Intro: Do you feel like you were meant to have a kick-ass career as a hair stylist? Like you got into this industry to make big things happen?
Maybe you’re struggling to build a solid base and want some stability. Maybe you know social media is important, but it feels like a waste of time because you aren’t seeing any results. Maybe you’ve already had some amazing success but are craving more. Maybe you’re ready to truly enjoy the freedom and flexibility this industry has to offer.
Cutting and coloring skills will only get you so far, but to build a lifelong career as a wealthy stylist, it takes business skills and a serious marketing strategy. When you’re ready to quit just working in your business and start working on it, join us here where we share real success stories from real stylists.
I’m Britt Seva, social media and marketing strategist just for hair stylists, and this is the Thriving Stylist Podcast.
Britt Seva: What is up and welcome back to the Thriving Stylist Podcast. I’m your host, Britt Seva and thank you to the room again for coming in clutch for me and letting me know exactly what you wanted to hear.
So a couple weeks ago, we had an episode go out that talked about the looming recession or you can talk about the correction or essentially it was the inflation that is living in our economy right now and what that could look like in the years to come, right? And that podcast was based largely on research and projection, right? The tricky thing is when you look at recessions or corrections or economic collapse or whatever you want to talk about it is it’s very unpredictable by design. If it was predictable, then it probably wouldn’t happen because we could course correct. Which is what we tried to do when the pandemic hit.
Anyway, go back and listen to the episode before where we talk about it. But one of the things I mentioned in the episode is I said what’s going to help you get out ahead of this—we talked about being proactive instead of reactive—is the idea of truly budgeting, and I made mention in the episode, I said, “That might actually be a really great future podcast episode. Let me know if you want to hear about budgeting.” I got over 3000 messages saying, yes, please, so apparently this is a hot topic, so we’re going to dive into it today.
Now, when I talk about budget, I know budget is like a dirty little four-letter word that has more than four letters, but we don’t like talking about it. “Budget” just sounds like “root canal.” It’s the exact same thing. It sounds awful.
I want to actually change your relationship with the word “budget” in this episode. We are going to talk real numbers, we’re going to talk about profit margin and we’re not just going to talk about it from the perspective of booth rent or salon owner or studio suite or whatever. We’re going to talk about it holistically. Like what if your commission, what does it mean to be looking at things like this? So this episode is fully for everybody. No matter how you work in the industry, this one is for you.
Now, starting right at the top, when I said, I want to change the relationship you have with the word “budget,.” That word innately has a very negative connotation. How come? Because when we think “budget,” we immediately think restriction, like, “Oh, okay, well now you’re going to prevent me from doing whatever it is that I want to do.”
For most of us, the reason we got into this industry was the freedom was so hot. Like we really wanted that unlimited income potential. We wanted to do whatever the heck we wanted to do with it.
Whether you’re commission or a booth renter or a salon owner, studio, suite owner, or whatever, you’re essentially in the driver’s seat of your income and your business, whether you like it or not. Like good decisions, bad decisions, it’s all on you.
Versus if we were all here and we were employees at McDonald’s, McDonald’s would decide how much we’re going to make. They cut us a paycheck every two weeks. We show up and we work the hours and the money just comes, right? I for sure did my time in a cubicle and that’s what it looked like. I showed up, I did my best, I got a predetermined paycheck, and that was the end.
But when we joined this industry, we said, “I don’t want that. I want to be able to make as much as I want to. I want to work when I want, not when I don’t.” We wanted that freedom and flexibility so then the idea of putting a budget, it sounds so counterculture because it’s against everything that we got into this industry for.
But the irony is the lack of budget is what’s killing so many of you. It’s funny because I don’t coach one-on-one hardly at all anymore. It’s been many years. Every once in a while a coaching call or a big salon will come in and I’ll do some one-to-one, but it doesn’t happen nearly as often. I started my career coaching one-to-one at scale, like we’re talking dozens of stylists, dozens of salon owners, and there’s lots and lots of people.
And time, and time and time again, I’d go in and I’d say, “Okay, let’s take a look at your finances.” And we would look at top line service, right? Revenue. Everybody was keen on that. Like everybody knew how much they were making top line. “Oh my goodness. I did 150 grand in services last year.” That’s great. What’s your profit margin? “Well…”, and then things would get squeaky and nobody really knew what was going on.
And it was like, “Well, I’m currently living on, I don’t know, like five grand a month, but then there’s this and that and the other thing and then my CPA just kind of tells me what to do.” And it’s like, we’re living in the dark when it comes to the money.
Y’all, we got into this to make money, right? It’s so crazy because we got into this wanting to make money and then we have this aversion to managing and talking about the money, which is literally what we’re here for.
You have to completely change your relationship with the money and you have to understand not just how much you’re making top line, but what the bottom line is, ‘cause here’s the harsh truth: the top line is actually irrelevant. It hardly even matters.
If your salon is doing $5 million a year in services, which PS, some are. Let’s say your salon is one of the elite salons and you’re doing like three, four, five million a year in services, but your profit margin is 1%. I can’t brag on you. Like I don’t have a whole lot to say about like, “Well, look at this amazing salon.” It’s just like you could actually be making more money if you were a $300,000 salon with a healthy margin.
So we have to look at things like profit margin, as opposed to gross service dollars or gross retail dollars.
And for me, whenever I talk about putting somebody on a budget, a B word, I always say the idea of the budget is not to cramp your lifestyle. For me, once we determine the budget, the game becomes cool. So how do we increase your top line revenue, right? All the revenue that’s generated by your business, how do we increase that revenue so your lifestyle does not have to change, but you can have more profit in your business?
So often the reason why people get into trouble, like we talk about things like consumer debt or business debt or buying cars that we can’t afford or whatever. The truth is you can afford any car you want to, any car you want, like you pick it, you can afford it. You just have to be making enough money, you have a surplus, so that’s disposable income for you.
The game for me is not, let’s put you living in an apartment with eight other adults and you’ll all be living on $500 a month living expenses and you’ll have to suck it up for a few years, but it’ll be worth it. That’s why we don’t like the word “budget” because that’s what it feels like. Like don’t eat out because you can’t afford it. Make your coffee at home. You can’t afford a latte. If you want to have a $6 latte every morning, I’m cool with that. I don’t really care so long as it fits in alignment with your budget.
What we do is we look to increase your service revenue so that the budget does not to have a negative impact on your lifestyle. That’s truly the game. We have that negative relationship with the word, because generally speaking, it kills our personal life and I don’t want that.
So as I step into this episode, please know that for me, I don’t want you to stop living any less. I want you to make more so that the profit surplus is there and that’s when you really start to feel like a winner.
With that, how do you know how much you need to be making so that your lifestyle doesn’t have to change, but you also aren’t racking up business debt, consumer debt, tiny profit margins, all those things? That’s why I created the Thrivers Society Freedom Calculator.
So I’m pulling up the Freedom Calculator now, and I’m actually going to use it in conjunction with one of our other Thrivers Society calculators. So we have a selection of six calculators within all the Thrivers Society methods, plus the pricing calculator. If you’re in Thriving Leadership, we have the compensation calculators. Those are in addition.
We’re actually going to run through some of those today as well, but let’s actually start before we get into the Freedom Calculator. I’m going to look at the Take-Home Pay Calculator for booth renters, studio suite owners, or owners. We’re going to walk through some numbers.
Let’s say I was to ask you, “Okay, what does it really cost for you to live your life?” And you’re like, “Well, Britt, when I take into account the cost of my rent or my mortgage on my home,”–you know, wherever you live–”I do like to have a $5 latte every morning. I like to wear nice clothes, so I spend $500 a month at my favorite store. I like to eat out two nights a week. I like to make XYZ charitable contributions.” Like we look at everything going on in your life.
And like I said, I’m not trying to cramp your style. I’m just trying to understand where you are and what’s going on. So you’re like, “Okay, honestly, I need to be taking home eight grand a month post-tax, meaning like I’m living on eight grand a month.” Cool. Okay. So let’s make that work.
What I’m going to do is I’m going to type eight grand into our Take-Home Pay Calculator for booth renter, studio suite owners, and owners, and then I’d ask you how many days a week you worked. Let’s say you said four.
I’d say how much is your booth rent weekly? It’s 350. Okay, cool. So I’m going to type that in. What is the average cost of your monthly salon expenses? Like how much are you spending on color foils? Anything else? Insurances? Let’s say you’re spending 1200. Do you have a payroll expense? Do you have an assistant? Let’s say the answer was no. Okay, cool. Are you collecting rent from anybody? Let’s say this is not an owner. So I’m going to say no.
Based on what we typed in, in order for you to be taking home that eight grand that you want based on everything you just told me, right? This is like a very specific scenario. You would need to be doing $13,674 in services every single month, which is $855 a day. If this person worked four days a week.
Now let me just change the calculator. If this person decided to work five days a week, all the numbers stayed the same, except for that the daily total needed is $684.
For this person to be living on eight grand a month, they need to be doing about $13,674 in services so that they have enough to pay their booth rent, the cost of doing their business, and then their taxes.
Now you have something to shoot for. You’re like, “Okay, so based on what Brit said for my lifestyle to stay the same, I need to be doing about $13,674 a month in services.”
So $13,674. When we multiply that by the 12 months of the year, we get to about 165 grand. So you’d need to be doing about 165 grand in services, top line for this specific stylist. 165 top line in order to be taking home the eight grand a month you need—so let’s say currently you’re doing $140,000 in services behind the chair. Cool. How many days a week are you working? We say at four.
What I’m going to do now is I’m going to run this person through our Freedom Calculator. Let’s say they’re making 140 grand a year right now and they want to get up to 165 because they want to live on a healthy budget, which I am going to get into the budget numbers in a second. But I want to show you how to create a budget without cramping your style, right?
If we want to get them to that 165, What I do is I play with the numbers in the calculator. So if I put this person at 10% growth for the year, that brings into 154 grand by year end. That’s not going to be enough to get the in there, but if I put them at 15, we’re right on the money.
So running them through the Freedom Calculator, what I can say to this person is okay, if you’re currently making 140 grand a year working four days a week, it’s no worries. We can get you up to 165. It’s no problem. It’s going to look like about 15% growth.
And then what the Freedom Calculator does is it breaks down what exactly needs to happen for you to get there.
Right now what we do is we look at numbers and we’re like, “Okay, well, currently I make 50 grand a year in services and I want to be making 70 grand a year in services.” And then you look at that $20,000 gap and you’re like, “I’ll never get there because $20,000 is a lot of money.” But when you break it down using these tools, suddenly it starts to become really bite-size and really easy.
As we go into creating the budget, what I always like to do first is run calculations like this using our Thrivers calculators so that we can easily say, “Listen, the goal here is not to have you live less, but to instead make more.” And we look at the tangibles of what that would look like.
Now that we know what it would look like in order to increase our income so that our budget doesn’t have to cut into our lifestyle, let’s talk at a big level of what personal budgeting generally looks like.
Now if you try and Google this or look this up, everybody and their mother has an idea of what budgeting looks like, so I’m not going to try and say this is the perfect way to do it. There’s envelope methods, there’s apps you can use. There’s all kinds of different percentages. What I think is fairly realistic in our current economy, as far as what budgeting could look like, is spending 60% of your take-home pay on basic living expenses, 30% on wants, meaning fun things.
Can we keep it 100? Going out to dinner is a want. Picking up Chick-fil-A on the way home is a want. Going to the store to buy a new pair of shoes. That’s a want. That’s not a necessity. Things that are necessities are like a roof over your head, running water, electricity, health insurance, right? These are things that generally speaking are deemed fairly necessary. So we’d like to spend about 60% of our take-home pay on things that we need in order to survive. 30% would be for wants, and then 10% would be for saving for the future.
Now this would be a comfortable way to live. So I’m not saying like, so figure it out, like live in the apartment with eight adults. But what I’m saying is that becomes the target. That’s what we shoot for.
I have 100% lived life where 97% of our income went to survival. There is no doubt about it. We lived on a shoestring budget in a wild amount of consumer debt, so I’ve been there and I get it. But also we didn’t do the wants, like we didn’t take a vacation for a long time.
And so when you start to do things, you’re like, “Well, forget about the needs. I want to look fancy. I still want to go out on Saturday nights.” When you do that, it’s going to be extremely difficult to run a profitable business because the choices you make personally do affect your business, right?
So 60, 30, 10 is what I’d suggest.
Now, when we look at investing that 10%, that’s in alignment with what I call the Inevitable Wealth Method. Now that’s something that we cover in Financial Reset, which comes with all Thrivers annual memberships, no matter which Method you choose, but we talk about what it looks like to prepare for retirement, as best as we can.
Retirement isn’t sexy. I totally understand. None of us want to think about that. God willing, we would all be so lucky to get to an age where retirement is on the table. Like truly, we would all be so blessed. Some are cheated out of that, right? So we have to think about do you want to be doing hair when you’re 75?
I think it’s adorable when people say, “I’m going to be doing it, like I’ll be doing the hair of everybody in the retirement home.” I don’t know about you, I’ve seen some people in their sixties and seventies when your body starts to give out. As cute as that vision is, you don’t want to be the person that’s forced to pick up a job somewhere because you can’t afford to have those basic living expenses covered anymore. I know way too many people who are in that boat right now, way above the age of retirement who are working because they don’t have a choice. You don’t want to have to be in that boat.
So when you look at saving for retirement, we have a resource actually in Thrivers for this as well, but it shows you—and you can even do some Google research. If you start saving and investing now, you have to save a few hundred dollars a month. If you wait until you’re in your fifties or sixties to start, think about what it looks like to retire. You’re now looking at putting away like $3,000 or $4,000 a month because there’s no opportunity for compound interests. There’s no opportunity for any of those investments to accrue on their own.
That’s true passive income when your money is accruing additional funding on its own and that is how most people successfully retire. So the earlier we start that, the better.
While giving 10% towards savings feels like, “Ooh, I wish I had that money to go to buy a new pair of shoes with,” I get it, but trust me. When you’re 70, you’re going to thank yourself. When that compound interest has given you $1.5 million, you won’t be sad about the shoes you didn’t buy. So it’s just somebody to think about.
Now let’s get numbers. When we look at profit percentages, this I think is shocking to a lot of people. So ideally a booth renter, profitability is 51.1% pre-tax, meaning that once you’ve paid your taxes, their profit margin actually goes down. There are some booth renters who are going to be like, “Ah, ah, I’m making like 60% profit.” And it happens, of course, and your profit margin goes up the more services you’re doing if you’re able to have that increase in your perceived value.
We’re going to talk about this actually quite a bit at Thrivers Live this year. I’m sharing a perceived value formula, but there is a relationship between your cost of goods, the cost you charge a guest, and the demand for your services, and the perceived value. And as those factors come together, it improves your profit margin and what is possible in your business.
Some of you have increased that margin to a place where you’re like, “No, no, I’m doing more like 60%.” That’s great. That is the elite stylist who’s probably doing 150 grand in services or more. I’m talking more like average. On average. 51% pre-tax is average in our industry for commission stylists. 45% pre-tax is a high average. I actually think that it’s probably closer to like 40% is more reasonable. 40% profit pre-tax is reasonable.
And then for salon owners, 30% profit of profit is just about the best you’re going to get. Actually I’m going to do a follow-up episode to this one, talking about profit of profit for my owners ‘cause it’s a fresh concept. It’s something we talk about in Thriving Leadership and we’ll talk a bit about that.
But 30% profit of profit doesn’t mean 30% of the revenue that comes into your salon is yours to keep. So any booth renters or commission styles listening to this, 30% P of P is very small in comparison to the revenue that a business is doing.
We’ll talk about that in an upcoming episodes, we have full transparency on that.
When we look at an ideal spend for, let’s say an independent stylist, so I’m talking booth rent, salon suite owner, we’re looking at about 15% of your total top line revenue allocated to rent. 14% could go to backbar and professional supplies, 3% to advertising, 1% to amenities, 2% to phone, internet, wifi, blah, blah. 2% should be allocated to education savings. 2% to software, 2% to bank charges or interests.
All of y’all who are complaining about like, “Oh my goodness, Square or Stripe or whatever you use charges me a certain percentage to use their processor.” Yes, that’s called being a business owner. And I know a lot of people were like, “Oh, I’m going to use Venmo and use PayPal,” and you can listen back to episodes. I’ve been talking about why not to use Venmo and PayPal for over two years now. I have several episodes dedicated to it. And now we got caught up, right? There’s all these policies in place. They were actually always there. People just didn’t read the fine print and their money was actually being held by these processors.
But anyway, I digress, there’s other episodes in this podcast about this.
Now those processors are also charging the fees, so just work it into your budget, right? So this, this goes back to being priced properly and all those kinds of things. But we allocate 2% to bank charges and interest.
Professional savings should be about 2%. Why do I need professional savings? What if you want to buy a new pair of shears? What if the water heater goes out? You know what, if you want to invest in a new retail line? How are you going to afford that without it having it take a hit on your personal lifestyle? You’ll need a professional savings.
And let me tell you friends that those funds will be needed. Stuff will come up. You’ll decide to invest in an extension line or whatever, and you’ll need that professional savings.
1% goes to licenses and permits. 1% goes to liability insurance.
If you have a surplus in any of these areas, you can reallocate. So you can maybe spend more on rent if you don’t need 2% to go to software. Maybe you can spend 16% on rent and 1% on software, right? Or you could say, “I have a surplus. I want to take it for personal income.” Or “I have a surplus. I want to invest it towards retirement, but these are the benchmarks.”
Now I’ll be honest with you. Some of you are spending like 30% of service revenue on booth rent and then you’re wondering why you’re not making any money. You are paying twice as much on rent as what you can afford. Literally twice as much. I see it all the time. And so the question becomes like, “Oh my gosh, so should I rent somewhere really crummy for two days a week?” No, you should make more money. Are you in this as a business or is this a hobby?
This goes back to the question of are you a business owner or hobby hair stylist, which we have episodes dedicated to that too. And we could talk about it more, hit me up in the DMs if you have questions.
But like I said, it’s not about cutting back. It’s about getting real with yourself and earning more. When people are living that stereotype of the broke hair stylist, it’s almost always because they don’t live within these margins and they didn’t realize these margins existed, right? And so they’re making these choices emotionally and it’s costing them in the end. And then that 51.5% I mentioned earlier is what you would get to keep pre-tax home income if you stay on the budget, but that’s totally up to you.
So when we look at what it looks like for commission stylists, how come they’re taking home so much? Well, because they don’t have the same expenses. It’s totally different. Often commission stylists get an unlimited surplus of color in their break room, right? That’s something that independents don’t have the luxury of. You don’t have to worry about the cost of the building rent going up. You’re getting things like health insurance. You’re not paying for business insurance. There’s so many things that are being taken care of for you.
And when you’re commission, I think there’s actually a lot of perks to being commission. But the biggest one, if I’m being honest, is peace of mind. Somebody else is handling all the hard work for you. So you just get to show up, do your craft, and bounce. The marketing is part of the job for all of us, no matter how your money comes in, but that’s a clutch get, like that doesn’t suck. That’s the arrangement.
So there is a cost to pay for the peace of mind and the additional time you get back not having to run to the beauty supply store and ordering stuff and all the things, and that’s why the profit margin there is a bit lower.
This was going to be one episode. I’m realizing right now I have so much more I want to talk about when it comes to money, this is going to be a two-parter. Next week, we’ll talk about profit of profit and what that means for salon owners.
I hope this has been eye-opening to you. If you have any additional questions about profit margin, money management, help me help you. Leave me a rating or review on iTunes and in the comments, let me know what questions you have. I will get to as many as I possibly can, but as I always like to say so much love, happy business building and I’ll see you on the next one.
