The Profit Trilogy - Part 1 - How You Doin'?

Profit is the lifeblood of any salon business, yet so many owners feel overwhelmed and don't understand the money in their business. Join me in the first of three special podcast episodes, as I guide you through the murky world of profit. Hello, hello, hello, my salon lovelies. How on earth are you? Achingly well, I hope. Phil Jackson, your queen of salons, coming in your eyes and ears with another dose of Wise Owl Wisdom. How are we doing? Beginning of May should be an amazing month. It's usually the time when people shake off the last of the winter blues and start to spend money and money starts to flow around the economy again. I think we're a bit behind here in the UK and I know it sounds very drab because we're always talking about the weather, but I do blame the weather for it. I think people normally by now are thinking about holidays and barbecuing outside and socialising a lot more. And those things just aren't happening because the weather's been so damn miserable, cold and rainy. Heavens, it was the first of May and last night we had thunderstorms and power cuts. So that was a wonderful welcome to the beginning of summer. Anyway, how are things for you? Please reach out, let me know. Phil at buildyoursalon.com. You know I love hearing about how well you are doing. Exciting month for me because this month I'm off to Tenerife for the salon owners retreat. So I should be taking a few salon owners out to sunny Tenerife where we will thrash out some business and get some jobs done. But one of the jobs that I have while I'm out there is to scout the venue because if it's any good, this is your little heads up. It's not on sale yet, but I will be doing a retreat in January, hopefully in Tenerife in the same hotel. I just need to check it, see it myself before I put it out there for you guys. But we'll be going out and I'm going to be doing an event called Your Amazing Year. So Your Amazing Year 2025, it's going to be towards the end of January. I would love to see you there. And of course, you'll be the first to hear here on the Build Your Salon podcast. So a little bit of a change to our tempo, two reasons. Firstly, I tried to do this podcast as one episode and it was way too long because I've got lots to talk about when it comes to profit. And the second thing is, as you know, normally we would have every other episode being a guest episode and I've run out of guests. So if you would like to appear on the Build Your Salon podcast or you know somebody who would be a fantastic guest who could bring something to this amazing industry,

please, my email address is at the bottom, phil at buildyoursalon.com. I would love to hear from you. I'd love to get some more guest episodes recorded. But in the meantime, what are we talking about? We're talking about profit. So this is going to be a three part or a trilogy, if you will. This is my my Lord of the Rings coming to you where we can talk about profit in quite some depth. And today we're going to talk about profit margin. Next week, we're going to talk about profit and investing in your business. And then in week three, we're going to talk about the true cost of discounting and how that affects your profit margin. So bear with me. There may be some maths in here as well to make life a little bit easier for you. If you head over to buildyoursalonpodcast.com forward slash money. I've put together a little cheat sheet which has the calculations and a few prompts to help you merrily along your way. And I want to make this as easy as possible because people get a bit icky talking about money, particularly here in the UK. And it's no wonder. I mean, when I was being dragged up in the 1800s, money was a vulgar subject. It was not something for polite conversation. It wasn't something you spoke to your friends or your family about. It was between you and your bank manager. So no wonder we have so many stories about money that we need to unpack and undo in order to lead a profitable business. For example, lots of us believe that time equals money or that money comes from hard work, which is, of course, absolute nonsense. There are lots and lots and lots of people in the world who make lots of money without working on the face of it particularly hard. And equally, there are billions of people in the world who work extremely hard and to most people would not appear to have any money at all. So time doesn't equal money. Hard work doesn't equal money. Money is just a measure of how well our business is doing. It's like the speedometer. Don't get too hung up on what money means. It's just an indicator on whether we're doing well or not. And a big part of that, in fact, some would argue the most important part of the money is our profit. And sometimes there is some guilt that we have around profit. People feel bad about making a profit in their salon business.

The thing is, the profit is the key to your long term survival. It's the security blanket, if you like. If we're not profitable, we're not building reserves. There's no resilience. There's no elasticity in the business. And when along comes something of a curveball, a bit like an unpredicted pandemic, for example, we really struggle unless we've got some profit margins to lean into. And also, I would say, you know, some people want to lead a much more altruistic business where they're doing good and it's more of a charitable concern. Even the biggest charities need to make a profit in order to be charitable. You can serve more people by turning a decent profit. We also need those profits so that we can invest in the business and grow. And we're going to be talking about investment next week. Please don't invest anything in your business for the next seven days. I promise you next week's episode is going to be a real eye opener when we start talking about investment and the impact on profits. And of course, as our business owner, the profit is your reward. It's the bit of extra that you get to take for all the bloody hassle that you put up with for having a salon business, for all of the sleepless nights, for all of the forms you have to fill in for HMRC or whatever tax authority you're dealing with. This is your extra reward as a business owner for the risk you take rather than going to get a job. So a profit is one of the key indicators in our business and profit margin in particular is of particular interest to us as business owners. And profit margin, well, what is it? Essentially, it's usually given as a percentage. So it's your profit percentage. And it shows how much of your takings or your turnover is actually profit that we can draw on. So the business can distribute or that we can reinvest in the business can use. So after all of those fixed costs and variable costs are paid and HMRC and the tax authorities are all happy as well, how much is left that we can actually use in the business or take out of the business? Because at least here in the UK, you can't take a dividend from a business unless it's profitable. So how do we figure out what our profit margin is? Well, essentially, the calculation is how much profit you have at the end of a period. Ideally, that will be over a year. But if you've only got the figures for three months or even just a month, that's OK.

It's a starting point. We can polish and refine these figures as we go on. So it's how much profit you have divided by your takings after tax. So if your profit is a thousand and your takings were ten thousand, we do a thousand divided by ten thousand. And then to turn it into a percentage, we multiply it by a hundred. And for my example, that would give us a profit margin of ten percent. Now, when it comes to profit margin, largely you're competing with yourself. You want to see improvement over profit margin. You want to see your profit margin being as high as you can get it. So sometimes comparing like with like isn't terribly handy. But normally at this point in the conversation with a salon owner, somebody would say, well, what's a good profit margin? OK, very roughly. And this is not financial advice that you can take to the bank, but very roughly. If your profit margin is ten percent or lower, then it's on the low side. There's definitely room for improvement in our industry if your profit margins are at ten percent or below. If you're hitting twenty percent, you're doing pretty well. OK, so between ten and twenty percent is OK or leaning towards good. And if you're twenty percent plus, you're doing pretty well. Now, the only thing I would say in our industry, if you're working from home or you're a solopreneur, you might be hitting profit margins much, much higher than that, even getting towards 40, 45, 50 percent profit margin would not be unheard of if you don't have things like premises cost and team costs to worry about. OK, so don't worry too much about what everyone else is doing. Really start competing with yourself and getting that profit margin as high as you possibly can. There are really only two ways that we can increase our profit margin because there's only two parts to that equation. The first is that we can increase efficiency so we can get a bit more bang for every buck that we spend in our business. We could maybe switch out team members or switch out equipment for things that are more efficient, because ultimately the second way of increasing your profit margin is to reduce your costs. So if we lean into efficiencies in the business or maybe even lean into more efficient services in the business, so more profitable services, or we can reduce the costs that the business is carrying, we can start to see that profit margin creeping up.

And that's all I want you to do for this week is to figure out what your profit margin is. If you want to share it, reach out. Let me know. Phil at buildyoursalon.com. It'll be really interesting to see what's going on in a variety of businesses. Also reach out if you have any questions on the content that I've covered this week. All of the episodes are on the buildyoursalonpodcast.com website. And if you go to buildyoursalonpodcast.com forward slash money, you can get the little cheat sheet that I've put together to help you through this trilogy. So next week we're talking about investment and the impact that has on the profitability of your business. Just seven short days until I'm coming in your eyes and ears again. And until then, take care. Sit down and see what's going on with the queen of salons. Hair, beauty and more successful tips for business owners. All on build your salon.