September 2008

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Better Business | by Neil Ducoff

 

Motivate Your Salon Team and Maximize Your Profits

Team-Based Pay Compensation Proves Effective

Would you like to find a way to motivate every person working in your salon to maximize profits for your whole team?

Today’s salons and spas have evolved from “beauty parlors” into full-service image centers, where highly-trained professionals consult with their clients about all aspects of their personal care. Often, team members work together to provide all the services a client needs.

However, salon compensation has not kept pace with the new approach to client service. In fact, the professional salon industry is stuck in micromanaging individuals’ pay in the form of the commission percentage, when business owners need to be managing payroll according to the profit and loss statement if they want to run profitable companies. The simplest and most effective way to do that is by implementing a team-based pay compensation program.

A team-based pay program not only provides for consistent, bottom-line profits by maintaining service payroll between 30 and 35 percent of gross service and retail revenues but also makes sense to everyone—owners, management and team members.

It solves the problem of providing income growth for top producers who are booked solid and can’t work more hours, when raising their commission is impossible. It also provides employees with a fair and predictable income. They can plan what they’ll earn in any week without having to worry about how many clients will sit in their chair.

Implementing this team-based program keeps clients loyal to your business—not to any one individual – while it cultivates a team culture that is fueled by passion for growth. This gives you bulletproof systems to run a profitable business.

Team-based pay always sparks a lively discussion between die-hard believers and die-hard commission advocates. But in recent years, a gradual yet powerful shift in compensation is taking place.

Owners and managers are searching for ways to incentivize and reward a multitude of behaviors that contribute to business growth—behaviors that reach far beyond sales. Team-based pay does that and more.

The mandate of team-based pay is simple: Everyone is responsible for growing the business. Those words are powerful, but words alone aren’t enough to inspire dynamic team performance. A pay program also cannot instill a business-wide sense of urgency to drive revenues up, manage costs and build net profit.

Given that, team-based pay uses team bonuses as a means of driving the four business outcomes: productivity, profitability, staff retention and customer service.

In fact, team-based pay is about more than compensation; it’s a better way to do business for both business owners and their employees. It also sets the tone for cultural transformation and the standard for success in a changing world. For example, a commission pay structure is driven entirely by individual sales dollars, not overall performance, and does not inspire team performance.

In its simplest terms, team-based pay is an hourly or salary program that ties a team bonus to the achievement of critical numbers, such as revenue, gross margin, client retention, productivity and net profit. Individual growth is tied to overall performance—not just the employee’s ability to generate revenue. A team-based pay system is designed to reward the desired behaviors and performance of those who support the business’s goals and culture.

Team-based pay also includes “broadbands,” which are designed to offer employees guidelines for growth in key areas, such as performance goals, technical skill development and non-technical skill development. Within the broadbands are the cultural behaviors that drive teamwork.

Team-based pay allows owners to honor their commitment to their employees because they are not cutting pay; they are guaranteeing at least current earnings, plus the opportunity for team bonuses. It disconnects individuals’ pay from what they produce.

By capping payroll at its current level, the entire team focuses on driving revenues. That combination creates an immediate drop in the service payroll percent that later allows owners to affordably give raises to those with the right overall performance, skills, attitude, attendance, etc. It creates a culture in which everyone rows in the same direction and has a vested interest in growing overall sales—not just their own chair or treatment room.

Team-based pay, an exciting way to grow a company, gets the business juices flowing and gets rewards. In reality, if you want a salon team, team-based pay is the way to go.

Neil Ducoff, founder of Strategies and author of the upcoming book “No-Compromise Leadership,” developed the team-based pay concept more than 30 years ago and developed a company that trains and coaches to ensure businesses implement the program successfully. For more information, visit www.strategies.com.