Unlocking Profits Through Productivity - Part One
The Business Side of Grooming©
by Ed Carlson
© 2001 Ed Carlson All Rights Reserved Published here with the permission of the author.

How often have you heard this comment from a salon owner, "it seems like the more grooms we do and the harder I work, the less I make". You might have even said this to yourself. This is not an isolated problem but is very prevalent throughout the grooming industry. As soon as you start building your business and hiring more employees, the profits just seem to slip away. Although we have all benefited greatly from the improvements in grooming equipment, training and supplies, pet grooming and bathing is still a very labor-intensive service. That labor expense could easily reach well over 50% of your salons gross revenue.

The majority of groomers that open a grooming salon begin with a great deal of compassion and care for pets and the technical and artistic skill required for bathing and breed grooming. With determination, momentum and hard work, these new salon owners get through the business startup process and new hires well enough to get into year two or three. Then if they have the right location and do quality work, business builds and the salon has four or five employees and that's when the productivity and profit problems can start.

The task of managing hundreds of client visits, work schedules and employee issues takes on a life of its own and the fun part of grooming seems a distant 4th priority. The profit slide occurs when the owners grooming contribution becomes less of the total grooming workload that is gradually shifting to more paid employee hours. To complicate the matter, the salon owners grooming background probably did not include enough training, experience or interest in the complexities of productivity.

Although the overall profit percentage is slipping, there's no reason for the absolute profit dollars to slip likewise. Understanding the key elements that control profitability is the 1st step in profit recovery. This 1st step leads to a multitude of paths that eventually unlocks profits for salon owners, managers and employees alike.

The Keys Elements

A very basic business premise is "how many did I sell, what did it cost me and how much did I make". A slight modification of the salon business key elements would read: 

1. How many pets did I service?
2. What did I charge for that service? 
3. How much did it cost me to provide that service?

These key elements should be available from a historic standpoint with some basic record keeping efforts on your part.

In order to narrow the scope and only focus on how productivity affects profits, we will ignore the multitude of other profit and loss variables that each salon encounters by making the following assumptions:

1. Your client fee schedule and employee pay scales are in the middle of an acceptable range for your economic and competitive location.
2. Your fixed expenses (lease, insurance, etc.) are commensurate to your business volume.
3. Your other variable expenses (utilities, supplies, etc) are subject to their own cost control measures. 
These three assumptions will require their own analysis for over all profitability; especially the client fee schedule and employee pay scales, which will be discussed later.

Organizing your Key Element information

Historical Records: You will need to obtain your weekly records for at minimum the last 13 weeks or better yet 26 weeks and record the following for each weekly period:

1. Total number of pet visits.
2. Grooming and bathing revenue only.
3. Total employee hours.
4. Gross payroll which includes employer paid taxes and worker compensation.

With access to computer software like MS Excel, you can easily calculate the following for each weekly period:

1. Average labor cost per visit.
2. Average labor minutes per visit (not total time in salon, only actual time an employee in handling pet).
3. Average hourly pay rate including all employer paid taxes and workers compensation.
4. Average charge for each pet visit.
5. Gross payroll as a % of gross revenue.

You can also calculate the averages for each 4wk and 13wk period and the total 26wk period to give you a better view of averaged and seasonal trends.

Current Records: Now you can start recording the same data on a real-time basis. You need this data collection to develop a sense of how well each week progressed from a management viewpoint (keep a weekly journal to record relevant observations and conditions) and how that compared to the recorded productivity standpoint to assist you in establishing the productivity standards for your salon. After recording data for some time, let's assume that for thirteen weeks last quarter, employee labor averaged 93 minutes and compensation averaged 52% of grooming revenue for each pet visit. Compare that to a four-week period inside that thirteen weeks that averaged 105 minutes and 56% and you recall that nothing seemed to go right that month. Then you had a three recent weeks averaging 85 minutes and 48% and work just seemed to flow smoothly. Now you need to make a subjective decision to set your salon's initial standard.

The Next Steps

Setting the Standards: A management decision could lead you to set a standard of 90 minutes and 50%. This is an initial standard that will be tested and adjusted on a quarterly basis until it seems just right.

Applying the Standards: The standards are applied in two ways:

1. The 90-minute average is used for future scheduling to establish the level of employee estimated hours for the next four weeks. This is to ensure that you have enough employee hours scheduled and enough pet visits either already booked or expected based on historical and seasonal weekly averages. 
The preferred step here is to continue to book and tele-market your clients as required bringing the pet visits up to your standards. The option of reducing employee hours is a less desirable but sometimes necessary solution. 

2. The 50% average is used to evaluate the productivity performance for the last week, prior month and eventually the full quarter. A critical element to the 50% numerical standard is the use of the weekly journals that should give the manager sufficient subjective information to draw conclusions as to what went well and what didn't.

For instance: Did employees arrive on time and did they get started quickly or were there late arrivals with a slow start to the day? Did clients arrive on time, arrive late or become 'no-shows' and how did that affect the workflow? Did employees have to wait for pets to work on or was there always to comfortable backlog of pets available? Did you fill-in cancelled visits with clients from a waiting list or from your tele-marketing efforts?

These and many other journal observations (also gathered from the employee perspective) are key to understanding the productivity problems and roadblocks each salon faces. These journal entries are absolutely necessary to be able to initiate corrective actions such as revising employee work policies, client booking procedures and scheduling procedures between bathing and grooming areas, to name a few.

Getting to the solutions: Once you have collected enough data and supporting journal entries, the profitability process evolves into a collaborative effort that includes salon owners, supervisors and employees. It takes a combined effort of these three groups to agree on problem definition and to turn potential corrective actions into win-win solutions that are actionable, measurable and sustainable over the long run. Solutions that involve ownership and rewards for each group and those that become an integral part of the business process are most likely to succeed. During this process, a separate task the salon owner must undertake is to do a thorough analysis of the client fee schedule and your current employee pay levels, job duties and performance expectations. Typical problems in these areas are:

1. Client fees have not been increased proportionately to increases in fixed and variable business expenses.
2. Discounted and 'special' client fees may not provide the profitability levels you need.
3. Additional fee bases services (de-matting, treatments, etc) may not be reaching the client billing stage.
4. Employee job duties may need to updated to include productivity goals.
5. Employee pay levels, job duties and performance expectations should be in agreement (team grooming concept)
6. Employee training may need revisions to include productivity along with the usual work procedures, quality issues, and pet care and employee safety elements.
7. The quality of your grooming efforts compared to the quality the client expects and is willing to pay for may be out of balance.

Unlocking the Profits - A Salon Scenario

What can you expect? Trying to 'put a number' on improvements in salon profitability is a daunting task given the variations in client levels, revenue and expense variations and the owners current and future managing ability. One way would be to invent a salon scenario and allow you to enter your own figures and interpret the results accordingly.

Mid-City Salon - Before

1. Average 115 pet visits per week, 500 visits per month, or 6000 visits per year.
2. Average pet visit billing at $28 per visit times 6000 visits or $168,000 per year gross revenue.
3. Average 182 hours of weekly payroll divided by 115 pet visits averages 95 minutes (the first standard) of employee payroll per pet visit.
4. Payroll range from $6.25 (minimum wage) to $11.00 (master groomer).
5. Average hourly payroll burden including all employer paid taxes and workers compensation equals $9.25.
6. Yearly payroll based on 182 hours weekly at $9.25 times 52 weeks equals $87,542.
7. Payroll burden as a percentage of gross revenue is $87,542 divided by $168,000 equals 52% (the second standard).
8. The remaining 48% of revenue, or $80,458, must fund all fixed expenses (lease, etc) totaling 18% or $30,240.
9. The remaining 30% of revenue, or $50,400, must fund the remaining variable expenses (supplies, utilities, etc) totaling 10% or $16,800.
10. The remaining 20% of revenue, or $33,600 is the salon profit before taxes.

Mid-City Salon - During

· After a few months of sustained productivity implementation, Mid-City Salon was able to reduce the total payroll burden from 52% to 49%, or from 95 minutes per pet visit to 89 minutes, or an eleven hour reduction in weekly payroll hours.
· With no other change to any of the basic visit, fee or pay range parameters, this improvement will result in an additional 3% of gross revenue added to the potential salon profit.
· The salon profit potential will increase on a full-year basis by $5,248 to $38,848, or by 3% to 23% of gross revenue. This 3% improvement in productivity resulted in a 16% increase in salon profits.

Mid-City Salon - In keeping with the 'share the rewards' concept discussed earlier, the salon owner would probably initiate the following next steps.

· Use a portion of the 1st six months improvements to implement a cooperative referral program with six veterinarian clinics and three pet stores through out the local area. This would result in new client referrals and an increase in weekly visits
· Designate another portion to purchase additional equipment to further increase productivity and reduce employee fatigue (Hydrosurge®, shampoo systems, dehumidifier, etc.)
· Staff and fund a promotional booth at the opening of the new city pet shelter, which would result in improved community awareness of your grooming salon and an article in the neighborhood free newspaper
· Purchase a 1/8 page add in the neighborhood newspaper for thirteen weeks and increase new client awareness and 1st visits
· Develop a profit-sharing program for all full-time and part-time employees that would be based on maintenance and/or further improvements in the productivity standards.
· Consider other employee benefits for implementation during the following year.

Mid-City Salon - Epilogue

After a few months, the weekly payroll was back to the original 182 hours by the addition of 7 pet visits per week. At the end of six months, average weekly visits had reached 132 and plans were underway to hire a new receptionist and to start training and upgrading some employees to positions of greater responsibility and pay scale. 

Profits Unlocked

Although the Mid-City Salon scenario above does not represent a real grooming business, it is not hard to imagine that the improvements could be accomplished. By having a basic understanding of the key productivity elements and comparing the historical data to the current data and journal entries, the salon owner, supervisors and employees can effectively change the way they do business. Through this understanding and collective effort, they all share in the increased salon volume, profitability, employee benefits and job security. Once profits are unlocked, realized and utilized for everyone's benefit, the steps taken to get there can be internalized into the overall business plan and maybe you can get back to why you started a grooming business in the first place.

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Ed Carlson is a business consultant to the pet care and grooming industry and this is the first in a series of articles on the business side of grooming.

Copyright 2007 Find A Groomer Inc. All rights reserved