Why revenue is a terrible goal for your salon business

So many salon owners believe that chasing higher revenue is the ultimate goal for their business. But I'm going to share with you why it might actually be holding your business back, and what you could be measuring instead. Hello, hello, hello my salon friends, Phil Jackson here, your queen of salons, coming in your eyes and ears with another dose of Wise Owl Wisdom. How on earth are you? Achingly well, I hope. I hope as we march through the summer of 2024. So what are we talking about today? We're talking about revenue and particularly why revenue or turnover is a terrible goal to be setting. Now, I appreciate that might sound counterintuitive from someone who's a salon business growth coach. But I promise you, by the end of this, I will have convinced you why chasing revenue numbers isn't always the best way forward, or at least not in isolation. And where this came from was actually my accountability group. So I have an accountability group called Salonspark, and every month my Salonspark members set out a number of goals that they're going to be chasing in the following weeks. And the first goal is always a revenue goal. And the first goal is always a revenue goal. But ultimately, it's not a very good goal. And I'm going to explain, I'm going to give you actually five reasons why that might be the case. The first is that a revenue goal doesn't necessarily reflect the profitability of the business. And ultimately, profit is the reason we are here. We need to be generating profits in order to finance our further growth, to refurb the salon, to refresh, to invest in training, to grow the team, and also to generate income that we can draw out of the business as salon owners. That's the whole point of the business being there. In fact, if you have a limited company, you have a legal obligation as a director to maximise profits for shareholders. So it's even your legal obligation to be making profits. And I get that profit is a bit icky, particularly for us here in the UK. We don't like talking about money very much. We feel guilty about making profits. But I think there's a lot of salons out there that are doing very well, or they feel they're doing very well revenue-wise, but actually not generating very much profit at all. And if we have two salons side by side, one of them's turning over £50,000 with a profit of £25,000, the other one's turning over £250,000 with a profit of £10,000, which one's actually doing better?

Well, I will argue that the higher profit is the more successful model. Also, bear in mind, when we're looking at revenue figures, the profit that's available to you in retail sales is not the same as the profit that's available to you through services. So generally, our services have a much higher profit margin than our retail products. And if you're lumping the two together to come to a revenue target, you're actually missing a bit of a trick. So yes, by all means, monitor revenue if you must, but separate the two out into service revenue and retail revenue so that you've got a better grip on what's generating the profits for you. Point number two is I think chasing revenue encourages short-term thinking. Of course, we are trying to see business growth over time and particularly profit growth over time. But if you set yourself a revenue goal for this month, it encourages you to go hell for leather and do whatever it takes to hit that revenue goal. And some of those things might well be doing your business harm in the longer term. So putting together lots and lots of promotions which may eat into your profit margin or anchor your services at a lower level in the customer's mind aren't going to do you any favours in the longer term. But that doesn't seem to matter because we hit that short-term goal. And I think that encouraging of short-term thinking is going to cause you a lot of problems as time goes on. So we need to zoom out a little bit, start to see the bigger picture. If you must look at a revenue goal, look at a revenue goal for a quarter. Look at a revenue goal for a 12-month. Then all of a sudden we're not feeling the frantic need to throw another promotion together. I also think chasing revenue goals can hide a lot of inefficiencies that might be in the business. It might well be that we're hitting those revenue goals, but we have a team that's sat around a lot of the time. If you've got high revenue but very low utilisation, I would argue that's not a particularly brilliant use of their time or your resources and certainly not your wages. So maybe we need to see revenue as part of a bigger picture, perhaps something that's giving us a few more aspects to measure in our salon performance. Also, we don't actually always need to see growth in revenue. And this comes back to your goal setting. So if you've set yourself a revenue goal and the only reason you've set it is because it's 10% more than you took in August or September last year,

well, I don't think that's a great way of setting a goal. The best way to set a goal is to build a business that serves you. And that's the first step that I go through when I'm doing one-to-one coaching. The first thing I want to know is what kind of life do you want? What is that bigger picture for you? How many hours do you want to be working in the salon? Do you want to be working in it at all? When do you want to retire? Do you want to sell the business on? Do you want it completely staff run? What does the business need to generate in terms of profit so that you live the kind of life that you want to? Then our profit margins will tell us what our revenue goal needs to be. So yes, by all means, set a revenue goal. But only if you've got a really high handle, a really firm grip on the level of profitability in the business. And only if that profit is tied to the kind of lifestyle that you want to support with your business. That way we build a business that serves you. You don't become a slave in your own business. But point number five, and I think the most important one, is that ultimately revenue is not up to you. So you're setting a goal that you don't have ultimate control over. And I think that's a really quick way to get demotivated. It's a quick way to also negate any successes that you've had during the month. Let me give you an example. One of my group members last month decided that she wanted to set herself a revenue goal and she wanted to sell five courses of laser hair removal. And I argued with her, not argued, but I made the point with her that actually that was not a very good goal to set. Because ultimately, you could do everything right. Your marketing could be fantastic. Your messaging could be amazing. You could have got it in front of the right people, but whether they pull the trigger and buy is not in your control. So what would be a much better goal is if we said, OK, I want to sell more laser. Therefore, I'm going to post 20 times on social media about laser hair removal. I'm going to share five client testimonials about laser. And I'm going to make sure that I've sent three emails and spoken to 25 people. Now, those things added up might well get you to sell those five laser hair removal courses. But all of those things are inside your control. All of those things are completely within your power. So when we're setting goals, we call them process goals rather than outcome goals. To give you a very glib example, you may have noticed that I've been trying to lose weight over the last 30 years or so. So it would be a very poor goal for me to say that I'm going to lose three pounds next week. What would be a much better goal is if I said I was going to fast for two days, I was going to go to the gym three times and I was going to keep my calories below 1500 calories for the remaining days of the week.

Those are process goals and I can celebrate those even if I don't necessarily lose that three pounds. But I know that they're pushing me in the right direction. So I hope that makes sense to you. And I hope that I'm now going to give you some things that we can look at alongside revenue to give you a much more rounded picture of what's going on in the business. And of course, the first one is the level of profits that we're generating. So don't just look at revenue. Look at revenue and profit margin hand in hand. Secondly, I want you to keep a really close eye on your average bill. We want to see your average bill at a level which is above your most popular service. So let me give you a hair example for a change. I give you lots of beauty examples in a hair salon. Most of the time, your most popular service is your cut and finish or cut and blow dry. You want your average bill to be higher than your cut and blow dry. Some things are going to push that average bill up. So when we upsell services, when we add on colour services, which are more expensive than our cut and finish, some things are going to pull that average down. So perhaps we have a dry cut or maybe barbering services or people that are coming in for children's cuts will start to pull that average back down again. But we want to see that our average bill is above our most popular service and most importantly, growing. Particularly, make sure you're revisiting your average bill target when you increase your prices. And I've seen lots of salons fall foul of that. They start celebrating a 10% growth in their average bill and I have to remind them that two months ago we increased prices by 15%. Next up, the number of live clients. We want to see a growth in the number of clients that are live on your database. And also we want to be monitoring the number of lost clients too. Because it's easy, relatively easy, to fill your salon with live clients in the short term if you're good at marketing. But whether we keep them and retain them and keep them loyal in the business is down to the level of service that you're delivering. So we want to be monitoring the number of lost clients that we have as well. And then my favourite salon success measure is utilisation. Out of the hours that are available for booking, how many are actually taken up with paying customers?

It's a really vital measure for the salon overall. And I would also break it down by team member for their one-to-one targets as well. So there we have it. What have I missed? What are you measuring that you couldn't run your salon successfully without? Reach out, let me know. Phil at buildyoursalon.com. You know I love hearing from my salon owner friends. If you're watching on YouTube, don't forget to subscribe and click for notifications so you don't miss any of my wise hour wisdom. If you're on one of the podcast platforms, please take two seconds just to leave me a five-star review. It makes all the difference in the world to my day, my week, heck, even my month when I get a five-star review. Just seven short days until I'm coming in your eyes and ears again with another dose of my wise hour wisdom. 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.