I'll dive in first! Payroll, most likely your biggest expense and key element in making or breaking your business. How many have actually done somehting about it! (making it more affordable). Have you bit the bullet and adjusted (lowered) it so you can actually stay open another year? By how much (down to what)? If so, as employees (legal, but taxed) or ICs (most likely illegal, but cheaper)? Did you keep any staff and how do you keep the new ones happy?

Hi there Chris!

I'll just have the first reply everywhere today! /grin

We went with a 'treatment rate' compensation system with clearly defined benchmarks on moving to the next level. We don't do a percentage but pay a certain rate for each treatment (varies with treatment)---that way we can adjust our prices if need be without adjusting the percentage, and pay increases are based completely on what the service provider does. We have all employees, no IC's.

As a new spa, we were able to start with this system so did not have to change mid-stream. So far we have been happy with it. I like that I can change my prices without automatically changing our service providers' pay, and that when someone gets a raise it is because they met or exceeded certain benchmarks for a certain amount of time...they really put out effort and it is much deserved!

Cara

We changed our pay system after 2 years of paying out as much as 65%!

With the new system of flat rate per service, we got our wage expenses down to under 45% and did NOT lose a single employee. The fear of the change was far more taxing than actually implementing it!

Luckily I've never had to resort to desparate measures. But, since I started at my current spa I have definitely hired people for less that the original staff were hired at. There seems to be a spa world tendency to open a new spa and pay $lots .... ostensibly to get the best people. As a therapist I've been the beneficary of this, but it seems that shortly after the backtracking starts.


My next step will be (for some new and more expensive treatments that we are introducing) will be to pay flat rate commission (rather than existing percentage commission) in addition to the (somewhat hefty, legally mandated) hourly that we pay our employees.

ValM

Does a flat rate for service work for employees? I pay 40% comission to new employess (three at this rate) .... I one at 50% and yes, I have one at 60%. I am learning as I go...

Yes! A fee per service (i.e. NOT a %) is fine for employees, just make sure you let them know it's their commission OR min. wage, whichever is higher, but not both.

I really like the fee-per-service model for the reasons Cara states--you can raise prices w/out necessarily giving your employees a raise, so that raises truly do stay based on merit.

How do you track fee-per-service/min. wage? Do you have the employee track both their numbers of services and hours spent giveing services? (prep time?)

Most states just track based on hours worked. If your employee Amy worked 40 hours last week, then the minimum wage per hour is $5.00. Then she must take home atleast $200. If her fees earned/commisions are greater than that then your done! So if Amy made $400 in fees in 10 hours, but sat around for the other 30 doing nothing...that more than covers her work minimum.

BUT! Every state is different!

Don't forget to budget for taxes - the number one problem employers forget to do. If you are doing your own books, when you plug in payroll - make your deductions immediately on the register for Social Security / Medicare (both employee and employer), Federal and State with-hold amounts.

That way, when it comes time to pay them - there no big shock.........

The best move we made early in our spa's life was to use the fee-per-service model. We were, seven years ago, one of the only spas in our part of New England to use the fee-per-service model rather than the old commission system. We had people lined up to work for us and very low turnover. The move saved our business. If we moved prices up to pay higher rent etc - we had control of all the extra money.

Karen you are so right. Sales tax as well as payroll tax. It adds up!

Sue,

We have Millennium as our computer program and the employees log in and out of it. Since we opened, we have only had one employee who was not even making minimum wage...and how shall we say, she was not terribly committed to trying at all? But, Millennium does track that for us so that we make sure!

This is so simple, it's genius! WHY did I never think of 'fee for service? '
What is an approximate starting point? (I know it will vary, but I'm guessing that 30-40% of service fee as a basic fee for service? How have others' picked their numbers?

Karen, you are so right about the tax issue... I about stroked out the first time I had to pay them!!! Great solution!

Sue

Well - there are some people who would say that if you are paying your (employee) therapist staff more than 30% of the revenue they are generating then you are paying too much ...the associated assumption is that other labor expenses - front desk, admin, housekeeping, mgt, benefits etc - will bring associated labor costs to somewhere around 50% of revenues.

what you settle on will depend on retail sales, fixed expenses etc ...

I too would be interested in what other people think.

ValM

Don't do it as a %, but figure it out as a %. Let's say 35% to start, then raise your prices by $10 (with a menu revamp), but keep them at the same dollar/fee per service, which will lower it to 30-%. Then have a "level 2" ($3-$5 more per hour service) for those who meet the sales and rescheduling goals.
This still doesn't gaurantee success for you, since minimum numbers need met to cover expenses, but at least you're not setup for failure with the "old school 50%" setup.

I agree with those #'s. Most of my clients have their practitioner compensations between 30-38% and are doing ok on their profit & loss statements. Not getting rich yet, mind you! But they are stable. The one's at 38-50% are usually losing money every month. Sometimes I get people coming to me for help that have practitioner wages at 50-60% and it's usually time to close the biz down if they've been paying that for any length of time.

I love the flat rate per treatment model for all the reasons mentioned.

I just have one quick question about this. I don't own a spa, I'm just solo so I have no employees, but doesn't what you can afford to pay an employee hinge on your actual overhead? Are you saying that the fee for service amount is based on a percentage of your overall budget, or a percentage of the actual service cost that the consumer pays?

Just trying to learn for the future.

Jaya,
Your post has me freaked out! I KNOW I have a couple of MT's overpaid, and new ones in at 40%... I don't want to fail at my spa!!! I also don't know how to change what I already have implemented... HELP!

It's commonly calculated as a percentage of what the consumer pays. (But yes, your overhead is always going to determine what % you can afford to pay out. That's the real bottom line.)

Slow down there Montana Sue. Don't let that post of mine through you off your horse.

1. These #'s are still just what I see based on averages. It's hard in consulting because a lot of the time we have to be vague, since not everything can apply to everyone. Yet, people want and need some tangibles. My estimations may or may not apply to you.

2. The big thing here is what your overall overhead is. If you have a low-overhead place, maybe you can afford to pay a higher %. The city-slickers definitely have higher overhead. Yours?

3. If you are over-paying (and you'll know because you'll be losing money, or not earning it as fast as you should be) then you can always hire new people at lower rates. Sure, sometimes it would be appropriate to change the whole place, but if it's not horribly broken, you just make corrections after the fact, starting with new hires.

Curious: How did you decide on your current percentages, anyway?

Hi Sue,

Don't worry, we'll help you out here, especially being a Preston Private Label client. I'll e-mail you some guidelines on a PowerPoint PDF then we can discuss it soon.

Michelle - it is a "shifty" kind of equation. Treatment prices should also be based (at least in part) on overhead ... not merely on what the spa down the street is charging.

If your overhead is less then, yes, you can pay your staff more ....or put more in your pocket
No, I'm not speaking from positive experience on this last part ... the spa I run apparently was designed to be a labor and utility sinkhole!

In short - you end up paying what you can afford ....and still have a heathy business.

ValM

Love the "sinkhole" analogy, Val! That correctly describes most of the spas that we've been contracted to help. No one meant to produce that result but it's certainly a common one.

If you have staff that you're overpaying, or aren't pulling their own weight, or are drama ridden THEY ARE COSTING YOU MONEY. Forget that setup and move on! Always be flexible enough to improve a situation and don't be married to an idea. The only constant in the universe is change.

Until you actually have your own spa and put on those "owners shoes" an employee (even an educated one via forums such as these) can't ever really grasp all the expenses and work. Just the wrong mentality. I'd LOVE to pay my staff 50% OF NET PROFIT, which would mean they'd all be making about half what they do now, and then only during a busy month. That'd be truly fair.

I agree. Or at least have owned your own business of some type. I know ownership turned quite a few lights on for me.

Nice pic Chris!!

Chris- great pic...
Jaya, I'm 'bout to cowgirl-up!
I got to my numbers this way: I got 3 eagle feathers and 5 sage sticks, smudged, prayed to Great Father, spent 2 days in the sweat lodge, untill the Elders' vision was bestowed on me... (no, really, MY way was MUCH more random than that!!!) I polled the MT's in the area as to the going rate. It was basically unheard of in town here to have MT's as employees. So I took what the hair stylists were making (60%) and deducted about 10% for payroll expenses/workers comp, etc. It worked well then, because I needed to 'prove' that being an employee would work. I hired thereafter at 40%, based on recommendations I believe I got at the DSE by you and Douglas (maybe THAT was in the Vision Quest!?!-ha)
I am pretty comfortable with 40%- I really don't think I would feel good about going lower. (Unless the spa were at jeopardy). I do want to make a profit, but I want it to be equal.... Here is where some philosophies (Chris!?!) and mine diverge...Parenting has been my best educator in this regard: I never EXPECT my employees to understand what it takes to run a business, appreciate sacrifices I make, or be grateful for all I may be doing for them. I do it because this is the role I have chosen to assume, (read: MY choice to own/run a spa) and these are all part of the deal. My employees are my responsibility. I expect it to be one-way. It's inherent in our employee/employer relationship. I WANT them to have a living-wage, because it is the right thing to do. I truely feel that if I cannot generate enough from the spa to do this, then it's not working, period. I want to make money. I want to put my kids through college, heck I want a vacation.... I don't mind taking my share last, I just hope I'm doing the right things to get a share eventually. That being said, my employees are really wonderful and compassionate people. They are very supportive and grateful- I appreciate that, and am thankful. Not everyone has is so good!
WOW, Jaya, all ya did was ask a simple question and look whatcha got!
Sue

Well - just being the devil's advocate here -

1. Why should you assume *all* the risk and then *share* the reward. Unless you are sure there is a big reward for you down the road there may not be a good reason for them to be getting their reward now Suggestion - pay a little less now, but have a bonus structure in place for goals that are met quarterly, annually or similar.

A profit sharing approach is definitely a nice thing, but you need to get the profit first!

ValM

I stand corrected, Val, I didn't mean equal, just fair. Sorry, in my blabber I was unclear!
I want my empoyees to have a living wage. It's a real issue here in Montana, and having been a single mom holding down several Nursing jobs at once just to keep food on the table for my kiddos, I take it very seriously. No one is getting rich at my spa, and I'm not trying to be niave', or a martyr, just concientous. I plan on getting the next raise, and there is no profit sharing plan. I added so many new products (to include my own PPL), and equipment over the last 2-2 1/2 years, which has eaten into the lions' share of the profits, leaving me able to pay my employees well, and myself not as well. This will change, but I think it is important to take care of people. For me it has payed off in loyalty as well as work ethic (I get the of 'course we can do it' for the improptu spa party for 14 people, etc.) And my times' a-commin'!

I really liked your post... It makes me think. Now my head hurts. I better not think anymore!
No seriously, I appreciate your post!
Sue

I'm not sure on the context of when we might have said that. For hair salons, yes, they can usually start at 40% and it's fine. But they have lower overhead than a spa. I suspect that we would have said such a thing in response to someone else's loaded question. But again, these #'s are all ranges, dependent on your particular situation.

I do admire the values and integrity you bring to your biz!

As I think back, I don't really know where that number came from. I do remember everyone trying to get a number out of you two! If 40% is too high, what is an OK %? Assuming one was not using a fee per servoce model?
Sue

Sue - I agree with everything in your post too It is important to provide a decent wage, a satisfying work environment etc. And, there is no doubt, from what you've said that you are rewarded by loyal and supportive employees.

But (and I'm guessing this is part of the issue here) how much is it your responsibility to provide a living wage because people have entered a profession where it is pretty much a logical impossibility to work a 40 hour week?

Here's the scenario as it might play out where I work.

"I need a raise - I've been here for three years and I'm not earning enough money."

All right - you get $9 per hour + 18% commission - thats around $25, and then you get pretty decent tips. So you are earning around $35 each hour you have a client. What's the problem?" (As an aside - I'm pretty much stuck with this pay model .... it wouldn't necessarily be my choice.)

"I'm not earning enough to live on, and I haven't had a raise"

OK ...well, didn't you notice you got a raise when we put our prices up? You've told me you can only work 4 four hour shifts and you're not available weekends any more. You've been here 3 years, and have almost no requests. Oh, and I've never seen you sell any products, or upgrade any services and you don't pick up any extra shifts. When I asked you if you'd like to work some laundry or front desk shifts you weren't interested. And you asked for 6 weeks of vacation time last year...

Of course - I'm exaggerating (although it sometimes doesn't feel like that) and I too feel that I'm very lucky with the majority of therapists I have, as well as committed to supporting them. But our staff do have some real responsibility for creating their financial success - it can't all come from us and our efforts.

a. you won't be able to single handedly solve Montana "living wage" issues any more than I can solve those in San Francisco. (In fact SF is planning a compulsory "insurance for the uninsured" program that makes me shiver just to think about!)

b. Expenses never go away - they just move around. The money that you spend on new equipment becomes money that you spend on repairs etc etc ....

I am sure that you actually know all of the above- I just don't think that you should be the sacrificial lamb in your business.


ValM

SUE
What's the point of overpaying them into a living wage (after all, they have to pay for that new car they just bought ....why do they do that??) if YOU don't get a living wage and go out of business? Then they'll have nothing.

VAL
LOVE it!!! It's sooooooo true. They won't upsell, addon or do retail. They don't reschedule. They want saturdays and holidays off, want to work part time, then say we don't pay enough for them to live (only working 15 hours/week). Have you noticed that if they live far away, or have 3 kids from 3 guys, that's all our fault too and we should pay them more because of it?

WOW!

I read and like the powerpoint presentation on the fee for service compensation model. How does one convert to this model without gross abandonment? Grandfathering? Bite the bullet and let 'er fly? I don't have software to track retail sales per employee (at least, I don't know how to do it with Quickbooks Pro...) I don't pay any retail %'s now. It's all part of the job, and helping clients get what they want and need.
Any ideas?
Sue

Others can probably more fully answer your question than I, but I do think you have more leverage here if you aren't currently paying retail %! It can be introduced as more of a swap in compensation. With PL you should have the margin to pay a nice retail commish.

Usually I see "bite the bullet" change but well scripted and planned out in advance.

Oh dear, I was afraid you would say that!!!
Sue

You might want to consider some coaching through the process. I know it isn't the easiest management task going, and it's a lot of what we spend Virtual Partner consulting hours on! Nice to have someone back you up through it.

Okay, here goes!

Ths spa and beauty business in general is completely misguided so far as compensation is concerned. There is a vast disconnect between how we price our services and all of the cumulative expenses we've packed into the delivery of them. Why are the airlines and auto companies losing their shirts today? Because the public won't pay the price it actually costs to build a Ford Focus or the real cost of flying passengers from San Francisco to LA. Workers want what they want but the public won't agree to support it at the purchase end. So, what's a company to do but to slash wages, jobs, and raise prices as far as tolerable? Not many options there.

Now, if you want to pay employees 40% of the service price and cover all of the spa's expensive overhead, what do you really need to charge for a facial or massage in order to pull a profit out for the business owner? From what I see with most of the businesses I'm called in to rescue those prices would have to range anywhere from $150.+ just for a basic treatment. But we can't charge that much, you say? Then, what are you going to do? Slash wages, jobs... Not many options here, either. As I said, what we desire and what we can do may not sync no matter how strongly we feel about it. Money in and money out: there has to be a balance and most spa owners are far out of balance here. Any wonder why there's such colossal small business failure?

I have corrected hundreds of spa compensation programs and, sadly, there is always the fallout of some employee loss. As much as we'd like to please everyone we sometimes have to lose the few to retain the majority. Is it any more compassionate to close the doors and terminate everyone (including faithful customers) than to make the changes that sustain the business even if some prefer to leave as a result? A spa business can only afford to pay so much of its revenue out to payroll if it is to survive financially. That's just the law of sales and there's no escaping it if you expect to succeed. An employee earns a fair income by earning it, that is, by investing the time and effort (and, yes, personal sacrifice) we all did to build a clientele and making the most of every client visit. Estheticians are not government workers with the implied right to expect a satisfactory salary disconnected from the results of individual productivity. In fact, it's only recently that this sort of expectation crept into the beauty world, mostly as a result of the day spa phenomenon. The beauty business has long understood the nature of earn-as-you-go pay rewards. Certainly no one ever offered me anything but a reasonable % of the gross when I began as an esthetician 24 years ago, and I somehow managed to carve a wonderful and lucrative career out of that common standard. On the other hand, I was never given to expect anything else, and accepted that reality as fair as it was then and is now. If your employee believes that they are being underpaid just let them go out and start up a business on their own and see if the result is any better from the owner's side of the equation. It's usually a very sobering experience. My former partner and I worked long, hard hours and weeks for years running our business earning very little money in the effort. Only after correcting our strategy and not cheating employees to do it did we finally take a living wage home ourselves. Did those that worked for us pity our situation? Well, no... I envied them for making more money than I did with less work and worry invested. It's a miracle that any small business person come up with a positive result after those many years of suffering and toil.

So, after all this, my advice is to do what you need to do for the good of your business and your life. The real professionals on your team will see that they have a great opportunity and employer and will do well with it. My God, it's so much easier today than it was in 1982!

yes!

No just try to get your employees to understand it!
Better they leave and you replace 'em with willing ones instead of you going under though, as stated. "Swapping" pay setup by adding in retail compensation will definately help.

Douglas,
I think I'd better budget for a consult, and a thourough exam of my books!
I think our retail sales are healthy; I may be slightly overpaying my employees, granted, but I want to cringe at the thought of taking away $ if I don't have to. If I could get away with it, I'd rather grandfather in a new policy. And (hopefully) the retail:service ratio (that I don't pay ANY % on) will compensate for any overpaying I'm doing. I don't think I'm overpaying my front desk staff, esp. when I remember $ amt's given on another board, ($15+ range). I don't pay minimum wage, but I'm not giving away the farm, either.
I really value my employees... I have selected well trained personnel with great spa ettiquette and have continued their education- I value that. I don't see my employees as readily dispensable as others may.
Most importantly, I AM corrigable, and will promptly respond to the facts. I will amend my practices if I need to. I've been flexible thus far; I'm open to new concepts. I'm honestly not too plussed by the 'fire thier lazy butts & hire 'em cheaper' business model, that has been expressed by others... It's NOT my reality, and I can't even understand it. Maybe with different experiences I could, but so far my employees are really super. I have let a few 'goats' go, and that was easy. My core group of employees remain steady and I am very satisfied with their performance and receptiveness to my leadership and input.
I'll look into a consult... I think it would prove very worthwhile. It will put to rest some of the questions I have trying to balance compensation fairness and business saavy.... I may not end up with the most popular business scheme on the board, but it will be one the spa and I can live with.
Thank you SO much for your insights. It is such a pleasure to have this board!
Blessings,
Sue

No need to "fire their lazy butts" just for personal gain: just the need to make the business work for you or a client spa. I stand ready to help you!

I have no doubt with your help all will be well. I will check it out on the main website and get in touch with you!
Thanks so much,
Sue

$15/hr. for a receptionist??? In downtown LA maybe. $8 seems avg. here.

Not my numbers, Chris, just what I saw posted on another board, (yours, I think).
I would assume most of the Rocky Mountain states would be less.
Sue

Admittedly, my clients are mostly on the coasts. East or West, compensation is higher.

Given that, I don't think any of my clients pay less than $10/hr for front desk. They would LOVE to, but it's really not possible on the coasts. They're paying $10-12 on average. More, for someone with a spa coordinator or supervisor title.

There is no exact calculation, but a front desk position usually pays the same as a mid-range retail store. It's the same skill set, so usually the people looking for spa/salon front desk are used to getting a retail wage. Scope out what they are paying, run the numbers to see if you can afford it, and you should be about right.

Thanks for the info, Jaya,
I'm paying my front desk staff, $7-9. It is about $1.hr better than some of the local retail. It may be lower than other retail in our area, too. It is a pretty good number, I think! I guess I'll find out!
Sue

Switching payroll schedules (commissions/fee based) can be scary. The fear of employees leaving is usually what keeps us from taking that critical step. But, allow me to share with you what happened when we had 2 Estheticians leave because we changed our payroll schedules. It wasn't difficult to see the Estheticians leave, it was difficult to see the clients leaving with them. At first we were worried and filled with anxiety but, something really interesting occured. Because we have our own skin care line the clients that had followed the Estheticians were still coming back to refill on their products from us. The best part was when we began analyzing the books. We weren't grossing as much but, our profits were up!!! When the Estheticians left so did many hidden expenses. We figured out that we were loosing money with our former payroll schedules and if we didn't change that part of our business...well...I wouldn't be writing this right now .

It goes to show you that a situation might appear healthy but in reality it's tearing you apart from the inside, and you don't even know that it's happening.


Aleks V.

Well-spoken point, Aleks. GREAT to see you here! We're over-due for catching up!

Aleks,
thank you so much for sharing your story. I am seriously considering this, and I like to hear the facts.... It is a really big step for me, and I am sure it will cause a big upheaval. I do pay my RN who does skin care by the hour, and I see the fee for service model not affecting her negatively at all. So, that's one employee I won't have to worry about. I am worried about my massage therapists, however. I just hired two more two weeks ago (just before I became aware of this model, darn-it!), and I think all four of my MT's will rebel. I'll just have to get it okay inside myself before I implement a new plan!
I am so glad to hear your sucesses with this model!
Sue