Hello hello hello my Salon friends, Phil Jackson here, your Queen of Salons. I mean all over the internet with a big dose of my wise hour wisdom. How on earth are you achingly well I hope? Oh my gosh, storming towards the second week of July the year is running away with me. Can't believe we are over halfway through the year. And can you believe the days are getting shorter? What a gloomy idea. Anyway, today we're talking about one of my favourite topics. We're talking about profit. And I think I'm uniquely placed in the salon industry because I don't care about talking about money which is not terribly British. It's not very British to talk about money and then we wonder why we haven't got any. If you're phobic of the topic it's no wonder. But I went through university before I came into Salons and I took my degree in banking and finance so money does not freak me out at all. And your uncle Phil is here to have those strong conversations with you. And the reason I'm recording this episode is I recently had a coaching call and I want to tell you about it because the problem that this owner had is one I see again and again. And this is an owner so don't feel bad. This is an owner who's been with me for quite a long time as well who knows better to be honest. And the owner has individual targets for everyone on her team sensible enough and she has commissioned targets which the team were hitting but at the end of the month the salon has no money in the bank. And after a bit of excavating we realized that when we added all of those individual targets together they don't come close to what the salon actually needs to generate a profit for the owner. So the salon's overall target the numbers just don't reconcile they don't add up properly. So everyone's hitting their personal number everyone's earning nice commission and this is a generous salon owner with good commissions but the salon's falling short and the worst bit is none of that was tied to a profit target at all. So the targets were nice big round numbers that sounded about right and a bit more than last year plucked from the air. The conversation goes this is what we did last month so I reckon we could do a bit more this month or this is going to be a bit of a quiet month so we're going to drop the target a little bit today. And I'm going to show you how to set targets that actually work because we're going to start with the profit that you want and work backwards so that every number on the board is actually doing its job. And the mistake that lots of you are making is you're chasing turnover and then fingers crossed hopefully some profit turns up in the end and it never does. So if you've had your best month ever but there's still no money in the bank this is why and we're going to flip it around today. Lots of people are thinking sales minus expenses equals profit whatever's left over what I want you to do is decide on the profit first and work backwards. So the profit isn't the bit that's left over it's the bit that dictates the whole strategy of the business. It's the bit that pays you properly. It's the bit that builds security in the business and ultimately gives you the freedom that you started the business for in the first place. So before we start setting any targets for turnover I want you to write down what an answer on how much profit you want to make in your business in the next three months. Not I want to make more a proper real number and we can't move on until you've got that number in mind. Now you need to bear in mind that the profit number needs to reward you as the salon owner for all the risks you take and all those glorious sleepless nights we have to endure as business owners but also we need some profit to be retained in the business we need to build some reserves. We need to be putting money aside for refurbishment for investment in extra training or extra equipment that you want to buy in for your business as well. And once you've got that profit number we need to figure out your profit margin because that would tell you how much turnover how much you do need to do in sales in order to make the profit. So let's work a little example together because I know how much my salon owner friends just hate numbers. So let's say you've decided you want your salon to make 15,000 pounds of profit this quarter. If your net profit margin runs at about 15% and most salons sit between 10 and 20% if they're doing well. So find the number that's true for you. But let's say we're working on 15,000 or 15,000 divided by 0.15 is 100,000. So if we want to generate 15,000 in profit because we're on a 15% profit margin we need a hundred grand in turnover to make that profit. So that sales target is now no longer something that I've plucked out of thin air. It's the exact turnover that I need to deliver 15,000 pounds in profit that you decided was important for you and important for your business. So now we're steering the business with our profit number. Now what happens if your profit margin is tighter, which is very often what I see, what if your profit margin is say 10%, what to generate 15,000, that 100,000 isn't going to be enough anymore. We're going to need to generate 150,000 in turnover. Big difference. And that's why knowing your real profit margin matters. If you're guessing your profit margin, the whole thing is built on very shaky foundations indeed. So once we've got our turnover target, the next stage is we're going to have, let's say we've got a hundred thousand turnover target and that can feel like a bit of a wall over a quarter. So we've got some breaking down to do to turn it into something strategic. What we don't do is just divide it by three and put 33,000 in each box for the next three months because sales don't work like that in salon businesses. I don't see every month being the same in turnover and targets. Usually, if I look at a three month period in any salon, there's one month, which is going to be a bit tough, one month, which will be a stronger month and one that falls somewhere in the middle. And you'll know this by looking at previous years or your previous sales reports. So let's say we're looking at August, September, October. In my salon, October will be an average month. September would be a storming month and August would be really, really tough. So I've got a management decision then on how I break that hundred thousand pound target down. I don't do 33 and a third in every month. I might say August, we're going to do 25 September. We're going to push really hard and do 45. And then the remainder is going to come from October. So you've got a management call to make on how that target for the quarter is going to be broken down. And then the next step, and this is the bit that actually dictates how your team is going to perform, we're going to say, let's say we take August, we take our 25,000 pound month, we're then going to decide who's going to put what in the till knowing what's going on in the business. So let's say you've got Betty working for you and Betty's on holiday for three weeks in August. Well, there's no point in giving her the same target that we always do. But other people are going to have to pick up the slack on Betty's column because what we can't have is a salon not performing because Betty's on holiday for those three weeks. So you're going to need to go through the team members and you say, right, you're going to put 8,000 in the till, you're going to put seven in the till, you're going to put five each in the till. And in the end, that has to add up to 25,000, which is what my salon needs. I don't care what their commission target is. That's not what we're coaching them towards. So don't just split it evenly. Bear in mind. Who's on holiday? How many hours does this person work? How much experience has this person got? What service does this person do, which means we can make their target a little bit higher? Perhaps you've got one person carrying out nails, the other person carrying out laser hair removal, it'll be crazy to give those to the same target and coach them towards the same target. And the coaching is the next stage. So you start coaching your team members on how to hit the target we're setting. I know it's a lot. But this cascade is all coming from you deciding the profit that you need in your business. And it has to be non-negotiable. So here's your job for this week. Decide the profit that you want over the next three months, divide it by your margin to get your turnover target and break that down month by month. Personally, I don't break it down into weekly targets, but some people do. You could do that as well if you wanted to. Then I want you to decide who's going to put what money through the till. You included and then to make sure you hit that number, what coaching are you going to do? How does that feel? Does that feel empowering? Do you feel like you're more in control? Or is that a bit daunting and a bit scary and you hate your uncle feel for making you look at numbers? Why not reach out and let me know if you're breaking into a cold sweat at the thought of all this. Maybe this is the month that we need to get to grips with the money in your business. This is where the real work lies. If you are making a profit but you want to keep more of the profit in your business, that's what my 10-minute money fix is all about. Nine pounds, I'll walk you through five strategies to improve the profit and keep more profit in your business. It's not going to rescue a business if you're losing money but if you're making profit and want to keep more of the money that you're making, 10-minute money fix.com is the link I will put that in the description below. Also, my email address scrolling at the bottom of the screen, reach out and let me know what you're thinking about this episode and if you've got a topic for a future episode, reach out and give me your contribution as well. Just a few short days until I'm coming all over the internet again with another dose of my Wise Hour wisdom and until then, take care.