How to Make Decisions for Your Salon Based on Your Profit & Loss Statement

Today I want to discuss your salon’s profit and loss statements. Why? Because this topic is essential for us to touch on to keep your salon business up and running! We brought in Kim Light to help consult us on what to look for in our profit and loss statement and how to make the best decisions for our salon based on our numbers. 

Get to Know Kim

Kim is the general manager and shareholder at Urban Betty Salon in Austin, Texas. She also serves as a Summit Salon business and social media consultant. Something a bit more surprising about Kim’s background is that she earned a double major in Geology and Biology to become a vertebrate paleontologist. This is still one of her passions, but she enjoys having the opportunity that the salon industry gives her to touch peoples lives every day. She quickly fell in love with the beauty industry when offered a job as a receptionist for Urban Betty. Kim currently leads a team of 40 service providers and support team members at Urban Betty – a Meet Your Stylist Salon since 2014. 

Bringing in the Money

When looking at your profit and loss statements, a good starting point is figuring out your services to retail. According to Kim, the goal here is to have your services be 80 percent of your income, and retail 20 percent. The 20 percent will ensure that you are paying for the products being used during services and turning a profit. Remember, retail sales impact your salons ability to buy the products needed for services being done. 

Kim recommends commissions to producers, or anyone that provides a service for you such as stylist or nail tech, to be around 40 percent. Retail sales can play a role in this too. Even just a two percent raise in retail can help drop your commission line by one percent to help stay within your budget guidelines. 

So, what’s the biggest difference maker to help with the retail sales? Bring three products up to the checkout at the end. No need to stress about having to be a salesman. Think of it as a transfer of passion. If you believe in your products, then you want your customers to experience the awesome products for themselves. It’s not selling if you are expressing why you like the product.

How to Encourage Support Staff

Your assistants, or associates, should be around two percent of your total sales. How can you get it that low? By having opportunity days. These are days when they bring in family and friends to be their clients. They can get in more practice time, plus the charge for the service can go into paying your associate hourly. 

Pro tip: Utilize your associate. Have them ask clients about add-ons to enhance their experience. Clients might not think of adding an eyebrow shaping or using the essential oils unless they’re asked. 

Members of your support staff, or the front desk, should be five percent of the total sales. This number can stay so low by setting goals for them to achieve raises. Kim suggests having them add on services while on the phone with clients. Another goal she uses is selling a certain number of gift cards each month. With birthdays there is always something to celebrate. If they hit their goals six out of twelve months, that’s enough for a $1 raise. Plus, it takes the decision making on raises out of the managers hands. 

Determining Product Supply Cost

When looking at your profit and loss statement, you will find the cost of goods (COG). This should be 17 percent of what you’re spending each month. Being such a large portion of your spending money makes it extra important to have control of your inventory, so you know exactly what you need to order. 

Pro tip: Order on a budget. Keep track of what you spent last month to ensure you have the right number of products. 

Breaking it down, your professional supplies are seven percent and your retail is 10 percent of your overall income a month. Your break-even point is also key to knowing how much you need to make in your total sales each month to pay for everything in your salon company. Kim suggests taking rent, plus any long-term debt and multiplying it by 10 to determine your break-even point. 

The last big expense to consider is advertising dollars. This should be two percent of your total sales. Traditional advertising isn’t used as much anymore, so turn to social media and post ads there. 

Sales Drivers 

Sales drivers are what help us make our profits. Kim has a couple ideas to help in this area. First, pre-booking or reservations. This helps secure your salons financial future. The more pre-booked appointments, the more income you have guaranteed for the next month. 60 percent should be your target each month to help with retention rates and scheduling. 

Next, look at the percentage of guests doing color. Kim recommends 40 to 50 percent of your clientele are color guests. The reason for this being that they are pre-booking with us and they are going to buy the products to protect their investment. They’ll also send you referrals when they get comments on how great their new color looks! 

Making the Best Decisions

So, after looking at all these things that affect our profit and loss, how do we decide when it’s time to open a second location, invest in new chairs, products or remodeling? Make sure you have it in your budget. Try to spread it over the next couple months so your quarter isn’t overspent. If you aren’t hitting the profit markers needed, you might need to consider hiring more people or opening for more hours. 

There are a lot of decisions to make when it comes to your salon, but remember numbers don’t lie. Look at your profit and loss statement carefully before making any large investments. To listen to the full interview with Kim, head to podcast episode 134. To schedule a consultation with Kim you can email her at Klight@summitsalon.com.