My dearest suite owners and renters: It is imperative for you to spend as much time working on your numbers as you do working behind the chair.
There are so many stylists and beauty professionals that shy away from the numbers in their businesses. And I get it. Numbers can be scary, especially if you are new to looking at them. But as entrepreneur Marcos Lemonis says, “If you don’t know your numbers, you don’t know your business.”
In most cases, I’ve found that people avoid the numbers only because they haven’t been taught what to pay attention to or what the benchmarks are. That’s why I want to share my two simple calculations that will literally change the way you think about your business. I promise, being better about your revenue doesn’t need to be complicated.
Calculate Your 12%
If you take one thing away from this article, take this: As a suite owner or renter in the beauty industry, your target rent (or mortgage) per month should be 12% of your total revenue.
If you’re looking into new spaces, you can use your monthly revenue to set yourself a budget. So:
(Monthly revenue) x .12 = (Maximum monthly rent)
If you’re already renting, you can also calculate going the other direction:
(Monhtly rent) / .12 = (Monthly revenue)
Let’s say your rent per month is $1200.
$1,200 / .12 = $10,000
You need to bring in $10k every month in revenue to hit your rent goal.
This is one area that I see so many stylists get into trouble. In some cases, stylists run their numbers only to find out they are paying 20-25% of their revenue into rent. Yikes!
Keep in mind, every time you exceed that 12% budget and benchmark, you chip away at your profit. If you’re already in a lease, the only way to reduce your rent % is to increase your revenue. There are so many ways to go about that, but for now, I would love for you to get back into your salon and run this calculation just to see where you fall.
Supply Cost Divided by Revenue
Let’s talk supplies. (This part is totally my favorite.) This is the area where just about every stylist or owner tends to overspend.
The budget and benchmark for suite owners and renters on back bar supplies is 15%.
This does not include retail. (Retail is a totally separate equation.) This is just for items like lightener, bowls, brushes, gallons or liters of shampoo, etc — anything you use in the back of the house.
Take what you spend on back bar supplies only, and divide that by your total monthly revenue.
(Cost for back bar supplies) / (Total monthly revenue) = % supply cost
So, let’s say you spent $1,000 and your revenue is $6000. That means your supplies are at 16.6%.
Remember, the budget should be 15% or less. The less you spend, the more money you have for profit.
How to Calculate Your Target Profit
Last, let’s talk about profits, my beautiful friends. The current average for most salons and beauty businesses hovers around 25-35% profit. Your goal should be at least 50% profit.
Often, what stands between us and our goal profit percentage is unseen costs. It is such a great thing to bring in a lot of money in revenue, but it’s what happens in between with your expenses and your spending that is of utmost importance. Having a clear budget and benchmark each and every month will keep you on track.
Running the calculations above is a great start. They will allow you to see where you stand and what tweaks you can make to better the financial state of your business. Baby steps, right? The more you know about your percentages, the more comfortable you will become with them. Numbers help you to take control of your business.
Because you definitely deserve to make that 50% profit.