Making data-backed decisions

You’ve mastered the art of serving clients. Your menu of services is on point, your service providers are happy, and your clients keep coming back. And yet, you’re still not making enough money. What’s going wrong? 

At the end of the day, a beauty business is still a business. Without solid financials, you’re not going to succeed.

In the most recent episode of our podcast, Last Client of the Day, we spoke with Daniel Landroche, the Lead Solutions Architect and reporting expert at Boulevard, about what top businesses have in common and some core strategies we can all implement to make our businesses more successful. Daniel is an experienced consultant with over 12 years of in-house salon experience.  

“I had a very similar story to a lot of us who joined Boulevard from the industry,” says Daniel. “I started out at the front desk as a receptionist, worked my way up into management and operations, and dealt with a lot of things — financials, bookkeeping, payroll, inventory management, HR. I wore a lot of hats.”

According to Daniel, one of the easiest ways to become successful is to have a firm grasp of your business’s financials.

Why financials matter

“There are definitely some key things that a lot of [successful businesses] have in common,” Daniel says. “One of the first things that comes to mind isn’t really that groundbreaking, but it’s truly understanding financials.” 

That means having a 360-degree view of how much your business is earning and knowing exactly where your money comes from and where it is going at all times. This allows you to make decisions based on data versus relying on your gut instincts. 

Your financials will tell you about the health of your business — what’s working, what isn’t, and what choices you need to make to increase profitability. 

Knowing your financials means understanding the following metrics:

• Expenses: These are the direct and indirect costs associated with running your business. They include supplies and labor, as well as indirect costs, like overhead.

• Overhead costs: These are indirect costs that are integral to running your business and cannot be avoided, such as rent, utilities, and insurance payments.

• Revenue: Revenue is the single most important measure of the health of your business. It’s the sum total of everything you’re earning from services, sales of goods, and anything that makes you money. 

• P&L (profit and loss): This is a measure of how much a business is making or losing. You calculate your P&L by subtracting expenses from revenue. 

• Cost of goods: This is literally how much your goods cost to acquire. They should cost less than what you sell them for to ensure you make a meaningful profit.

• Cost of labor: The total of wages, benefits, and payroll taxes paid to and for all employees is your cost of labor.

Keeping these metrics in mind and truly understanding how the decisions you make about running your business impact them will have a long-lasting impact on your success. 

“But I’m not a numbers person!”

“A lot of us aren’t [numbers people],” Daniel says. “And that’s totally okay. You just have to acknowledge that and figure out how to act on it.”

You can’t ignore the financial world just because you don’t understand it or are intimidated by it. You can’t look at financials only once a quarter or once a year during tax season and expect to succeed. You need to be able to examine how your business financials are going on a regular basis so that you can make decisions based on performance and course-correct along the way. 

Fortunately, you have options. You could tap someone on your team to help with your financials. That person could be responsible for keeping track of the numbers and reporting to you on a regular basis. You could also enlist the help of a professional accountant. Your tech should also be helping you track metrics and keep an eye on your bottom line. You could also do a combination of all of the above, depending on the information you’re trying to pull or the time of year — an accountant may be the extra help you need at tax time, for example, but not necessary for the day-to-day financials. Whatever help you need, get it. 

KPIs to track

“Another thing in common with a lot of these top businesses is that they really use data to their benefit,” says Daniel.

We call these key performance indicators (KPIs), and while the specific ones you’ll want to track will vary depending on your business, there are a few that are universally important for the self-care industry.  

• Average ticket price: One of the easier KPIs to calculate. Simply add up your sales over a period of time and divide that by the number of client sessions within that same timeframe. Your average ticket price will vary depending on your business, but it gives you a good benchmark for how much you’re making from each client session.

• Retention rate: Your retention rate will tell you how well you convert one-time clients into regulars. To calculate it, look at each client who came in during a specific period and note whether that client has returned over the next 30, 60, or 90 days. Take the number of clients who returned, divide them by the total number of clients, and multiply the result by 100. That will give you a percentage. And that’s your retention rate. 

• Utilization rate: Divide the hours your staff is booked by the hours they’re scheduled for appointments (then multiply by 100), and you’ll have the percentage of time your team uses to service clients directly. Use this to find out if you’re using your team effectively or if they’re at risk of burning out.

• Pre-booking rate: This measures how many of your clients book future appointments at the same time they receive treatments. It’s a powerful indicator of how effectively your team recommends follow-up appointments and how comfortable your clients are with your services. When boosting this particular KPI, consider offering memberships and packages that bundle services, exclusive perks, and reward loyalty.

• Booked forecast: One of the keys to managing your finances is knowing how much money you plan to earn. Simply add up the projected totals of all appointments currently on your books. You can use this to measure against your projected expenses to ensure you’ll be making a profit. You can also measure against specific treatments or staff members to find out who or what is making you the most projected income.

Staffing matters

It may not seem like it, but one of the most important financial aspects of your business is staffing. It’s not only crucial to ensure you have the staff in-house to maintain operations, but it can have a direct impact on your financials. 

“The cost of staffing is so high,” says Daniel. “For small businesses, it can be one of, if not your highest, expenses.”

Making staffing decisions, though, can often put business owners at odds with their employees. Looking at your staff only as numbers on a page can lead to an unhealthy environment. If you see employees only as costs, your employees will get that vibe from you and respond accordingly.

“It’s really easy to get in the trap of stepping away from your employees and potentially seeing them as disposable,” says Daniel. “ A bad manager is going to lose you so many staff members and service providers.” 

One way to avoid staffing headaches is to standardize compensation and pay structure. This avoids the scenario where you feel compelled to offer someone higher pay to retain them and risk your other team members feeling left out or overlooked. 

Standardizing compensation reduces drama and conflict and creates a more transparent environment. It also takes unconscious bias out of the equation. For those who want to grow and earn more, make sure everyone knows exactly what’s expected of them to be able to move up. Otherwise, there’s not a lot of incentive for them to stay. They could find somewhere else to advance and grow. 

“Our employees and service providers are essential to our business,” says Daniel. “They are no less important than a client. They are both our clients as a business.”

Never stop striving

Ultimately, you may see some lean times before you see the success you’re meant for. Almost every business owner has experienced a time when they thought it might not happen for them. But you never know when a business is going to turn a corner and really take off. 

Once you learn your financials, it becomes easier to see how to make small adjustments that can yield big benefits to your bottom line. It may take time, but the more data you have, the clearer a picture you can see of what works and what doesn’t. 

“It is a journey. It’s not like necessarily where you are right now is where you’re going to be,” says Daniel. “You can grow. You can get to where you want to be. Enjoy it along the way.”

Learn more about Daniel Landroche and the things most successful businesses have in common by listening to Last Client of the Day, a beauty business podcast presented by Boulevard.