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Part 2: How to Take Control of your Salon Profits
103 Plays1 year ago
In this episode, we welcome back Caylee Auge for another insightful discussion.
Building on our previous conversation about doing more with less, Caylee delves into the concept of financial modeling for salon owners.
She explains how to be intentional about your profit margins, the importance of understanding different business models, and why salon owners should prioritize themselves financially.
Whether you're struggling to take money out of your business or taking out too much, Caylee offers a balanced approach to help you stabilize your profit margins and grow your business sustainably. Don't miss this episode if you're looking to take control of your salon's financial future.
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Transcript
Do salon owners plan their profits?
00:00:00
Speaker
Here's a question for you. As an owner, are you paying yourself from whatever is left over at the end of the month or do you have a real plan in place for profits? Is your profit plan deliberate or is it just accidental? Today, we tackle the sometimes delicate subject of profits and how to finally take control in your business.
Intro to salon profits
00:00:27
Speaker
Hey beauty and barber pros, welcome to the business of style podcast brought to you by the beauty council. My name is Greg Robbins. And today we have our part two of salon profits with Kaylee Ajay. Kaylee is a leading business coach for salons and trusted partner of the beauty council. Today we talk about profits and how they work with your business model, no matter what kind of model you operate under. So let's jump over to our conversation now.
00:00:55
Speaker
Hey Kaylee, welcome back to the business of style. It's so great to have you back again. Awesome. Thanks for having me, Greg. My pleasure. So we're going to do like a little part two here, which is super exciting. Cause the last time we talked about doing more with less and you were just touching on the topic of do you really need to hire more people or can you be more successful with what
Optimizing salon business
00:01:16
Speaker
you have? Do you want to just give us like a 10 second, 15 second recap of what we talked about last time?
00:01:21
Speaker
Yeah. For anyone who missed that one, it's a great one. So I go back and listen to it, but just a quick little teaser. It was really around the things that we are within our control versus the things that are not within our control. So right now we can't really control that. There's not as many staff knocking at the door, trying to come work for you, but you can control a lot of things within your business and optimize things within your business, such as your pricing, the way you're charging, the way you're paying people.
00:01:46
Speaker
how you're recruiting people into your business, how you're getting new clients, what you're doing with the clients that you already have. There's so many, so many areas you can influence in your business that that's really where I want to keep your energy. So if you missed that one, you can go back and listen to it, but we've got a whole other fun topic for today.
00:02:03
Speaker
Yeah, totally agree. It was a really great podcast and actually got some positive feedback. So thanks for all those tools that you offered on that one. So let's talk about where we're going to sort of go next with these ideas. Can you just give us an idea of what you'd like to cover today?
What is financial modeling?
00:02:18
Speaker
Yeah, today I really want to talk about this idea of you as a salon owner understanding how you get profit or how you make a return on your investment and what that looks like. So I call that like financial modeling. Like what is your financial model and how do you determine what money you take out of your business?
00:02:39
Speaker
That's a great, yeah, absolutely. And I think when we hear the word model, just unpack that for us a little bit. What is a model and how does it sort of apply to day-to-day business?
Salon business models and margins
00:02:51
Speaker
So I would say a model would be like, are you a commission salon? Are you a team based salon? Are you a rental salon? Are you going to like franchise? What's your intention with your business? Like what type of business did you want to have? And so for example, if you're going to franchise, you know, a franchise model would want at least an 18% profit.
00:03:14
Speaker
Um, because that would be something that would be attractive to a person buying a franchise. Maybe if your commission salon and you want it to be really comfortable for your team and you want to give lots of perks and you want to travel with them and you want to have like really a lot of fun in your business, maybe you're looking for a 10%.
00:03:30
Speaker
profit. And maybe if you're like a team based pay, um, you've seen those go or salary kind of type model salon, you're going to go for more of a 20% margin. So the idea is that you're not just shooting at like a blank target, like that you actually know what type of salon model you're building. And it doesn't mean cause your commission, you have to go for 10%, but that you're really intentional about what that percentage is. And then you
00:03:57
Speaker
create systems around it to stabilize it and to make it a sustainable business for all who are involved and really create a win for everybody who's involved in your business. I love these ideas and really examining sort of almost working from the back. What kind of
00:04:14
Speaker
Love these ideas and really looking backwards from where you want to end up and how that looks at the end and then designing your profitability moving forward to sustain that model.
Understanding profit margins
00:04:24
Speaker
Now, profit is a word that we all kind of use and hear and throw around. Can you give us a real quick definition as to what profit actually is and maybe the two different kinds of profits? So we just have a clear understanding of that.
00:04:36
Speaker
Yeah, some salon owners don't understand exactly what their profit is or the different types of profit. I don't want to unpack all of that here, but what I do want you to understand is that say $100 comes into your business and it costs you $90 to make all that business happen. It left you with $10. So that's a 10% profit margin. And out of that 10%, it doesn't mean money in your pocket. So sometimes people will say, well, you know,
00:05:02
Speaker
It says I have ten thousand dollars of profit but I have no money in my bank. Why not? Well that profit money also pays your taxes. It also pays your debt. It also buys you new product or if you have to replace a hot water tank that comes from profit money. So there does need to be some kind of formulas for owners so that they can figure out how much money can I take from my business.
00:05:24
Speaker
without making it too cash tight and like when is it too much where i'm gonna be putting too much strain on my team and when is it not enough when i'm not getting like any return on my investment so i see owners sway from one side to the next where they're taking
00:05:41
Speaker
Too much cash out of their business and leaving their business kind of destitute and not having the money it needs to run properly or to pay people properly. And then I see owners that are so terrified to take money out of their business because they don't know if they deserve it. They don't know how much to take. They don't want to be seen as a greedy salon owner. And so they're never getting a return on their investment. And so.
00:06:01
Speaker
both sides of that equation don't really work. And so what I propose is to really know your model, know what is that number? So of every hundred dollars that comes into your business, what is that number that you want to keep based on your values, based on the type of business that you want to have and then work it backwards? Like you said, Greg, like work it backwards to like, what's the way I need to pay people to get to this profit margin? What's my expenses need to look like to get to this?
00:06:29
Speaker
and we start working it back from there. And that gives you a formula so that you know every quarter what your profit bonus is gonna be. And if you're saying like, I get a profit bonus, I've never had a profit bonus, then that's an indication of what side you might be on. If you're someone who's drawing money out of your company always and waiting to the end of the year to see how much you took, you're likely on the other side of that. So I want you to be really intentional
00:06:55
Speaker
with what you're doing and how you're getting a return and what money is left in to run your company. Yeah, absolutely. It's so important to actually consider profit as part of the entire business formula. So yeah, you're cutting hair, coloring hair, doing other services, whatever those may be, and staying in business, maintaining business, building business, and also taking care of yourself as an owner is really important.
00:07:19
Speaker
Now, we've got the nuts and bolts sort of figured out. Thank you so much for that. You talked a little bit about the emotional aspects of profitability. Can you just touch on
Overcoming profit fears
00:07:28
Speaker
that? Are we afraid to take too much? Do we not want to be seen as greedy, I think is the way some people look at it. Unpack that a bit for us.
00:07:37
Speaker
Yeah, like some salon owners go on for years and years and put off paying themselves and put off taking a profit to the point where they can never catch up for all of the time they put into their business. And so I guess my heart in this Greg and my passion and why I wanted to talk about this subject is that I know you
00:07:55
Speaker
can be very intentional about all this stuff and you can get paid along the journey and i would almost compare it to your stylist right your stylist are gonna be always like driving you for more commission they're like hey when do i get more commission when do i get a raise and that's like you always driving to get more profit in your company and a lot of landowners are scared of
00:08:16
Speaker
Like they don't want to be seen as the greedy salon owner. They don't want to be pushing people. And so I'm here to say you don't have to be pushing people. You can actually design a business model that works, that has a stable, a stable profit margin, and you focus on actually maintaining that instead of like driving it. Does that make sense? Like, do you understand Greg, the difference, like what I'm trying to get across?
00:08:41
Speaker
Yeah, I do. I absolutely, and I think there's, there is that sort of driving versus maintaining. Um, so if, if I hear you right, maintaining is a much longer process. It's like anything, it's like exercise diet, keeping your car, you know, full of fresh oil or whatever you got. So is that sort of the idea where you're, you're taking a long approach where you have to protect not only your business, but the people working inside of it and plus your own career choice versus just, Oh, look, I have some cash. I'm going to shove it in my pocket.
00:09:11
Speaker
I don't think it has to be long at all. I think it has to be intentional. I just, I think it has to be intentional. Like, so the money that you take versus the money that you keep in to operate has to have like some meaning
The role of financial modeling
00:09:22
Speaker
behind it. And I think most lawn owners just don't have a formula for that. And so they go to either extreme, they go to the extreme where they're like, I'm going to take money out because I deserve to like take the money out that I brought into it. Or you get the ones that are like terrified to take any money out because they're scared. It's going to all dry up and fall apart.
00:09:40
Speaker
Um, and so I'm not saying it's going to take longer because what you're going to focus on is once you have a stable profit margin and you have a stable pay for all of your roles, then you actually turn the tap on to grow your business from the top. So now you're not bringing a hundred dollars and then keeping 10, you're bringing 10,000 and then keeping, you know, you're keeping the percentage of that or you're bringing in hundreds of thousands. Like you're going to grow the top line.
00:10:07
Speaker
and you're going to stabilize the bottom line, if that makes sense. So instead of focusing on like squeezing people and like, how can I get my vendors to go down? Sometimes it's necessary to do that, to do all those things to stabilize the profit margin. But I don't think you always need to be looking to go to like 22%, 25% like pushing that. Like I think once you get to a certain model that you're happy with that's providing you the lifestyle that you want,
00:10:34
Speaker
and you're getting the return on your investment, then it's time to really like stabilize that and focus on the top line growth of how do I bring new sales in? How do I bring more valuable sales into the company and keep, so you're still growing your revenue, right? It doesn't have to be a long game. It's, you can still grow really fast. So that's really fun.
00:10:54
Speaker
Okay, so I just love this because you sort of take all the guesswork. What you're saying is take the guesswork out of running your salon, just determine your profit percentage, and then you can just focus on your inbound cash, your sales, your services, everything else that you do, and of course your expenses as well.
00:11:09
Speaker
But you really know or have a very clear picture how that's going to look each quarter each year. So it's predictable.
How much profit is safe to withdraw?
00:11:16
Speaker
It's easy. You can make your choices based on on that sort of, you know, rock and move forward. Is that sort of give people some. Exactly. Like it gives them say every quarter you're like, OK, it's you know, I'm looking at January to March and I'm going to pay out this
00:11:33
Speaker
profit dividend to myself and I have an equation to do that. And so it just makes it so much easier. You don't have to lose sleep over it. Did I take too much? Is, am I not going to be able to pay the bills now? Like when you have financial modeling in your business and you know like what your margin needs to be, you know what your expenses are, you know what you're paying people that it's going to all check out, then you can just sleep easy and know like, okay, it's my quarterly bonus now.
00:11:57
Speaker
You know, if we're waiting around for cash to just magically appear in our bank account and then be able to take a draw or take a return or something like that, it's just probably not going to happen. And I've seen, you know, I've talked about owners who have been in business 20 years. So we need a formula. We need a way to make it like you don't have to overthink it. You don't have to take too much. You don't have to take too little.
00:12:18
Speaker
just a formula and a routine and a ritual that you do all the time that helps you determine which part of that can be taken out of your business. So I think that's what's really, I think that would really support owners if they had that information, if they could figure that out for themselves and know what their model is. I think it would take a lot of the financial stress out of their lives.
00:12:40
Speaker
And that's awesome. I think we all want less stress, more certainty, and just a better outcome in the end. So it sounds like a better way to go. I'll just tell you a real quick story. I once ran Salon magazine, and to be honest, Kaylee, we did accidental profits. That's really what we had. We had, oh, look, there's some money left. Let's take it out. And it was a little, it was just, I didn't like the uncertainty. I never really had a plan.
00:13:04
Speaker
And then one day I sat down with my business partner said, let's actually write this in as an expense item. I don't know if that's the right way to do it accounting wise, but we literally put it in the expense part of our profit loss and said, this is what Greg and Brian will take home at the end of the year. And we just focused, like you said, on our sales and our costs. And guess what? It was wonderful. It was a great experience. And we were successful. And not only were we able to sort of keep ourselves happy, but our team, our product, everything we did, it just everything was better.
00:13:35
Speaker
Exactly. Because you had an intentional model. And I think at the end of the day, if we kind of summarize this, it's really that a lot of the salon owners are in that not profitable camp because they're not being intentional about it. And there are some really like subtle, easy shifts that can be made to get you into this place where you are exactly experiencing not accidental profit, but intentional profit.
00:14:00
Speaker
Yeah. And it's not rocket surgery, as they say. Yeah. It's fairly straightforward, right? There are a couple of easy methods and formulas to put this down, make it a practice and move forward, right? Exactly. So how can you help people, Kaylee? Tell us more about how people can connect with you and the ways in which you can help them.
00:14:20
Speaker
Um,
Customized financial modeling program
00:14:21
Speaker
thanks Greg. Yeah. We have a program that where we work really in depth with salon owners on all of this stuff, because we do believe it needs to be customized. Like there's not a one size fits all solution for everyone. Everyone has their own values, their own dreams, their own reason they went into business, their own like financial needs. And so we work through that process to find out what your financial modeling is and what your percentages that you want to stabilize and then help you.
00:14:44
Speaker
figure out how to do that. And we just offer a free evaluation call to see if you're a good fit for our business. So if you're listening to this and you want to find out more, you can just book a call with us. We'll hop on, tell you more about our program, how we can help you, and if we think that you're a good fit for the program. And then that's pretty simple. Then we do a deep dive. If you're accepted into our program, we do a deep dive with you and we get all this stuff straightened out.
00:15:11
Speaker
Love it, Kaylee. I think it's a wonderful resource and I hope our listeners take advantage. Always a pleasure to chat with you. Thanks so much for all your wisdom. Aw, you too, Greg. Thanks for having me back. You bet. Have a great day.