Transcript Chapter 3 Salon and Spa Operating Costs

Chapter 3
Salon and Spa Operating Costs
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Operating Costs
 Costs should be held to a certain percentage
of the salon and spa’s gross income
A fundamental way to calculate profit is
Profit = Revenue − Expenses
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Salon and Spa Expenses as a
Percentage of Gross Service
Income
Profit will be determined by:
– how well you can cut expenses and still
maintain a high quality of service
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Wages: 40–50 Percent
 Wages should never be more than 50
percent of the gross sales
 Wages must be paid to productive and
nonproductive workers
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Wages
 Wages of technicians (productive workers)
 Wages of nonproductive laborers
 Taxes and licenses
 Insurance
 Retirement plans
 Records
 Technician’s expense
 Special events
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Supplies: 5–10 Percent
 Product pricing:
– each price: actual price on a unit of merchandise
– list price: price on a unit of merchandise where the
unit represents several items
– deal price: set by manufacturers to promote sales on
a given item (specials; to obtain them, you must
purchase the merchandise during a given period)
– show price: usually applied to items sold at a dealer’s
show
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Rent: 5–15 Percent
 Flat rent
 Base amount plus a percentage of profit
 Included in the rent cost:
– property taxes
– maintenance of items directly related to the
building (exterior painting, decorating, snow
removal, trash collection, etc. should also be
discussed when agreeing to rental terms)
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Cleaning and Maintenance:
2.5–4 Percent
 Cleaning supplies (i.e., soap and wax for the
floor)
 Brooms, dustpans, mops, polish
 Small electrical appliances used in cleaning
 Toilet paper, paper towels, toilet soap, air
freshener
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Towels and Linens: About
1 Percent
 Soap and bleach
 Washing machine, dryer, equipment
maintenance
 Towels
 Rented linens
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Utilities: 5 Percent
 Telephone
 Heat
 Lights
 Electricity
 Water
 Gas
Note: If utilities are considered part of rent costs,
this row would not appear in your budget sheet.
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Advertising and
Promotions: 5–10 Percent
 Between 5 and 10 percent during the first year
 Between 2 and 4 percent in the following years
 Track the effectiveness of your marketing
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Depreciation: 6–10 Percent
 Governed by tax law
 Varies; most commonly 10 percent of
purchase price
– some small items can be depreciated in one
year and are included as supplies. These are
clippers, brushes, combs, small appliances, and
other small items
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Spending as a Percentage of
Gross Service Income
Salon and Spa A
Wages
40%
Supplies
5%
Rent
10%
Cleaning/Maintenance
2.5%
Towels/Linens
1%
Utilities
5%
Advertising/Promotions
5%
Depreciation
10%
Total
78.5%
Profit
21.5%
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Salon and Spa B
50%
10%
15%
4%
1%
5%
10%
10%
105%
−5%
Cost of Goods Sold:
55–60 Percent
 Factors that influence your profitability:
– excess inventory: Don’t run out, but don’t have more
than a two-weeks’ supply on hand
– poor retail sales performance by your staff: Your staff
should average at least 15 percent of their gross
service sales in retail
– poor buying habits: Take advantage of distributors’
special show prices or special promotions and don’t
buy items on sale that you cannot sell
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Supplies: 0.5 Percent
Bags and packaging (holiday gift
packages)
Invoices and other business supplies
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Marketing/Promotion:
2–4 Percent
Tent cards
Shelf-talkers
Signs in salon and spa
Samples
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Commissions: 10–15 Percent
Encourage sales
Can be paid directly to the employee or
put into an education fund
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Retail Sales Profits:
20–25 Percent
 Important part of the overall salon and spa
income
– for example, a salon and spa that does $250,000
in service sales in a year could easily do another
$50,000 in retail sales with a profit of $12,500
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Projecting a Budget
 Start with the cost of rent
 Factor in the cost of staff using the following
formula:
Number of technicians needed =
Gross sales needed per day
÷
(Sales per hour per technician

Hours worked by each technician per day)
 Finish by using the chart in the book to calculate
the remaining costs
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Summary
 Salon/spa profits range from 6 to 20-plus
percent
 Salon/spa expenses as a percent of gross
income should be:
–
–
–
–
–
–
–
–
wages: 40–50%
supplies: 5–10%
rent: 5–10%
cleaning and maintenance: 2.5–4%
towels and linens:1%
utilities: 5%
marketing and promotions: 5–10%
depreciation: 4–6%
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Summary
 Retail sales expense percentages are:
–
–
–
–
cost of goods sold: 55–60%
supplies: 1–2%
marketing and promotion: 2–4%
commissions: 10–15%
 Total profit should be 20–25%
 A budget projection gives management the
number of team members needed and the
amount of income that must be produced in
order for the business to work
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