CONTROLLINGCOMPENSATION
By Lisa Starr
Your Presenter
• Lisa M. Starr– 20+ years experience in
salon & spa industry– Senior Consultant, Wynne
Business– Community Ambassador,
Gramercy One– Consultant, educator,
writer, presenter
Wynne Business provides consulting and education, including live seminars and on-site team trainings for the spa and salon industry
What IS “Compensation”?
• Money• Benefits• Perks• Education• Opportunity• …anything that
creates value for your employee
Good Comp Plans…• Reward employees fairly for their
personal contribution• Use objective measurements for
advancement• Incent behaviors that benefit the
company• Help retain good employees• Contribute to company
profitability
Dysfunctional Comp Plans…• Don’t reward the right
behaviors– “every man for himself”
• Are not objective– play favorites
• Are not consistent• Cause the company to lose
money• Are not communicated clearly• Create too much turnover…or
none at all
Traditional Beauty Compensation• We have a 40+ year
old compensation model
• Forget your peers; listen to your P & L
• What worked in the ‘70s doesn’t work now!
Owner
Overhead
Support Labor, Taxes, Benefits
Service Labor
Current Common Compensation Plans• Straight or Graduated
Commission• Hourly + Commission• Hourly + Incentive or Bonus• Fee for service• Independent contractors• Booth rental (not really a comp
plan)
Straight Hourly Rate
• Creates complacency• Does not reward or
motivate sales• Raises are expected
but not co-created by increased productivity
• Not sales-oriented!
Hourly + Commission
PROS• Provides stability for staff
in spas with heavy volume fluctuations
• Managers can use team members for other functions during slow periods
CONS• Very difficult to budget• Easy to set base or
commission too high• Can encourage
complacency• Creates cash flow
pressures, especially for startups and small businesses
Commission: The Most Common Form of CompensationPROS:• Easy to manage, simple
to understand• You don’t have to pay
people unless there’s a sale
• Encourages higher sales by techs
• Typical range: 40-60% of service, 10% retail
CONS:• Forces clients to pay higher
prices• Only source of pay increases is
higher volume or bigger cut• Prices increases are
automatically shared• Does not reward teamwork• Connects what client pays to
what tech earns
Reality Check: How to lose money on your comp planSERVICE SALE: “BEFORE”$100 Spa LaLa Signature Facial
($50) Commission Cost of Sale
($5) Payroll burden (10% of payroll minimum)
($7) Product Cost (varies with type of service)
$38 GROSS PROFIT (Cost of Sales: 62%, GPM 38%)
$40 Spa Overhead Expense* (40%)
($2) PROFIT/LOSS* typical overhead ratio for upscale spas & salons
Controlling COGS• Labor is your single
biggest cost of doing business
• The wrong compensation plan will enrich your staff and leave you little room for error
The Only Way Out: Reduce Cost of Sales
SERVICE SALE: “AFTER”$100 Spa LaLa Signature Facial
($35) Labor Cost of Sale
($3.50) Payroll burden (10% of payroll minimum)
($7) Product Cost (varies with type of service)
$54.50 GROSS PROFIT (Cost of Sales: 45.5%, GPM 54.5%)
$40 Spa Overhead Expense (40%)
$14.50 PROFIT/LOSS
Increase service gross profit to 50%+
The Prescription• A comp plan that
rewards the right behaviors
• Carefully controlled COGS
• Advancement with accountability
• Clear career path
Start With the Big Picture…• New or established
location
• Owner or technician, or both
• Overhead costs
• Same pay rate for everyone, or levels
• Expected profit
…and Work Backwards
38% - Average day spa
overhead expense 12% - Support staff 5% - Profit
45% left to pay technicians (including taxes & benefits)
100% Minus:
How to Apportion?• 45% total compensation for techs
– Example; tech grosses 40k• Payroll taxes 3-4%• Paid vacation 2%• Contribution to health
insurance 4-5%• Education/401k 1-2%• 33% left for direct pay
Win-Win Compensation:The Treatment Rate Plan• A treatment rate is a flat rate $
that is considered appropriate and fair pay, based on the time, skill, knowledge and effort required to deliver a given service
• Treatment rates are not directly tied to the service price
Sample Treatment Rates60 minute services
BRONZE LEVEL: 0-1 yr 30% mass, 28% esty
SILVER LEVEL: 1-3 yrs
32% mass, 30% esty
GOLD LEVEL: 3-5 yrs 34% mass, 3
2% esty
PLATINUM LEVEL:5+ yrs
36% mass, 34% esty
Classic Mass
$85 $25.50 $27.20 $28.90 $30.60
Deep Tissue
$95 n/a $30.40 $32.30 $34.20
Classic Facial
$85 $21.00 $24.00 $27.20 $28.90
MicrdrmTrtmt – 45 min
$105
n/a $24.70 $29.40 $31.50
Advancement: Who Moves Ahead, and Why?• Seniority: “Doing time” or building
the company
• Senior staff members must be held to a higher standard
• Knowing what you know, would you enthusiastically rehire this person?
• “She has 10 years of experience”: Is it the same year repeated 10 times?
Reward the Keys to Profit• Average ticket
• Retailing ratios
• Customer retention– Studies show: customer’s willingness
to refer is greatest indicator of a company’s profitability
• “Good citizenship” – Good communications skills = lower
tech turnover, less refereeing by manager
ESTHETICIANSara Smith
Retail to Service %
Repeat Retention Productivity Average Ticket Report Dates2/1/10-2/1/11
Weighted score 3.5 3.5 1.5 1.5 OBJECTIVE: SCORE 10 POINTS OR
MORE TO ADVANCEGoal at Level 2 52% 20% 60% $105
Actual 46.62% 25% 62% $106.98
3.14
90% of goal
90% of 3.5 pts.
4.38
125% of goal
125% of 3.5 pts.
1.55
103% of goal
103% of 1.5 pts.
1.53
93% of goal
93% of 1.5 pts
10.59 points
An example of advancement scoring in action
Sara needs 10 points to move up a level. She has attended 80% of staff meetings and has a positive Time Away bank. Sara moves up to Level 3
Example: Profit Increase of 39% After Conversion
$92 Facial 50% svc comm
35% retail ratio
10% ret comm
Product COGS
Esty comp Spa Gross Profit
GPM
$46 $49 sale $141 tkt $4.90 $24.50 $50.90 $65.60 46%
$92 Facial Tx Rate 40% retail ratio
20% ret comm
$27.60 $61 sale $153 tkt $12.20 $22.00 $39.80 $91.20 60%
BEFORE
AFTER
Service Charges• Where did they
come from?• Two types
– Deduction from revenues
• Back bar charge, amenity charge
– Added to clients bill• Automatic
gratuity• Often shared with
support
Comprehensive Compensation Plans Include:• Employee perks• Variety of earning
opportunities• Top quality training and
education• Employee discount programs• Benefits (just like a “real”
employer!)
Creative Rewards• 1% of retail sales per quarter allocated for
continuing education• Resource partners asked to participate in
rewarding top performers• Paid days off or wellness days for no call-
outs in 3 months• Gift cards or spa swap with other spas• Pay for licensing• Motivational speakers• Friends and family service vouchers
Recruiting• Focus on
annual earnings• Highlight benefits• Establish career
path• Biggest source is
happy staff members
Testing the Waters
• Job Fair• Craigslist• Local community
paper• Local beauty
schools• Coffee shops,
bookstores
Your Company Culture: Valued or Worthless?• If your culture stinks,
no one will pay you for it
• Mutual respect between functional teams is key
• Excellent leadership skills required
Take the First Step…• Get an accurate evaluation of
your current financials. Can you ever make money with your pay plan?
• New spas; create detailed, realistic projections
• Determine an acceptable level of profit for you. Design a compensation plan around a profit goal.
Considerations• Software
– Payroll should not be complicated
– Review your options• Service Menu
– Pricing strategies– Updates
• Cost of upheaval• Cost of doing nothing
Communication Plan• No surprises• Frank & honest• Group meeting• Individual meetings• Time frame• Clear behavioral
guidelines
Don’t Try This Alone!• Expect turnover; grandfather
key technicians• Technicians understand that
they get a pay cut if you go out of business, too!
• Are your prices set correctly? You may be able to increase
• You may have to treat conversion as a “mini startup”
Industry Hourly Wages
YearAnnual Hourly Year
Annual Hourly Year
Annual Hourly
2007 13.94$ 2007 14.01$ 2007 13.74$ 2008 14.77$ 2008 14.79$ 2008 14.49$ 2009 15.46$ 2009 15.85$ 2009 15.42$ 2010 15.57$ 2010 16.15$ 2010 15.64$
Personal Care Hair, Nail and Skin Care Services
Beauty Salons & Barber Shops
*Source, Bureau of Labor Statistics
Comparison of Professionally Licensed Occupations
Occupation Average Years
Education
Required
Educational $
Investment
% of revenue
generated paid to
license holder
Cosmetologist 1 $6-8K 40-60%
Dental Hygienist 2 $20-30K 33%
CPA 4-5 $40-60K 33-40%
Attorney 7 $100-150K 25-30%
Medical Doctor 8+ $300K 40-45%
ControllingCompensation Thanks for your attention!
Questions? Lisa Starr at [email protected]
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