On this week’s episode, I’m sharing with you an Instagram live I did in response to a salon owner who was struggling to find any decent talent for less than 50% commission and I was honestly surprised by how many minds were blown by the reasons I shared in an Instagram Live on the topic. 

Hiring a team member for 50% of gross sales (aka the money your business brings in from a client) is RI-DONK-U-LOUS. For a quick snippet as to why let me bring out my math nerd to share why. Let’s use the example of a Classic Fill your team member is doing and let’s say it’s an hour long service that you charge $50 for.

Service Price: $50

Labor Cost: $25 (50% commission)

Supply Cost: $6 (supply costs may vary depending on the service but this is a fairly standard number)

Gross Profit for Salon: $19

WARNING: THIS IS USUALLY WHERE ASPIRING SALON OWNERS STOP THEIR MATH. 

They see “Oh, if I just bring in a warm body who has a lot of experience and pay them 50% of the service and cover my product – I am good to go! I can make $19 off of her for every fill client!”

What they have calculated here is what’s called “Gross Profit” so it is the profit from the service AFTER you remove what’s called COGS (Cost of Goods Sold). Labor and supplies are necessary to deliver the service – they are the COST of delivering the service. 

HOWEVER – they are NOT the cost of running the business that provides the service AND in this calculation you are missing the LABOR taxes – aka payroll taxes – that the EMPLOYER is responsible for when having employees. Standard payroll taxes in the US is about 7.5% of payroll. AND there’s also something called Worker’s Compensation – which percentages vary from state to state – but we’ll use a standard $1 for worker’s compensation for every $100 of payroll. In this formula – the labor cost is $25 so we’ll add $0.25 to the labor cost to cover worker’s compensation.

NEW GROSS PROFIT with PAYROLL and WORKER’S COMP INCLUDED

Service Price: $50

Labor Cost: $25 * (7.5% payroll tax)+ $0.25 (worker’s comp) = $27.13

Supply Cost: $6

NEW Gross Profit = $16.87

So now you have $16.87 from that service to pay for ALL the other overhead costs to keep your business afloat. 

Now that you know how much money you’re left with to run the business with – let’s list out some of the typical spa/salon expenses that are going to have to come from that remaining Gross Profit amount most of these salon owners think is now “theirs”:

• Rent – pretty self explanatory
• Utilities – phone, internet, electric, trash
• Software – your booking software, accounting software, social media scheduling software etc
• Taxes – sales and 
• CC Processing Fees – Typically around 2-3% on the sale including the tip – so on a $50 sale plus a $10 tip – your cc fee would be $1.60-$1.80
• Insurance – business, property, and liability
• Retail Inventory & Non COGS Supplies – anything that can be marked up and sold to a client or is a necessary part of running a business that is not a part of a service (think pens, computer,
• Marketing – think website hosting fees, paid ads, signage, 
• Non Revenue Producing Team Members – to include your artists when they’re not generating revenue too as you will owe them at least minimum wage even if they’re not with a client)
• Legal, Professional, Licensing and Permit Fees – Accountant, employment/contract attorney, bookkeeper, human resources service, payroll service, city/county/state fees to operate your business, health permits, etc. 
• Continuing Education/Team Meetings -continuing education for either you or your team members and team meetings or team building activities that you’ll pay your team to attend but won’t be making any money from.
• Emergency Savings – often times with commercial leases – the tenant (you) is responsible for anything that happens to the space during your lease. If the Air Conditioner breaks – you’re responsible for fixing (or even replacing) it. If there’s a flood in the building – your insurance will cover it – but if your business is shut down until it’s fixed – you will still have expenses to pay until you’re operational again – without a savings account to draw from – you’re at risk of shutting down permanently.

And this list is by no means exhaustive, but know that the $16.87 of gross profit from that one service example I shared above has to cover a portion of all of these expenses as well.

NOTICE – nowhere in here is profit a line item (which is where the owner would take a cut of profit to pay herself those “big bucks” she thinks is coming to her when she builds out a team).  How much do you realistically think the owner is making after these expenses are accounted for? Enough to take that month long trip to Mexico? Enough to stop taking clients all together? Enough to pay yourself anything from your team member’s sales?

Not likely. 

And it is sadly EXTREMELY common when this is the approach to building out a team for the OWNER to be MAKING LESS THAN THEIR TEAM MEMBERS and STILL HAVING TO TAKE A FULL CLIENT LOAD TO SUPPORT THEMSELVES.

This is why understanding the financial position you’re currently in and what the BUSINESS can afford to pay a team member is far more relevant to your long term success in building a team rather than blindly throwing a large commission to attract a “warm body” onto your team without knowing the impact this will have on your business (and YOU as the biz owner) is a NECESSITY in building out a scalable business model set up for long term success.

So be sure to listen to this week’s episode if you have a team or you’ve ever considered building out a team to work under you – because it is a must-listen if team building is something you want to excel at!

And before you even ask – YES! This is something I can absolutely help you with!

In fact I’ve been working with my 1:1 clients on:

• Being financially savvy and understanding the finances of their business to ensure they’re planning for profit
• Creating a vision, a culture and a team that works together to build an incredible business.
• How data, processes, and planning are how successful salons are managed, grown and thrive without the owner having to be involved in every task of every day and have a hand in every dollar made.
• And how building out a team is going to be the hardest, but most rewarding thing you can do professionally if you feel called to impact the lives of not just your clients, but your team members and ultimately your community. 

If reading through this email and listening to this episode has got you hungry to put your dreams into action and start building out that dream team of yours – I’m opening up a small group coaching experience for a few select women who want coaching on building out a team, support as they navigate the ups and downs of growing a team, and connection with a group of kick ass women who are on the same path to growth and success with having a team. It’s called…

MOMENTUM MASTERMIND and it’s a 6 month small group coaching program of salon owners where I will share with you the steps to hiring, onboarding, and managing a team profitability and legally, coach you through the inevitable obstacles and roadblocks you’ll face, and curate a group of women who will become your lifelines of support while you challenge yourself to do hard things, get outside of your comfort zone and reach new levels of success and freedom in your growing business.  

Here’s some of the biggest highlights from today’s episode:

Episode Highlights:

• – The financial ramifications or benefits that come with building out a team
• – The reason why 50% commission is a thing in our industry
• -Why having a clear vision statement is essential for your business growth
• -The relevance of understanding business finances to ensure a great amount of profit
• – What you’ll get from joining the Momentum Mastermind

Just send me a DM on Instagram @thelashpreneur or email me at hi@thelashpreneur.com if that’s something you’re interested in and we’ll send you the details on how you can apply!