Have You Looked at Your Pay System, Perhaps?

By Skip Williams

Okay so you have built this beautiful Spa/Salon. You have been in business a few years, you have very capable Providers, and your Client list is growing yet you are asking yourself "Where are the profits?" You say to yourself "I have been working hard now for a long time to make this dream come true, but I haven’t seen the pay off", "When does my payday happen?"

If this does not sound like anything you have said then read no further. If your business is as profitable as you expected, then this article is not for you. If there is nothing broken, then there is nothing to fix.

If on the other hand your profitability is less than 5%, your "Pay System" may be the culprit. We can try to "Band-Aid" the situation with additional sales, increased retail sales, or "supply charge backs", but how do we fix the problem?

In the Spa/Salon business, we sell our "labor", and our labor is the major component of all we have to sell to our Clients. This business is not only "labor intense" but that labor does not come cheap. Labor costs include at least one or more of the following components:

• Commissions
• Base Pay
• Workman’s Comp
• Employers share of taxes
• Benefits

When we add up the cost of our "direct" labor is not unusual to find that it adds up to 50% to 70% of our service revenue dollar. If our "other costs" such as indirect labor, rent, utilities, insurance, advertising, supplies, etc add up to another 35% to 45% then as you can see there is not much room for that little thing called "profit".

Just for the record, gratuities and retail commissions are NOT part of calculating the cost of our labor.

Is the answer then to pay less? I do not think so, I think the answer is to pay differently!

No other industry that I know of uses such an archaic form of remuneration as "Commission Based Pay" other than Sales. Every other business opens its doors to the public and pays employees to be there in the hope that Customers show up. Grocery clerks do not get paid a percentage of what comes down the check out belt, Nurses do not get paid by the bed pan, Factory Workers, Executives, Bank employees, all get paid by the hour or by salary. In fact many in the sales world are getting away from commission based pay.

For some reason we think this business is different however. We think standard business principles do not apply to the Spa/Salon business. Or is it that we are afraid that we might not be able to fill our capacity and want someone else to "foot the bill"?

I do not have the space to go through all the "How’s & Why’s". I do not have the space to explain how changing your Spa/Salon to this "standard" form of pay will NOT result in smaller checks for your Provider Staff (in fact will result in higher earning opportunities). I do not have the space to explain how this pay system will reduce the overall cost of labor per treatment. I would be happy go through all of this when you take one of my seminars or InterAct lectures on the subject.

However, when I last wrote on this subject I received the following letter:

Dear Mr. Williams:

I recently read a past article you wrote in Dermascope Magazine Nov/Dec 1999. You discussed in the article about the different compensation plans used by spas today. We are a new spa, open for 1 1/2 years with 9 employees and we are seeing some of the problems you mentioned in your article happening with our spa.

We have known for a while that our pay scale was not appropriate for our spa. However Day Spas are very new in our area and we have been afraid to make major changes due to the fact that our employees could go to a salon atmosphere and get paid higher commissions.

Today I would like to use this open forum to address why it is so critically important to change our pay system, I hope that the answer might be of interest to us all.

The writer is correct indeed, when we "change horses midstream" we have the danger of losing the staff we have. When I consult in this area, I spend quite a bit of time analyzing the operation and figuring the best method to use so as not to upset the operation.

If what your doing right now is NOT working then even if the worst thing happened and you had to rehire your whole staff (which of course is a "worst case scenario") you still have NOTHING to lose.

Let me take a minute to outline the problem:

• A Provider gets his/her certificate and goes to work

• The industry pays with this absurd commission based pay structure

• Some Providers (the more entrepreneurial ones) like this cutthroat method of pay and they somehow have the means to survive through those lean years.

• The others (the more career or security minded) can not survive long enough, because they need the security of a steady paycheck, so they are forced to leave the industry.

• So our Commission based pay system tends to scare off the "type of people we need to build a successful business"

• And tends to attract the type of people that will build a Client list and call it their own, and often take it down the street, or worse yet open their own store.

• We may have been one of those entrepreneurs at one time, but what we need to remember is "the type of employee we need to build a successful business with are NOT entrepreneurs like ourselves.

When we hire entrepreneurs we are only asking for "Competition", "Lack of Team work" "Prima Donnas", "Black-Mail" and/or "Frustration". We end up with persons that may be talented but do not fit within our ideal environment. We will always be in competition with our own staff to try and set that environment. You may have been told or thought that competition is a good thing, and when it is business to business that is correct, but INSIDE our business we need "Team Work" not competition.

I believe the (Spa/Salon) owners got greedy when we were only willing to pay people when they were busy and not for "waiting" for the Client. Who did we think we were! Every other business has to hire people to stand-by when there is NO guarantee that customer number one will walk through the door of any business, that is what "good management" and "man-loading" is all about.

As a consequence, in order to reward good behavior, our commissions have risen from 25% to now 50-70%, where does it end? Are employees going to miraculously NOT expect raises someday soon?

We as owners (collectively) are getting exactly what we asked for and are paying for, "entrepreneurs" that hold our client list hostage, while asking for more and more money and instilling a lack of team work", thereby making our bottom line thinner and thinner.

What we need is a NEW pay system that pays and rewards for the behavior that we want, and puts a disincentive on the behavior we do NOT want. That pay system should look more like an hourly based or salary based pay system. Bonuses should be paid to ALL employees based on a percentage of PROFIT not revenue. With this type of system everyone in the facility is working toward the same goal, "the profitability of the whole business" instead of building his or her own book.

This, of course, is much easier said than done, yet no matter how difficult, this should be our goal as an industry that wants to be profitable.

Where do we find the people to fill those shoes (back to the original question)?

The percentage of career oriented Providers out there may be a very small fraction of the Provider population, but I emphatically insist that the success of our business depends on us finding those people no matter how few they might number.

One of the obvious places to find the people we need is right out of school, let's get them before the industry has corrupted them. They will NOT have a client list, but this is a good thing, building the "facility Client list" is OUR job NOT theirs and when we build that list within a team environment the client list will then belong to the house.

If we are building our business on the backs of our "Providers Client list" then we are just hanging that "Kick Me" sign on the back of our shirt, because someone will hire them away from us for the very same reason.

Will we need to loose a few of the present staff to accomplish this task? Maybe, then again with the right guidance maybe not. But, if we have a BAD business model to begin with, we can NOT keep on doing the same thing and expect DIFFERENT results! So, and I repeat, "If what we are doing now does NOT work what do we have to lose?"

If you have any questions please feel free to contact me at: skip@vom.com