With more and more aesthetic practitioners around the country desiring to work independently and ultimately open their own operation in 2020 and beyond, the desire for more in-depth administrative knowledge is paramount for small business owners. Whether working independently as a solo practitioner or deciding to hire employees (customer care specialists, aestheticians, and massage therapists, and potentially managers), business owners must understand the forecasting and cash flow projections to make employment with the company not only enticing and a source of building an amazing culture, but also the correct payouts to ensure legal compliance, boost employee performance, and increase profit margins. While business owners do not obtain a real crash course in ownership demands, individuals must seek out this knowledge before it is too late and before the company spirals into the red. With the correct forecasting and employment contracts in place from day one, spa owners can actually thrive and flourish.

OUTLINING COSTS

The first place of understanding in a day spa environment is a complete mathematical spreadsheet outlining the actual cost of performing services on the menu. The menu is truly the first place owners must begin the process. The following equation outlines what spa owners must look at to calculate actual costs of performing each service. Develop a spreadsheet that outlines the name of each service, cost per ounce utilized by a backbar product, the cost of using equipment (if applicable), any disposables the equipment may be using (if applicable), and the cost for a provider to service the client. The remaining margins must be 30% or higher in order to ultimately keep the service on the menu. Spa owners should target to be 40% to 50% in revenue to achieve ultimate margin goals for the company, in order to pay support staff, cover costs of facilities, subscription fees, equipment loan payments, legal fees, and insurance fees. Ultimately, the goal for companies should be to put away enough additional income after the bills are paid to place cash into an interest-bearing savings account, to not only increase its cash flow (an asset on the accounting books), but also to be able to reach long-term (five plus year goals), such as purchasing a new piece of equipment without financing or building an independent building. Here is an example:

Skin Rejuvenation Facial – menu price, $75

$75 – cost to provider (30% equals $22.50) – backbar product cost ($10.00) – equipment costs (no additional equipment utilized for this service) equals $42.50 revenue (56.5% margins)

With this knowledge in margins of this particular service with zero equipment costs, the employer could utilize a 4% to 10% increase in pay structure for the provider, given other benchmarks that could be required for the employee, such as an annual increase in pay after the annual employee evaluation. Of course, this is taking into account that the employee in this scenario is being paid on commission only. 

PAY STRUCTURE

A highly suggested pay structure for service providers within a spa environment is a flat hourly rate plus a commission rate per service performed. Companies in the beauty industry are finding it harder to employ individuals that are financially able to work on commission only and will think of themselves as simply having to cover the service itself. This is de-motivating for providers and will not give them enough facetime within the facility to understand the company’s culture and have hands-on practice with company policies.  Employers ultimately should staff full-time employees first that have a vested interest in being present. Part-time employees can come in the picture at a later time to fill evening or weekend hours, but should still be required to be onsite for their shift and take part in the operations going on, in addition to the act of serving the client. With an hourly base pay, employees can be expected to assist in answering the phones, fulfilling small administrative duties to help the owner or manager between clients, and providing laundering services when necessary. Spa owners must understand that a cash flow projection of what it would take to employ providers is extremely important and a good rule of thumb is a six month projection of cash flow available in the business operations account to cover payroll costs. 

An example would be the following: 

Aesthetician Suzy at spa 123 equals $15 per hour plus 10% to 20% commission per service (marketed menu pricing). 

Aesthetician Suzy should also be able to take home 3% to 5% in product sales or a bonus per month or quarter based on the company’s policy for meeting retail sales goals. This structure is definitely up to the business owner and should be outlined in a policies and procedure manual that is updated annually. 

Aesthetician Suzy should additionally be paid 100% of tip income minus any processing fees (transaction fees from merchant services terminals). This can be anywhere from 1.5% to 1.99% on average.

RESEARCH THE RIGHT COMPANIES

Spa owners additionally want to take into account the cash flow projections that make it possible for the business to cover the matching of withholdings from employees’ gross pay, Workers Compensation Insurance (typically provided by independent insurance providers or as a sub-offering of payroll companies), and weekly or bi-weekly fees for covering the payroll services themselves. This will be calculated through a payroll company such as ADP or Paychecks. While there are other companies out there, and even accounting software systems that provide payroll services, spa owners should do their due diligence and research companies that have a long-standing of backing up their accounts and being held responsible for mishaps. From someone who has downloaded tax tables manually in my previous life in spa management before owning a multi-million dollar aesthetics company, I highly recommend utilizing payroll companies to ensure tax compliance. Employers additionally want to ensure they are paying themselves as employees of the company, in order to maximize tax contributions weekly or bi-weekly. This will save the employer from having to make estimated tax payments and having to pay out taxes annually. Being able to take home a W2 form and possibly receive a tax refund at the beginning of the year as an employer is a beautiful thing and something that can happen if the employer is willing to forgo taking member draws and ensuring they simply increase their salary if the need arises. 

To explore payroll companies even further, employers want to look into the organization these companies can provide such as bi-weekly pay instead of weekly pay, in order to save on payroll fees for the company. Employers can additionally input checking and routing numbers into the employee profile to ensure direct deposits. Many larger payroll companies can additionally offer assistance with policies and procedures manuals, Workers Compensation Insurance (previously discussed), and the remembering of important dates, such as the employee’s start date with the company, birthdates, and much more. Payroll companies will additionally offer personal logins per employee for individuals to access their pay stubs for personal use such as needs arising for the purchasing of cars or homes. Employers can also track annual employee evaluations and expect to receive W2s mailed directly to the company (instead of relying on an accounting firm to put these together) at the end of the year. Spa owners must work smarter and not harder in order to maximize more time availability for other areas of operations such as marketing, human resources (as it pertains to staff training, development, and recognition), and client care. 

BENEFITS

Spa owners are at an advantage in the small business sector in 2020 when the focus remains on profit margins from the beginning of its establishment onward. In addition, companies must outline expectations within a defined and well-thought-out policies and procedures manual. Owners can become more involved in their operations and be able to answer questions to employees when they have a detailed spreadsheet (Excel) outlining the actual costs of each service provided. This information assists the business owner in evaluating the pricing on their menus, whether or not to include room in the pricing for running promotions (a 10% increase in the menu price is a great option here), and also in the evaluation of costs of backbar products per use. Owners can use this information to price compare their vendors and work with better suppliers to lessen the company’s overhead. With these processes in place, companies can thrive in the spa industry for years to come.

Courtney Sykes is the chief administrative officer of Southeastern Esthetics Institute and is a licensed aesthetics instructor in South Carolina. Her passion lies in creating real change in the aesthetics industry and assisting her students to obtain gainful employment and make a difference in the lives of their clients. Sykes specializes in a science-based approach to skin health and education. Her primary focus is chemical peels, laser treatments, eyelash extensions, micropigmentation, and cosmetic lasers. Her background in medical spa management has led her to nationally accredit the largest licensed aesthetics school in South Carolina, Southeastern Esthetics Institute. ​