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Bruce Peters on the Importance of Salon Profits
92 Plays1 year ago
In our newest podcast, we had a great chat with Bruce Peters from Zazou Salon and Academy. We're unpacking some golden nuggets on boosting your salon's profitability – a must-know for every salon owner out there!
Profitability: The Heart of Your Salon's Success
Bruce brings a fresh perspective on why profit isn’t just a nice-to-have, but a must-have. We’re talking about the difference between just staying afloat and really making waves in the beauty world.
The Real Deal on Profit Margins
Bruce sheds light on the startling fact that most salons operate on razor-thin profit margins, and how this can be risky. It’s like being just one wave away from going under!
Strategies for Sustainable Growth
Here’s where it gets exciting! Bruce shares his insights on smart staffing, managing expenses, and why education and team development are game changers for your salon's revenue.
Raising Prices Smartly
A hot topic! Bruce emphasizes the importance of periodic price revisions to keep up with demand and market conditions. It’s not just about the increase; it’s about the timing and strategy.
Bruce wraps up with a powerful call to action for the salon community – aim for higher profit margins for healthier, happier businesses.
Be sure to join the association at www.beautycouncil.ca
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Transcript
Podcast Introduction
00:00:00
Speaker
Here's a question for you. Are profits in your salon or spa more than 5% on average? Do you ever go for a period of time without making a profit at all? Or are you looking to run your business so it gives you the lifestyle and growth potential you really want?
00:00:24
Speaker
Hey beauty and barber pros, welcome to the Business of Style podcast brought to you by the beauty council.
Meet Bruce Peters
00:00:30
Speaker
My name is Greg Robbins and today we chat with Bruce Peters, owner of Zazu Salon and Academy in North Vancouver. Bruce founded Zazu in 1992 with one employee. Today Zazu has two busy locations with a staff of 60. Bruce is a passionate advocate for success.
00:00:48
Speaker
and believes all salons and spas should be healthy businesses with profits to grow and thrive.
Profitability Goals
00:00:54
Speaker
Let's transition over to our conversation now. Hey, Bruce, welcome to the program. Great to have you here. Tell us a little bit about who you are and what you do. Well, thanks for having me, Greg. It's a pleasure to be here. It's always great to have a chat with beauty council and yourself. Always a great admirer and definitely want to be part of the hair dressing community.
00:01:15
Speaker
My name is Bruce Peters from Zazu Salon and Academy in North Vancouver in business. Started in 1992 and our goal is to do 10, 10 and 10. And that is 10, 10 and 10 means having 10 locations in 10 years doing 10% net profit. And it's ironic that we're talking about profit today. The 10% net profit is probably one of the most, in my view, one of the most important pieces because
00:01:45
Speaker
It will drive our growth and it drives salon and spa and the beauty industry's individual growth for a company and that's how we grow as individuals and that's how we grow as a company and as an industry in my opinion. Got it. Love it. Thanks so much. I just love the 10-10-10. I think that's such a great goal to have and really truly to have a strong goal is to have a strong end result.
00:02:09
Speaker
looking forward to all your success there.
Understanding Profitability
00:02:11
Speaker
So let's talk about profitability and you know, maybe just right off the bat, let's, let's define profitability. Like what is it just in real simple terms from your standpoint? It's the revenue that you bring in the expenses that you incur and then what are you left with the end result. So revenue, revenue being retail and service sales expenses being
00:02:36
Speaker
all the expenses, lights, hydro, wages, et cetera, et cetera. And then what are you left with at the end of the day? Got it. Got it. And this, uh, just not to get too complicated, but there are two kinds of profit. There's what's called gross profit and net profit. So maybe we can just talk about net profit today, which is actually really truly with what you're left with at the end of the whole year. Is that, would that be fair? Yeah, that's totally fair.
00:03:00
Speaker
Yeah, cool. Cause then otherwise it can get a little complicated with the other bits and pieces. So yeah, basically, you know, you sell a hundred thousand dollars worth of goods and services at the end of the year, you've got, let's say $9,000 leftover after every bill is paid. That is a 9% profit. Is that a good, easy way to put it? That's a great way to put it out. Yep. Agreed. Awesome. Awesome.
The Survival of Salons
00:03:21
Speaker
Okay. So tell us the, why is it important then for somebody who owns a salon spa or barbershop to be focused on profit?
00:03:29
Speaker
I think fundamentally if you don't have profit, it doesn't matter if it's our industry or whatever industry you're in, you can't survive. Profit will drive your success or not. If you can't have profit, you can't pay for yourself and you can't pay for the people that you work with and you can't be a sustainable enterprise. What happens to like a salon if you're not profitable and how long could you possibly be non-profitable for?
00:03:55
Speaker
Sadly, just some quick statistics. 80% of hair salons and spas do not make money. And the industry standard in North America, and I believe in my view it's global, but in North America, the average salon and spa net profit is free to 6%. So let's just average that out at about 4%. I think it's probably lower. Salons at 3% to 6% profit and the vast majority and 80% of salons don't make money.
Risks of Low Profit Margins
00:04:24
Speaker
which is really sad. So as an industry, if we're sitting at 4% or 5% profit, sometimes your money is just better in the bank than opposed to working the hours that we work. And especially as salon owners, we work, we work a lot. A lot of us work behind the chair. We work in the business and then we have to work on the business. So that could be challenging at best.
00:04:45
Speaker
Well, that's such an interesting way of putting it because you can put it in the bank these days into some really easy, low risk, low commitment things at the bank that can earn you 6%, right? 6.5%. So you're actually potentially earning more on an annualized basis and then you could go get a job at somewhere else. That's, you know, my battle cry, I totally agree. My battle cry in our industry is that we need to be way more profitable in our industry. We need to owners as owners,
00:05:15
Speaker
and as managers and as service providers, we need to band together and we need to make more money. We need to be more profitable. It has to be. And we can't keep thinking, well, four percent is fine or three percent is fine. It's not fine. It's something that we need to drive and we need to collectively, we need to all lean into it and we need to all own it. Let's talk about some of the dangers of hovering around a four percent profit margin. What could go wrong in that
The Benefits of Higher Margins
00:05:41
Speaker
scenario? In my view, if you're sitting at three to five percent,
00:05:45
Speaker
you're barely above water. Like your head is just, your mouth is just out of water. The rest of your body is below. And if just one little wave comes, you're sunk, you're going down and it's going to take a while for you to actually get back to floating again. If you get to 10%, in my view, zero to 5%, you're barely treading water. You're not actually with the costs. We've seen inflation a lot. If you're sitting in that area, zero to 5%, you're dangerously close to not doing well.
00:06:16
Speaker
five to 10%. You can afford some team fun trips. You can afford some benefits. You can be on top of having fun in the game when you get from 10 to 15%. That's when sustainable, that's when growth can happen. That's when great benefits can happen for your team. That's when payroll can go up. That's when you can be a leading industry salon or spa or barbershop of doing great things.
00:06:42
Speaker
Yeah. So interesting. And also, I mean, just also whenever I hear zero to 5%, my mind wanders over to anything that could happen. Like you lose somebody who's a high earner. Maybe some of your key clients decide to go to a competing salon or spa or other factors come along.
Challenges with High Commissions
00:07:00
Speaker
Like your, your rent goes up by 20% or something and completely demolishes that very thin margin. That could be really dangerous for anybody, right? Oh, it's, it was, and we see it all the time.
00:07:12
Speaker
This industry is kind of very hop, let's hop to the next, the next green, the next shiny object, the next salon, you know, this salon will give me 50% or this salon will give me 60%. I've heard even salons giving 70% commission. That to me is insanity. That's, that's crazy talk. Yeah. I'm not sure how anybody can survive on that model. Cause that doesn't leave much for the, uh, for the operation at all, especially if rent goes up a little bit, utilities rise, insurance, you name it. Well, interest on a debt alone, if they have one.
00:07:41
Speaker
and maybe even a personal loan if that's what you have in your business, suddenly your line of credit. It was a nice 3% a couple of years ago, now it's seven, eight. So let's talk about what can salon owners do to help boost their profit? Just a couple of things off the top of your head that you think are pretty simple and straightforward that anybody could start thinking about and begin implementing in the next, let's say, three to six months.
00:08:06
Speaker
I think in order to create profit for the bottom, we have to decide what is our measure that we want to have at the bottom and then work backwards. So what does that look like? So how do we increase our revenue or our top line? How do we increase? Do we do more out on treatments? Do are we selling more retail? Are we holding people accountable on our team? And this is, I'm not popular with a lot of people when I say this.
00:08:28
Speaker
But one of our biggest things that we have to control is our labor. And labor, by far, is the largest expense of any business. It doesn't matter if you're in the lumber business, the restaurant business. We have to be at a percentage point in our business. And that percentage point has to be in the line with making profit. So we need to make sure, as I said earlier, if you're making, this is my opinion,
00:08:51
Speaker
If you're paying your staff 50% commission, you're probably very close to not making money. And if you're even making money. Again, I'm not really popular when I say that to people, but we have to control our labor costs. So we have to control our commissions or our hourly, however that works.
Shifting Focus to Staff Earnings
00:09:08
Speaker
I think that's a big one. So years ago, we had a 50% commission rate.
00:09:13
Speaker
And our books were just, they were not doing well. We were completely eroding our bottom line. And my accountant said to me, either you're going to be out of business within a couple of years, or you have to do something about this. So overnight we said to our team, I'm sorry, I have to, I have to lower the commission rate from 50% to 40%. And no one left and everyone stayed for years, but we made it to a place. We said, do not worry about commission.
00:09:38
Speaker
But let's talk about what we can put on your T4. Let's worry about your T4. I'll get your T4 to $100,000 plus. Don't worry about a commission rate. And that's what we've done. We've stopped doing that for 20 years. And we literally work with people right now that make well over $100,000 a year. They're working 30 to 35 hours a week and they're taking two months vacation. And people say, you know, that's not true.
00:09:59
Speaker
I can promise you it's very
Work-Life Balance at Zazu
00:10:01
Speaker
true. It's amazing. Actually, when you give people the autonomy and the goal to do it and we work together, so it's a win-win win for the company.
00:10:09
Speaker
and when for all the service providers, it works really well. You know, I follow some of your staff on, on social media. I don't know. They never seem to be at work. They're always in Paris or Greece or they're on a beach or on a boat somewhere. So clearly, clearly, uh, it's working because they seem to have a lot of personal freedom and personal adventures and time for themselves. And yet I'm sure they're working very smartly in your salon. Is that right? Correct. We have a,
00:10:36
Speaker
Like the old saying goes, we work hard and play hard. So I know a lot of people are going to wonder, how on earth can you possibly generate that kind of revenue for your staff when you're dealing with lower
Continuous Education and Growth
00:10:47
Speaker
commissions? What's the secret sauce there, Bruce? We all want to know. For the stylists to make $100K? Yeah, or even $80K or something. Just whatever they're comfortable with. And if you're not giving out like 60% commissions or whatever other crazy commission rates you've heard of.
00:11:01
Speaker
My philosophy on success for as a company from all our leadership point of view and from all our staff is fundamentally it's education. Everybody in the company, one of our philosophy and one of our mandates for from leadership point of view is to grow people. So it's growing them personally, it's growing them professionally, it's growing them
00:11:25
Speaker
To make sure that they're always pushing themselves and that we have to believe in people to say, OK, you've got this and what's what's your next goal? What's your next goal? It's a collaborative approach. It's not saying, hey, you need to do this. It's like, hey, let's talk about this one. How's your life? We need to know how people are personally. We need to appreciate people and we need to make sure that we're working on a goal.
00:11:45
Speaker
What is
00:12:01
Speaker
It's not isolated to the individual stylists. It's actually part of the entire organization.
Client Interactions as Transactions
00:12:06
Speaker
Let's talk quickly about maybe some of the emotions around profit. If you take a look at some stuff on social media and some conversations that I've had personally, there's a bit of a reluctance for people to kind of chase those dollars. They want to practice their craft. They feel that they might be gouging their clients. They're worried about increasing revenues. They're worried about cutting costs.
00:12:11
Speaker
their goal and is it in alignment with the company goal?
00:12:28
Speaker
How do you approach the emotional side of profitability? I think we have to remember that from the people that are sitting in our chairs or sitting in our beds or sitting at our fingers, we have to remember they are not our friends, that they are a business transaction. I know that can sound kind of harsh.
00:12:47
Speaker
But I always say if you're not having a beverage with them or you're not going for a meal with your clients, they are not your friends and they are to go up. If they're going to go up in price, they have to go up in price. And I think fundamentally we get so caught up in thinking, Oh my God, I can't possibly raise my price for Mrs. Smith. I've been doing her hair for 10 years or been doing facials on her for 10 years and I love her and she's on an income. And, but we have to, we have to raise our prices all the time and we have to take that emotional piece out by and large, in my opinion,
00:13:15
Speaker
most people do not come to us.
Price Increases and Market Positioning
00:13:18
Speaker
Their motivating factor is it's not about money. It's about an experience and about what they're going to get. And when we do raise prices, I think we think as professionals in this industry, the service providers think that we're going to lose 20, 30, 50% of our clients. And statistically, not even just from our numbers, but in our industry, we've seen that when you raise your prices, you lose anywhere from six to 10% of your guests, which is actually okay because then you make room
00:13:45
Speaker
for new people, and to your point about raising prices, it's a supply and demand. If you have not a lot of supply, meaning a lot, a lot of time, and you're booked out four weeks, six weeks, eight weeks, raise your prices, I would say, once, if not twice a year. And find that sweet spot until you've raised and go, okay, I'm not booked out eight weeks anymore, and booked out six weeks or seven weeks. But we should all, we raise our prices here at Zazu, we raise them once, if not twice a year. And business is good, right? Sure.
Economic Challenges and Resilience
00:14:15
Speaker
This year has not been a great year for us. I think it's been, we've taken a hit with the, with interest rates and with inflation, people are very sensitive to it, but we still have people that are a major demand that lots of people want to come and see them. They're raising as of tomorrow. So there's people that are raising again. And when we have our highest sits at 155 right now.
00:14:39
Speaker
And we're looking at raising those people as well, like giving them a growth path. What's their next level of jump? How do we get them up? What's their growth path? Because that's what it's always about.
00:14:48
Speaker
Yeah, that's, that's so impressive, Bruce. I mean, wow, those are great numbers. And certainly you're going, I think we're all sort of feeling the pinch and it's not just our industry. It's everywhere. I think we're all eating out a little bit less and the discretionary spending is holding back a little bit. However, um, a lot of the, a lot of these signs in the economy are pointing towards actually a quote unquote recovery and interest rates seem to have stabilized. So I mean, why stop, why stop? Just continue doing what you're doing, I suppose. Right. And, um, and, and, and let the economy catch up to you.
00:15:17
Speaker
I think this industry, we're in a good position in that I don't think we're recession proof, but we're somewhat a little bit recession resistant. People aren't going to go on trips. They're not going to renovate their houses as much. They're not going to buy a new car, but they will come and say, holy Christmas, I need to, I need to feel good about myself and I need to get some services done.
00:15:34
Speaker
Well, even more so these days, I mean, what a great opportunity to just do a little indulgence, right? I mean, if you can't take that five-star trip off to Mexico, why don't you go get a five-star treatment at your local salon and feel like a million bucks when you walk out? Yeah, exactly. I love it. Bruce, I really appreciate your passion around profits.
Conclusion and Call for Profitability
00:15:52
Speaker
I think there's so much more we could talk about, but I think you've given us all something to think about, and let's shoot for five to 10%. Is that a fair number for everyone to take away? Minimum. We can all do it, and if we all do it together,
00:16:03
Speaker
And the consumer isn't going, isn't freaking out as much. Good point. Good point. Because then we all just a rising tide lifts all boats, right? Yeah, exactly. Well, thank you so much, Bruce. I really appreciate it. Hope to have you on the podcast again. And thank you once again. You're welcome. Thanks for having me, Greg. And we look forward to seeing you. Talk soon.