REVENUES
Haircutting $43,803 $38,391 $82,194
Station rental 1,800 1,650 3,450
Retail sales 4,972 4,386 9,358
TOTAL REVENUES $50,575 $44,427 $95,002
EXPENSES
Payroll $25,047 $21,949 $46,996
Loans 4,908 4,908 9,816
Rent/utilities 15,282 10,264 25,546
Supplies 4,023 5,548 9,571
Advertising 566 482 1,048
Miscellaneous 100 100 200
TOTAL EXPENSES $49,926 $43,251 $93,177
PRETAX PROFIT $649 $1,176 $1,825
WHAT THE EXPERTS SAY
CONSULTANT
MICHAEL COLE
President and founder of Salon Development Corp., in St. Paul, Minn., a company that specializes in management and marketing consulting for salons
We have a saying here that if you don't change your direction, you're likely to wind up where you're headed. And John Tramel is headed in the wrong direction.
I saw some real danger signs in his thinking on compensation. At his commission rates, he's giving away the store. I wouldn't be against his bringing somebody from 50% to 55%, but I would not tie that to volume. I would tie it to that stylist's repeat business.
The difference between a new client and a repeat client, in our paradigm, is $35 in advertising. So anytime a stylist converts a new client to a repeat, that income is residual. The business doesn't have to invest in marketing or advertising to make that happen. So now I can justify giving part of that savings back to the hairdresser.
One way of doing that is to pay 55% commissions on repeat customers and only 35% on new clients. That gives an incentive for stylists to convert the daylights out of the new business.
He could also improve his situation with multilevel pricing. It's based on the law of supply and demand. In the beauty business, as in any personal-service business, you are selling units of time. That's your supply, and demand equals repeat business. As repeats start consuming more of your time, you have a license to raise your price.
He's charging $9 for a haircut and $39 for a perm -- let's call that level one, for new clients. But once a stylist is generating a lot of repeat business, she should be promoted to level two -- call her a master stylist. And her price structure would be 20% higher than level one. If you don't do that, there's only one other way of increasing a hairdresser's potential, and that's to give her a piece of the action.
OBSERVER
ROBBIE OLSON
Owner of Hair-Em, a salon in Florissant, Mo. With two full-time stylists and an apprentice in a 1,000-square-foot shop, she expects to gross $200,000 this year
I myself was in the same position as the Tramels a number of years ago. There was less cash intake than outgo. What made the difference for me was incorporating systems in every area of the salon.
First, I'd recommend he establish a mission or value statement -- what do we stand for? -- and involve the staff in that. That inspires a sense of teamwork. Then training programs need to be incorporated to support the value statement. I'd put the training in three categories -- customer service, technical expertise, and personal development.
Staff development is the foremost responsibility of the salon owner or manager. Working 50 hours a week behind your own chair does not help your staff members grow and prosper, although I understand why Tramel needs to do it. But people are looking for leadership. If they didn't want it, they'd have their own salons.
I get a real conflicting message here. John Tramel spent a fair amount of money setting up the salon. He attended to the ambience and the customer experience. But then his rates seem designed to appeal to the price-sensitive market. His haircut price, for instance, never should have been $9. If he is going to be unique in his marketplace, his prices need to reflect that. They are nowhere near in line with his expenses.
There are a number of no-cost or low-cost things he could do to bring in more business. Do free clinics and shows wherever they'll let you in -- clubs, schools, businesses, sororities. We had tremendous success doing that, and it gets your name out into the community.
CONSULTANT
STEVE COWAN
President of Professional Salon Concepts, based in Joliet, Ill. A $6-million company, PSC distributes salon products and is a consultant for the industry
Labor is the single biggest expense a salon has. In the industry nationally, the amount paid as compensation is typically about 60% of all costs. That includes wages, payroll taxes, and fringe benefits. General and administrative expenses average 32%. That leaves a pretax profit of 8%. To see raw commissions at Tramel's levels -- from 50% to 65% -- is kind of scary. By the time you add taxes and all to that, you're wiping out your profit margin. I would never recommend a commission structure like that.
His rent is disproportionate, too. Rents in this industry range from 5% to 9% of expenses, and his is closer to 15% because he has twice as much space as he needs. That's a big differential, especially with those high commissions.
There's also a need for an identifiable training program. He needs to train his people in the concept of quality control, how to communicate with clients, how to step a customer through the salon from the front door to the rebooking desk. That comes naturally to proficient hairstylists who start their own salons, so it's probably natural to him but not to his employees. Tramel has to establish what his quality standard is and what the client is entitled to in his salon, then train his people to that standard and continually measure against it. That will be the test of whether he can ultimately build his business.
