Do you take the money you earn from retail sales, put it in your account and pay bills with it? While most salons and spas would answer “yes” to this question, this is not a wise financial strategy in the long term. Think of your retail business separately from your service income and your gift card income. In fact, each of them should be tracked independently and have their own budgets. For now, let’s set our sights on retail.
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Doing The Math
For every dollar you bring in with retail sales, you can count on roughly 34% (34 cents) profit after inventory is purchased, commissions are paid, and you cover any sales tax, credit card processing, discounts and/or shrinkage. If this amount is left in your bank account and used to pay monthly bills, then the salon is taking away pure profit and, with it, a chance to make that money work more efficiently. Let’s look at an example of what we mean and then introduce a plan to get that money back into savings.
Let’s say you $1,000 a month in retail sales.
Based on the average, this would mean a profit of $340. If this $340 is left in the account to pay monthly bills, then it is being lost. Over a 12-month period, this adds up to $4,080!
Using Retail Profits For Smart Business
Think about what this amount of money can be used for. You could chunk down credit card debts, make a double loan payment, invest in education or marketing and, of course, build a nest egg by saving for future retirement. Any of this would be smart business; not to mention the boost of confidence and empowerment in seeing true financial progress being made.
Seeing this is powerful, and making the change is important, but you’ll have to take some patient steps to make it happen.
Up to now, the business has been used to having the $340 to pay bills each month. To just take it away with no plan to replace it wouldn’t work. To get this money back, the salon or spa would have to grow its average services sales each month. However, it would have to grow by more than just $340 per month, because any service sold includes expenses to perform it. When setting your goal, be sure to add in additional sales growth to cover commissions, payroll tax, back bar coat and credit card processing.
Once you achieve this goal, you will be able to make retail profits work for you. Plus, you’ll feel more confident and inspired about your financial future!
To learn more on how to put emotions aside to coach based on data-backed decisions, listen to Phorest FM Episode 107:
One last thing! Get your copy of my book, Financial Fitness in which I break this retail profit concept down in depth. Along with the book, you’ll also get spreadsheets that will help you track everything.
Thanks for reading! #LetsGrow