Lisa Starr's webinar, December 8, 2011, detailing how you can control compensation for a more profitable 2012.

1. CONTROLLING
COMPENSATION
By Lisa Starr

2. Your Presenter
Wynne Business provides consulting and education, including
live seminars and on-site team trainings for the spa and salon
industry
• Lisa M. Starr
– 20+ years experience in
salon & spa industry
– Senior Consultant, Wynne
Business
– Community Ambassador,
Gramercy One
– Consultant, educator,
writer, presenter

3. What IS “Compensation”?
• Money
• Benefits
• Perks
• Education
• Opportunity
• …anything that
creates value for your
employee

4. Good Comp Plans…
• Reward employees fairly for their
personal contribution
• Use objective measurements for
advancement
• Incent behaviors that benefit the
company
• Help retain good employees
• Contribute to company
profitability

5. Dysfunctional Comp Plans…
• Don’t reward the right
behaviors
– “every man for himself”
• Are not objective
– play favorites
• Are not consistent
• Cause the company to lose
money
• Are not communicated clearly
• Create too much turnover…or
none at all

6. Traditional Beauty Compensation
• We have a 40+ year
old compensation
Owner
model
Overhead
• Forget your peers;
listen to your P & L
• What worked in the
‘70s doesn’t work
now! Support
Service Labor
Labor, Taxes, Benefi
ts

7. Current Common
Compensation Plans
• Straight or Graduated
Commission
• Hourly + Commission
• Hourly + Incentive or Bonus
• Fee for service
• Independent contractors
• Booth rental (not really a comp
plan)

8. Straight Hourly Rate
• Creates complacency
• Does not reward or
motivate sales
• Raises are expected
but not co-created by
increased
productivity
• Not sales-oriented!

9. Hourly + Commission
PROS CONS
• Provides stability for staff • Very difficult to budget
in spas with heavy • Easy to set base or
volume fluctuations commission too high
• Managers can use team • Can encourage
members for other complacency
functions during slow • Creates cash flow
periods pressures, especially for
startups and small
businesses

10. Commission: The Most Common
Form of Compensation
PROS: CONS:
• Easy to manage, simple • Forces clients to pay higher
to understand prices
• Only source of pay increases is
• You don’t have to pay
higher volume or bigger cut
people unless there’s a
• Prices increases are
sale
automatically shared
• Encourages higher sales • Does not reward teamwork
by techs
• Connects what client pays to
• Typical range: 40-60% of what tech earns
service, 10% retail

11. Reality Check: How to lose
money on your comp plan
SERVICE SALE: “BEFORE”
$100 Spa LaLa Signature Facial
($50) Commission Cost of Sale
($5) Payroll burden (10% of payroll minimum)
($7) Product Cost (varies with type of service)
$38 GROSS PROFIT (Cost of Sales: 62%, GPM 38%)
$40 Spa Overhead Expense* (40%)
($2) PROFIT/LOSS
* typical overhead ratio for upscale spas & salons

12. Controlling COGS
• Labor is your single
biggest cost of doing
business
• The wrong
compensation plan
will enrich your staff
and leave you little
room for error

13. The Only Way Out:
Reduce Cost of Sales
Increase service gross profit to 50%+
SERVICE SALE: “AFTER”
$100 Spa LaLa Signature Facial
($35) Labor Cost of Sale
($3.50) Payroll burden (10% of payroll minimum)
($7) Product Cost (varies with type of service)
$54.50 GROSS PROFIT (Cost of Sales: 45.5%, GPM 54.5%)
$40 Spa Overhead Expense (40%)
$14.50 PROFIT/LOSS

15. The Prescription
• A comp plan that
rewards the right
behaviors
• Carefully controlled
COGS
• Advancement with
accountability
• Clear career path

16. Start With the Big Picture…
• New or established
location
• Owner or
technician, or both
• Overhead costs
• Same pay rate for
everyone, or levels
• Expected profit

17. …and Work Backwards
100% Minus:
38% - Average day spa
overhead expense
12% - Support staff
5% - Profit
45% left to pay technicians
(including taxes & benefits)

18. How to Apportion?
• 45% total compensation for techs
– Example; tech grosses 40k
• Payroll taxes 3-4%
• Paid vacation 2%
• Contribution to health
insurance 4-5%
• Education/401k 1-2%
• 33% left for direct pay

19. Win-Win Compensation:
The Treatment Rate Plan
• A treatment rate is a flat rate $
that is considered appropriate
and fair pay, based on the time,
skill, knowledge and effort
required to deliver a
given service
• Treatment rates are not directly
tied to the service price

20. Sample Treatment Rates
60 minute BRONZE SILVER GOLD LEVEL: PLATINUM
services LEVEL: 0-1 yr LEVEL: 1-3 yrs 3-5 yrs LEVEL:5+ yrs
30% mass, 32% mass, 34% mass, 3 36% mass,
28% esty 30% esty 2% esty 34% esty
Classic $85 $25.50 $27.20 $28.90 $30.60
Mass
Deep $95 n/a $30.40 $32.30 $34.20
Tissue
Classic $85 $21.00 $24.00 $27.20 $28.90
Facial
Micrdrm $105 n/a $24.70 $29.40 $31.50
Trtmt –
45 min

21. Advancement:
Who Moves Ahead, and Why?
• Seniority: “Doing time” or building
the company
• Senior staff members must be held
to a higher standard
• Knowing what you know, would you
enthusiastically rehire this person?
• “She has 10 years of experience”: Is
it the same year repeated 10 times?

22. Reward the Keys to Profit
• Average ticket
• Retailing ratios
• Customer retention
– Studies show: customer’s willingness
to refer is greatest indicator of a
company’s profitability
• “Good citizenship”
– Good communications skills = lower
tech turnover, less refereeing by
manager

23. An example of advancement scoring in
action
ESTHETICIAN Retail to Repeat Productivity Average Ticket Report Dates
Sara Smith Service % Retention 2/1/10-2/1/11
Weighted score 3.5 3.5 1.5 1.5 OBJECTIVE: SCORE
10 POINTS OR
MORE TO ADVANCE
Goal at Level 2 52% 20% 60% $105
Actual 46.62% 25% 62% $106.98
3.14 4.38 1.55 1.53 10.59 points
90% of goal 125% of goal 103% of goal 93% of goal
90% of 3.5 pts. 125% of 3.5 pts. 103% of 1.5 pts. 93% of 1.5 pts
Sara needs 10 points to move up a level. She has attended 80% of staff
meetings and has a positive Time Away bank.
Sara moves up to Level 3

24. Example: Profit Increase
of 39% After Conversion
BEFORE
$92 Facial 50% svc 35% retail 10% ret Product Esty comp Spa Gross GPM
comm ratio comm COGS Profit
$46 $49 sale $141 tkt $4.90 $24.50 $50.90 $65.60 46%
AFTER
$92 Facial Tx Rate 40% retail 20% ret
ratio comm
$27.60 $61 sale $153 tkt $12.20 $22.00 $39.80 $91.20 60%

25. Service Charges
• Where did they
come from?
• Two types
– Deduction from
revenues
• Back bar charge,
amenity charge
– Added to clients bill
• Automatic
gratuity
• Often shared with
support

26. Comprehensive Compensation
Plans Include:
• Employee perks
• Variety of earning
opportunities
• Top quality training and
education
• Employee discount programs
• Benefits (just like a “real”
employer!)

27. Creative Rewards
• 1% of retail sales per quarter allocated for
continuing education
• Resource partners asked to participate in
rewarding top performers
• Paid days off or wellness days for no call-
outs in 3 months
• Gift cards or spa swap with other spas
• Pay for licensing
• Motivational speakers
• Friends and family service vouchers

28. Recruiting
• Focus on
annual earnings
• Highlight benefits
• Establish career
path
• Biggest source is
happy staff
members

29. Testing the Waters
• Job Fair
• Craigslist
• Local community
paper
• Local beauty
schools
• Coffee shops,
bookstores

30. Your Company Culture:
Valued or Worthless?
• If your culture stinks,
no one will pay you
for it
• Mutual respect
between functional
teams is key
• Excellent leadership
skills required

31. Take the First Step…
• Get an accurate evaluation of
your current financials. Can
you ever make money with
your pay plan?
• New spas; create detailed,
realistic projections
• Determine an acceptable level
of profit for you. Design a
compensation plan around a
profit goal.

32. Considerations
• Software
– Payroll should not be
complicated
– Review your options
• Service Menu
– Pricing strategies
– Updates
• Cost of upheaval
• Cost of doing nothing

33. Communication Plan
• No surprises
• Frank & honest
• Group meeting
• Individual meetings
• Time frame
• Clear behavioral
guidelines

34. Don’t Try This Alone!
• Expect turnover; grandfather
key technicians
• Technicians understand that
they get a pay cut if you go
out of business, too!
• Are your prices set correctly?
You may be able to increase
• You may have to treat
conversion as a “mini startup”

35. Industry Hourly Wages
Personal Care Beauty Salons & Hair, Nail and Skin
Barber Shops Care Services
Annual Annual Annual
Year Hourly Year Hourly Year Hourly
2007 $ 13.94 2007 $ 14.01 2007 $ 13.74
2008 $ 14.77 2008 $ 14.79 2008 $ 14.49
2009 $ 15.46 2009 $ 15.85 2009 $ 15.42
2010 $ 15.57 2010 $ 16.15 2010 $ 15.64
*Source, Bureau of Labor Statistics

36. Comparison of Professionally
Licensed Occupations
Occupation Average Years Educational $ % of revenue
Education Investment generated paid to
Required license holder
Cosmetologist 1 $6-8K 40-60%
Dental Hygienist 2 $20-30K 33%
CPA 4-5 $40-60K 33-40%
Attorney 7 $100-150K 25-30%
Medical Doctor 8+ $300K 40-45%

37. Controlling
Compensation
Thanks for your attention!
Questions? Lisa Starr at
gotalkone@gmail.com
Gramercyone.com/blog
Facebook.com/GramercyOne