Are You Busy or Are You Profitable? (There's a Difference)

There is a version of salon ownership where you're fully booked most days and still can't pay yourself properly. It happens more than you might think. And the reason is nearly always the same. It's because busy is not the same as profitable. Let's talk about the difference. Hello, hello, hello, my salon friends. Phil Jackson here, your queen of salons, coming all over the internet with a big dose of my Wise Owl Wisdom. How on earth are you? Achingly well, I hope. Today we want to dive into a topic that I see, well, a bit more than I ought to really, and that's when busy feels like you're being successful, but actually it's not. And that's because there is something fundamentally wrong in the business, which means that more clients doesn't necessarily translate into more profit and more wages for the owner. It's like we're looking at a full diary and using that as proof that everything's okay in the business, that everything's working. Clients want you, perhaps you've got a team and they're productive too. The salon looks successful from the outside, but the problem is that busy measures the inputs. It measures the hours that are worked. It measures the number of appointments that are booked, the number of people that come through the door, people in beauty rooms, people who have bums on seats. So what we need to look at is profitability and profitability is the output is actually what's left after all of that busyness and activity has gone on. So it's perfectly possible to be 100% booked and losing money if your costs have crept up, if your pricing's wrong, or if your service mix is pulling you in the wrong direction. And the salon business specifically has a busyness trap because the work is hard work. It's physical. It's relentless. Being busy actually feels like working very, very hard and working hard feels like it should be paying off. But that effort isn't translating. It's not converting into profit. So the question to ask is not, am I busy? The question to ask is, am I busy doing the right things at the right price to generate profit? And that means that we need to make friends with some numbers. And I know if you're a salon business owner, there's a very good chance that you don't like the numbers. But I just want you to make friends with four of them. And these are the four that you actually need to know and you need to be checking realistically.

This isn't a full accounting course. We just want four numbers that you can find and calculate very quickly. And the first one will come straight from your salon software. And we call it your average ticket or average client spend or average bill. And that's basically the revenue that you've generated divided by the number of guests or appointments in a given month. Most salon owners have a rough idea of this, but they don't actually calculate it. They don't actually track it. And the problem is, if your average bill is lower than it should be, it doesn't matter how much busyness you put in to your salon. It doesn't matter how busy you are. It's not going to fix that profit problem. It just means that you're doing more of something which isn't actually working. It's not actually servicing, serving your business. So we've got to know what your average bill is. We need to know what it needs to be to hit your monthly revenue target. And we need to know what the gap is between the two. So make friends with your salon software. Find that on the report. Monitor it every single month and make sure it's enough. Now, how do we know when it's enough? It's when the profit starts to build in the business. If it's not, it's because the average bill is too low. Number number two. Number number two. That's awkward, isn't it? Statistic number two is your column utilisation. Basically, how much of the available appointment time is actually being used. And this is normally expressed as a percentage. So we look at the amount of time we've got available, divide it by the number of the amount of time that's booked up with appointments and then multiply it by 100. And for most salon businesses, about 80, 85 percent is the sweet spot. Now, there are some caveats to that. Sometimes in a salon business that has very high prices and a very high profit margin, they've made a strategic decision to have utilisation lowered. Because basically, they're trying to create an environment and create an atmosphere in the salon which is very unhurried, very relaxed. And yes, of course, we can add on those extra services for you today. So they've made a decision to leave more white space in the column so that they have that slower pace.

But that only works if the pricing will support that lower level of utilisation. So for most of us, 80 to 85 percent is the sweet spot. And I know that lots of you salon business owners out there would love to see 100 percent utilisation. But that's not ideal because what you're leaving is no, there's no give, there's no elasticity left in the business. It means that you might be a little bit understaffed. It means that everyone's running around like crazy. And also, it means if you start to run behind on an appointment, there's no time during the day to make up. So things get very frantic. If you start running late, it means you're going to be running late for the whole day. It means that if somebody calls in sick, there's no one to take that first appointment out of the column. It means that we're stretched to capacity. And there are times during the year when that's perfectly justifiable. So in the old days, beginning of December, right up to Christmas Eve, used to feel like that. And that was absolutely fine. But as a long term business strategy, above 85 percent means there's probably some elasticity. We can probably start to increase our prices a little bit to pull the demand down and get us to that 85 percent sweet spot. Below 70 percent, you've got a demand problem or a retention problem. People either don't want you or you're getting people into the business, but you're losing them much more quickly, which is a different kind, a different flavour of problem. And the problem with a low utilisation is it means your wage bill starts to run away with you. And that takes us on to our statistic number three, which is how much of your revenue is being spent on wages, your wage to revenue ratio. So what we need to look at is your total wage bill, including yourself. And this is where lots of salon business owners go wrong. And then divide that by the total revenue and express it as a percentage. So multiply by 100. And typically, most salon businesses that have premises, I wouldn't want to see that wage bill running above 40 percent of revenue. And that's going to include things like your PAYE, your national insurance contributions, if you pay into pensions for your team members as well. If it's above 40 percent, you're going to start to struggle to see where the profit is coming from. If it's above 50 percent, your profit is being very, very squeezed. And it doesn't matter how busy you are. Also, bear in mind, we get minimum wage increases in April, which is going to push the number up for a lot of salon teams as well. So if you've not factored it in, do it now so that we can start to get ahead of the problem. And this is also the number that exposes the problem of underpricing relative to wage costs.

So if you've got high utilisation and you're not making profit, but your wage bill is high, well, something's out of sync. We need to get the prices up so that we can afford those bigger wage costs, particularly relevant if you've raised your prices or you're about to. And then finally, our number four, number, number, number, number four. Gosh, this is annoying, isn't it? So the figure that we need, number four, is your profit per treatment. And this is going to vary according to what treatment is going on. So, yes, we want an overall profit percentage on what's left after we've paid all the overheads and the staff and all the rest of it. And most salon owners know their most popular treatments, but very few know the most profitable ones. And sometimes they're not the same thing. So you might have a full set of nails that takes a certain amount of time priced at 60 quid. And a brow treatment might take 20 minutes and be priced at 25. The nail service looks much more valuable, but the profit per hour tells a different story. So if you're fully booked and you're convinced that your pricing is right, it might be the mix of services that you've got wrong. So it might be that we need to lean into those more profitable services, pull away from those lower profit services. But knowing this number changes what you want to promote, which ones you can afford to discount and which you might even want to phase out. So what do we do if the numbers aren't great? Well, if your average bill is too low, look at that service mix that we've just talked about. Then look at your pricing. Are your most popular treatments also your best priced and most profitable? They should be. Are you upselling or cross selling? Number two, if your utilisation is low, you've got a marketing problem or a retention problem, or you may just be overstaffed and we need to start cutting back a little bit on the availability of our team members. When we come back on Friday, we're going to start looking at those spring bookings. But I would start with your lapsed clients. They're the cheapest clients to rebook, the ones that have already been in. So if we need more clients in to fill that column space, start with your lost clients. If your wage ratio is too high, then you've got three paths that you can possibly go down. The first is to get the takings up, and that would always be option number one. Option number two is to reduce the hours, which is going to help with that utilisation as well.

Or option number three is to start repricing. So start looking at where we can increase the price of some of those services. Normally, it's a combination of the three. We don't normally lean into one specifically. It's normally playing with all three of those levers. And that's where a really good pricing strategy earns its keep, rather than just figuring out some stuff from a spreadsheet. If a profit per treatment is wrong, look hard at those low margin services. Not with a view necessarily to scrapping them, but certainly not into leaning into them in a huge way as the business goes on. Most salon owners don't look at these numbers because they're afraid of what they're going to find. I want you to be brave. I want you to be one of the ones that look and then act on what you find. They're the ones that are going to thrive and survive for the next five years or so. So what do you think? Are you going to make friends with some numbers? Where's the barrier to that for you? Where's the hesitancy? What are you struggling with as far as your salon figures are concerned? If you want some help with that, that's exactly what Ultimate Clarity is all about. It's a 90-day program where I take you by the hand through your pricing strategy. We look at your five-year business plan and the next 12 months of marketing in detail together, one-to-one. Let's get on top of this, shall we? The link to book your discovery call for Ultimate Clarity is in the show notes below. Why not reach out and let me know what's going on in your salon business? You know I love hearing from my salon owner friends. I'd love to hear what April's looking like for you and any questions you might have that you want me to answer on the Build Your Salon podcast. Heck, why not reach out if you'd like to be a guest on a future episode of the Build Your Salon podcast. I'd love to be interviewing you about your salon business journey. Just a few short days until I'm coming all over the internet again with another dose of my wise hour wisdom. And until next time, take care.