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  • Book Appointments
    • Book Spa Appointments Online
    • STUDENT SPA MENU
    • COVID-19 Check List - Client Check In
    • Clinic Client Survey
    • Client Care Plan
    • Membership
    • Advanced Academy Consent Forms
  • Attend SEEI
    • ESTHETICS LICENSURE COURSE
    • ADVANCED ESTHETICS ACADEMY
    • COSMETOLOGY | HAIR, SKIN +NAILS SCIENCES PROGRAM
    • NAIL TECHNOLOGY PROGRAM
    • ESTHETICS EXCELLENCE CERTIFICATION PROGRAM
    • Continuing Education >
      • DOWNLOADABLE GUIDES
    • Certification Courses
    • Enroll >
      • Student Housing
      • Student Aptitude Test - SKIN . HAIR . NAILS .
      • Student Aptitude Test - Advanced Esthetics Academy
    • Financial Aid >
      • CARES ACT
  • About
    • Contact
    • Accreditation
    • Blog
    • COVID-19 Written Plan >
      • Esthetics Student COVID Acknowledgement
      • Advanced Esthetics Student COVID Acknowledgement
    • Med Spa Consulting
    • Our Mission
    • Alumni Packages
    • Written Plans
    • Meeting Minutes
    • Instructor Guides
    • Admissions Guides
    • Meet Our Team
    • Alumni Spotlight
    • Careers
    • Completers & Employer Survey
    • Data Security Plan
  • Student Portal

The 30% Margin Rule on ROI

7/6/2021

1 Comment

 
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Esthetics is an incredibly booming industry in 2021, with consumers getting back to business amidst the pandemic and caring now more than ever before about health and wellness. Spa owners have a unique boost in a world focused on more self care than ever before to ensure client satisfaction - and ensure a positive return on investment within the industry they love. The fundamentals of longevity in the spa business lie within understanding the 30% margin profit rule: Ensure the company is turning a 30% profit margin, at a minimum, on every single service and product in order to be sustainable. Esthetics practitioners must spend quality office time at least quarterly to dive into three categories within their spreadsheets: Vendors, Disposables, and Human Resources. 

Managing your vendors before they manage YOU.

For each product or service within your offerings, perform your due diligence in understanding what it means to work with the vendors you’ve chosen. Smart business owners do not make equipment choices on the fly - or order esthetics equipment without doing responsible research and ensuring warranties, as a small example. Does the company offer bulk discounts if stocking equipment for multiple treatment rooms within your space? Would the company potentially waive freight and shipping fees? The main questions lie within you. Have you carved out the time to put your business hat on and really ask the hard questions? Vendor relationships take time that many service providers, like us, simply don’t have. However, your long-term profit depends on time management and carving out the necessary actions to ensure quality investments. 

If you are working with a manufacturer for a product line or working with a company that provides your backbar and retail products, ensure you are performing the mathematical equations it takes to ensure that 30% minimum profit margin. Will these vendors increase their prices annually? Will you take the time to follow up and launch your new price points quickly after a price increase? Are you making the time within your schedule to ensure this is happening? 

Creating intentional time to create best practices within your company in the vendor relations department is paramount. This could be the difference in overspending versus finding someone that meets your core values and can help propel your company to the next level. Equipment and skincare products are the backbone of the results you offer to your clientele. Overspending and under-delivering are not an option.

If the disposables cost almost as much as the service, don’t offer it.

One of the big items that can really hurt spa owners in 2021 are the cost of disposables. For example, does your hydradermabrasion machine cost more to operate it per service than it’s worth? This is a hard pill to swallow and is the difference between being a smart business owner and someone that simply believes in industry hype. When purchasing equipment, the ultimate goal is to keep the cost of performing services with that equipment as low as humanly possible. This is where the return on investment comes into play. If there are multiple disposable products having to be utilized with a device, it simply is not worth your time. 

In a world where PPE is more important than ever before, ensure you are not doing yourself a disservice by purchasing gloves, for example, on the fly. Spend the time to research manufacturers and vendors that provide bulk discounts for a year’s worth of nitrile gloves and make that investment. The dollars you will save at the end of the fiscal year are completely worth it. The amount of money you may spend in shipping every week or month adds up quickly. This kind of irresponsible spending is the difference between wasting your hard earned money and investing in your company’s future. 

Becoming a wizard in the math equations required to operate on all cylinders with low disposable costs are part of the magic sauce that will keep you in business for years to come. You will have more time to spend with clients overall when spending more quality time in the office being intentional with your ordering, instead of allowing consistent disposable ordering to take over your weekly schedule.

Human resources should elevate your business, not put it under.

Another part of the equation lies in the funding it takes to employ individuals to perform service and sell products, even if this only includes paying yourself if you’re self employed. The percentage involved here is very important to master, as employees are important enough to pay a fair wage - but also can be the detriment to your business in the long run if not properly managed in payroll expenditures. 

If the return on investment must be 30% or higher and the cost of the disposables runs at least 10% of each service, what is there to put towards human resources? My rule of thumb for business owners is between 20-40% of each service, which can be equated into an hourly pay amount or hourly plus commission. Whichever structure you choose, provide fair wages for your employees, but also be fair to your company. Think of your business as an individual that must be paid also. The business has overhead to pay - specifically, equipment loans, lease payments, internet bills, marketing costs, and much more. The final 20% is hopefully a cushion to propel your profit margins per service to 50% - which allows more payoff of loans and other liabilities the company may have. 

Being transparent with your employees is also important in business. Making sure individuals understand what you are paying for and where funds are being allocated will make it a lot easier on daily operations and give team members an understanding of why they are being paid what they are paid - and where their wage increases cap out. This is a small tip that I find very responsible for business owners everywhere. Communication is always key and can really inspire your team if implemented correctly.

Sample Equation for Spa Owners: 

Double Exfoliation Facial | Menu Pricing $95.00

Disposable Costs (No more than 10%; 20% maximum) = $9.50 (10% of $95.00)
Inclusive of gauze, 2 pumps of cleanser, 1-2 droppers of marketed chemical peel, 2 pairs of gloves, 3 pumps massage oil, 1 pump of mask product, 1 dropper of serum, half pump of sunscreen.

Human Resources (20-40% of the marketed service price) = $19-$38
I suggest breaking this out into one of two ways:
  1. Pay your service providers hourly at $25 per hour. This leaves a cushion for an HR savings account to provide bonuses and wage increases annually.
  2. Pay your service providers hourly plus commission. The example could be $15 per hour plus 20% commission. This would almost cap out your budget, however, at $34 per service - which would cut into the ability to offer annual wage increases and/or bonuses.

30% Profit Margin = $28.50

The remaining 20% of $19 may go towards paying off loan balances and other financial obligations.

Overall, breaking apart all income generating services and retail sales can be time consuming, but will assist business owners in being able to sleep at night knowing that they are spending their time working towards something sustainable. Esthetics practitioners in today’s market do not have time or dollars to waste. Being intentional in both the treatment room and behind an Excel spreadsheet can be equally rewarding. Put your beauty boss hat on and rock the esthetics world. Success is yours with the right amount of time investment - to ensure your financial investments are reaping rewards! 
1 Comment

Legal Requirements, Liabilities, & Benefits of Estheticians Seeking W2 Employees

7/6/2021

4 Comments

 
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Estheticians in 2021 require more than basic business knowledge when growing their companies and expanding their reach to consumers! Esthetics entrepreneurs require a system of processes to be able to not only run their independent business, but to grow and expand. Through growth and expansion, leaders may choose to hire employees to assist in gaining more market reach to share its mission and vision - and ultimately be able to rely on other sets of hands to perform services reaping revenue streams alongside them! Spa owners must first look within themselves to determine whether hiring individuals and being a servant leader to others is in their long-term vision. Once this decision is made, being an HR wizard will be a new hat to wear all on its own. However challenging, hiring W2 employees can be both rewarding and profitable when following the correct steps to success! 

Benefits of hiring W2 employees within your spa practice include being able to utilize individuals to meet the goals of the business more efficiently. Hiring W2 employees gives companies the benefit of setting work hours for individuals, having set standards and proficiency metrics for individuals to meet, setting sales goals and performance guidelines, and setting up the company for additional streams of income. Being a solo practice has its pros and cons - and one con, specifically, is not being able to be everything to everyone, all the time. Bringing on additional team members can provide your clients with many more appointment opportunities and also provide you a helping hand with appointment booking, bookkeeping, ordering, sanitation, and much more. When managed properly, spa owners can grow their company and ensure financial success for many years to come. 

The first step in hiring employees is to work with a payroll company to ensure tax compliance. While hiring W2 employees may be more expensive, it is worth it to provide payroll services and benefits to your team to ensure long-term fiscal responsibility and also staff loyalty. Working with companies such as ADP provides the opportunity for employees to receive direct deposits, view their pay stubs, and receive a potential tax return at the end of a fiscal year. When employers provide individuals with something as simple as a pay stub, it provides opportunities for purchasing cars, homes, and other important assets that propel employees to the next level. Employers taking on the responsibility of uplifting their staff members are more powerful than they realize - and being in compliance with payroll regulations is part of the real influence that makes a difference in the world. 

Once an account is established by an insured payroll vendor, esthetics entrepreneurs will want to collect a W4 form for each employee. Employees fill out a W-4 form to let employers know how much tax to withhold from their paycheck based on filing status, dependents, anticipated tax credits and deductions, etc. If employees don't fill it out correctly, they may end up owing taxes when the return is filed. 
There are more important aspects to having employees than simply issuing someone a paycheck. Spa owners with employees must provide direction, education, and expectations. To communicate the mission of a company, the employees within it must believe in the person behind the magic - you! As an employer, you will want to ensure proper communication at all times and think of the ‘big picture’ at every turn. Anticipating the needs of both employees and clients alike will be part of your routine - which can be extremely rewarding and fulfilling to everyone involved. Become a servant leader, seek internal guidance and enlightenment to develop yourself professionally, and always be a forever student of business and life. Great leaders do not merely issue paychecks, but provide an experience and a feeling. Strive to be a tremendous leader everyday! 

As a fair employer, ensure you are paying competitive wages and salaries - and offering avenues for growth. Compensation for employees must match the industry/area averages with possibilities for leveling up. Areas to grow your employees include providing annual wage increases of 1.3-2.0%, which is the national average. Look into providing group health insurance plans or provide monthly health insurance contributions. With the high cost of medical care in the United States, it’s no surprise that health insurance is one of the most highly sought-after benefits by employees. For small employers, benefit plans tend to be offered on a voluntary basis and are not legally required. For larger companies over fifty or more full-time employees, this is not the case and is required for 95% of their full time employees. Being fair and competitive in the provision of wages will set employers on the long-term scale of success and lower rates of employee turnover. 

Streamlining other areas of the HR department within your company are critical for maintaining longevity and organization. Align your approach to interviews and hiring by always being on the lookout and forming connections. Even when you’re not hiring, attend job fairs and create meaningful relationships with Esthetician groups and esthetics/cosmetology schools. Gain more opportunities for face time with potential hires. You never know where you may end up finding new talent! Ensure employee contracts are well thought out and are part of the business culture. By ensuring contracts are already pre-formatted with zero room for question, employees will take your business practices seriously. Create continuity within your brand by ensuring trusting relationships through trustworthy business practices. Maintain set expectations and regulations that are easy to follow. Employees do not have respect for companies that don’t have important items set up such as contracts and Employee Handbooks from the start. They will find a way to complain, second-guess, and undermine your leadership. Ensure that your Employee Handbooks are detailed and always evolving over time. Update them at least twice annually with a revision date - and send to all employees each time regarding changes and updates. 
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Finally, promise your employees an annual evaluation. Small businesses sadly don’t do this enough and it hurts the brand long-term. In my personal business, I provide monthly one-on-one meetings - along with annual evaluations. It’s important to acknowledge your team for their positive attributes and celebrate them. Annual reviews should truly be a celebratory moment that your employees won’t soon forget. The optional monthly one-on-one meetings are helpful for team members to discuss day-to-day items with you and also to discuss items that need to be addressed. You can document them and both sign at the end of the meeting. The monthly one-on-one’s are beneficial in supporting your annual evaluations and decisions on their annual wage increase and/or annual bonus. 
Being a beauty boss is extremely rewarding if you harness the qualities of organization, communication, and follow through. You will move forward in success if you can ride the waves of employee highs and lows with grace. Looking at the big picture always is your savior in the journey of HR success - and esthetics entrepreneurs can most certainly take this on with pride and integrity when organized well. The sky is truly the limit!
4 Comments
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    Author

    Courtney Sykes, Chief Administrative Officer of Southeastern Esthetics Institute, not only loves educating students in the classroom setting - but travels to esthetics trade shows and teaches amazing lectures to hundreds of licensed professionals around the country - and writes amazing articles for national trade magazines in esthetics. Her passion is expansive for the industry & she is exceptionally passionate about assisting you with your career goals!

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