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The Profit Calculator
How does it work?
The idea of the profit calculator is to use it to set targets for your salon and then be able to break those
targets down into weekly and monthly targets by salon and stylist.
Too often our targets are based solely on a percentage increase on last year, which is working on two
assumptions – one is that we got it right last year, and the second is that everything is staying the same this
year.
This way of targeting is based upon your budgets and expenses for the coming year, ands most importantly
– how much profit you want to make. By building profit into your target you stand a much better chance of
achieving it, as you know exactly what you have to achieve and so you can then work out what you have to
do to achieve it.
Do you need more staff (or less) do you need to change your opening hours, appointment times, prices,
increase your average client spend etc.
As I always say – if you don’t know exactly where you are going – how on earth can you workout how to get
there?!
The profit calculator takes the information you enter – wages stock and all other costs, and then working on
your desired profit gives you an annual target to aim for – if you hit that target and stay within your budgets –
you will make the profit you want.
However the great thing about this tool is you can use it to play the ‘what if’ game.
Enter in the figures – press calculate and jot down the target and profit you would make. Now see what
happens when you make adjustments – what happens if you can reduce your wage bill by a couple of
percentage points – from maybe 54% to 52% for example, what happens if you reduce your stock percentage – it doesn’t have to be much – even a 1% difference will impact on your target. Do you want to change
the business development budget? Now look at your ‘total other costs’ – are there any areas where you can
control your expenditure more – make adjustments to this figure accordingly.
Now press calculate – obviously your target has come down, but you may be surprised how much – of
course your cash profit will be less now though as well.
Go back and increase the percentage profit – for example if you put in 15% before try 20. press
calculate again – the target will have gone up again – maybe to near what it was before, but you should see
more profit now. Do you understand the ‘what if’ game? Keep playing it until the figures start to work realistically in terms of expenditure – you can’t cut it to the bone and be competitive today – and in terms of what
your salon can achieve in sales relative to how many stylists you can accommodate, opening hours pricing
levels etc.
Finally once you have decided on the optimum mix – play the ‘what if’ game the other way – imagine that
you were not controlling the budgets and you let your wage bill increase by ‘say’ 2% and your stock bill by
the same – what if you spent 10% more in your ‘total other costs’ than you had budgeted for?
Now press calculate again – oops – look what has happened to your target – it has probably gone
through the roof – in other words if you were only focusing on your original sales target, even if you
achieved it, it wouldn’t be enough any more to make the profit you wanted, because you did not control your
expenditure.
Ok off you go – enter your figures in the relevant boxes and then you can start playing the ‘what if’ game
– before deciding on your targets and budgets for the next twelve monthsto help you focus on profit and
achieve the success you desire.
Once you have got this right – use the ‘salon success standard’ calculator to work out a weekly target
of how many clients you need to do and what your average client spend needs to be in order to achieve
your target. Then you can go one step further and use the ‘stylist success standard’ to break the targets
down to individual stylists.