Beauty Business Strategies
The podcast where salon, spa, medspa, barbershop, and lash studio owners — just like you — learn quick tips to make more money, inspire your team, and create world-class client experiences.
Beauty Business Strategies
The Origin Story of Team-Based Pay in the Beauty Industry with Neil Ducoff
Ever wondered how Team-Based Pay came to be in the beauty industry? We sit down with the pioneer of Team-Based Pay and Strategies founder, Neil Ducoff, as he spills the tea on the business model that's reshaping the beauty industry. As a former salon owner himself, Neil shares his pivotal shift from commission to the hourly model that empowers beauty businesses to focus on collective success.
Our candid chat peels back the layers of salon/spa payroll, offering a fresh perspective on how salons and spas can pay their staff what they deserve without compromising on profitability.
Conversation highlights:
0:17 Why Neil created the Team-Based Business Model
5:13 Questioning the commission model
10:50 How Team-Based Pay was born
13:15 Why Team-Based Pay can get a bad rap
14:16 Common TBP misconceptions
18:07 How Team-Based Pay works
21:12 The work that needs to be done
23:25 A tip for struggling beauty business owners
25:09 How TBP makes your beauty business more valuable when you want to sell
26:58 How to know it's time to change your pay structure
Watch the video version of this episode: https://youtu.be/P70AzNZzEy0
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The Beauty Business Strategies Podcast is designed to give salon, spa, medspa, barbershop, and lash studio owners, just like you, quick tips to make more money, inspire your team, and create world-class client experiences.
Welcome to the Beauty Business Strategies Podcast. I'm Christy Hardy and today I'm joined with Neil Dukoff, the founder of Strategies. Welcome, neil.
Speaker 2:Nice to be here.
Speaker 1:I'm so glad to have you. We're going to talk to Neil today about the team-based pay, business model and strategies and really I want to get to know from the founder the why. Why team-based pay? Why strategies? Why did you decide this was something that we needed to do in our industry?
Speaker 2:So to answer that we have to take a trip down memory lane.
Speaker 1:All right, let's go.
Speaker 2:There we go. What many of you may not realize is I was a salon owner. Went to beauty school, got out of beauty school, worked for the Glembi company was a department store chain went through the training with the Chadwicks. That was my start in the business. I was working in a Glembi salon. I was making 45%, I was busy as heck and I had a waiting list.
Speaker 1:Wow.
Speaker 2:I wanted more money. Yeah, I was stuck. And that, hey, I'm making 45%, whatever percent, and I hit the ceiling is what we hear owners say all the time, even today. Yeah, is what we hear owners say all the time Even today. Yeah, so back in 1973, when I opened my first salon in Edison, New Jersey, I did kind of what Glembie was doing. Hey, they had 1,200 salons. I figure they know what they're doing Right. But I said I think 50%, think 50 is fair oh, how'd that go?
Speaker 2:half for them half for me, you know, and again I was 23 years old, right, and you know there was more excitement than planning and knowledge, right, and I opened up my first salon 20 feet wide, 80 feet long and about six months into it the accountant comes in, does the books and everything and goes hey, you lost money.
Speaker 1:Wait what?
Speaker 2:Yeah, and it's like huh, we've been working our butts off here and I start looking through our butts off here and you know I start looking through, you know, the P&L. I had been going to this Redken Challenge of Success and you know they would talk about financials and stuff like that, but I really dove into the financials. I go. You can't work. Even though we're only six months old, you can't work as hard as we are, and I was working six days, three nights. Oh wow, I also began to resent how hard I'm working.
Speaker 1:Yeah.
Speaker 2:And I got people hanging out in the back complaining about me.
Speaker 1:Right.
Speaker 2:Or whatever. They were complaining about. Yes, it makes the story better to say the employees are in the back and they're complaining about the boss. It makes the story better to say the employees are in the back and they're complaining about the boss and it's like, okay, I got to do something to the pay. You know, 50% isn't sustainable. And then I'm looking at the 45% and I go okay, so if I lower it to 45, that's going to be a fun staff meeting.
Speaker 1:Right.
Speaker 2:So you know how do I do that. So, without getting stuck on all that, I did what I would refer to as a very rude, crude conversion from commission to hourly. So nobody got a pay cut. We put a cap on the payroll and then the conversation shifted to what do we have to do Awesome. And started to move away from how much does each person have to do. Now, I was on a call this morning with a very sharp owner just talking about her company and she used that language. Well, you know, my people are telling me, yeah, I got some people making you know $100,000 a year. And you know, hey, I'm at 45% and I hit the ceiling, I can't make any more. Well, you know, you got two hands, x number of hours available, and so what do we do? I mean, some in the industry have done hire an assistant, right, you know. Double book, triple book, right.
Speaker 2:Welcome to the bone. Yeah, and yeah, you can jam more through, but to me that didn't represent the level of service that I wanted to deliver. And because you're doing you know, frederick Fakai, I'm doing $500 seven-minute haircuts. You know, yeah, but not everyone's Frederick Fakai. I'm doing $500 seven-minute haircuts, you know, yeah, but not everyone's Frederick.
Speaker 1:Fakai.
Speaker 2:Yeah. So just looking at the salon model, I began to question it. I questioned commission because it was everyone's trying to build their own book Right, book Right. I know, when I opened the salon, all the customers that I did at the previous place through some miracle found me and you know, and I didn't. I didn't want my company to get blown up because someone decided to leave and and worked very hard at the culture and I still communicate with people that worked for me back in the 70s and they still remember that as a really exciting time, nice that it was.
Speaker 2:You know, just call it team-based pay way back when. And so, going back to the early mid-70s, my mind just completely moved away from the commission model because you can't control your payroll when you're paying a commission, even if you have sliding scales. When you're paying a commission, even if you have sliding scales, there is still an average commission that you're paying and that average is what your service payroll is on your profit and loss statement and it still comes out to a percent. And on commission, if the sales are up, the percent stays the same and it sucks all that additional revenue before you have a chance to say, hey, but the rent went up, right, you know, I was talking to an owner last week who said yeah, you know this product company, you'll know who.
Speaker 3:But this product company they're raising their prices Again.
Speaker 1:Twice a year, every six months. Twice a year, I heard that too.
Speaker 2:So what do you do? You're going to do price increases twice a year just to cover your product charge. So when you're stuck with a fixed percent payroll, you can't control the thing. You can't. You can't make adjustments. Listen, we need revenue to go up a bit so we can cover the increased cost of doing business, which has really gone up in this past year with inflation and whatnot, rent, just everything. Everything across the board is up. And then it comes back to what I said at the beginning. What about people that are book solid and they have a waiting list? You know how do they make more money? Industry response.
Speaker 2:Raise their prices. Yeah, all right, great. So now you've got 10 people working in the salon. Just pick the number and you've got four or five different price points. How much is a haircut? Well, they're from here to here. How much do you want to spend? We've got someone for you. But that you know. And the higher price would support more income based on the commissionary.
Speaker 2:I know people that do the sliding scales. It doesn't matter, it still comes out to a. When you pay commission, it becomes a fixed service payroll percent on your P&O. Sales go up, payroll's up, sales go down, thank God, payroll's down. But then you have people that are booked solid. How do they make more money? Yeah, you can certainly raise the prices, but what they got to start double booking, triple booking, that doesn't make sense.
Speaker 2:Isn't there a value to doing consistently great work? Yes, you know you love the work that you do. Come to our company and do consistently great work and we're going to polish your sword a couple of times a year with some new education so you can get better and whatnot. And then we're also going to prepare new people to come in so they can perform to your level faster. So here's the thing If on team-based pay. If revenue goes up because the payroll doesn't go up just because revenue went up, it creates a gap that allows you to come back and reward people that help the company grow. If the whole team was doing great, great, I want to do raises across the board. If a couple people were doing great and we need to recognize them, I can give them a raise.
Speaker 2:How about the front desk? Front desk most important people in the company. They control your appointment book and the productivity rate. Yeah, and what are you paying them? So you know you can direct more money to where it matters. But you don't have the options in a commission environment to say I want to give a raise or I want to. Yeah, you can pay more commission, but nobody can pay more commission today. If anything, you got to find a way to lower it. But have that staff meeting. I always say if you're going to lower your commission, videotape it and send me the video so I can sit and watch it with a bag of popcorn, because it's not going to be fun.
Speaker 2:It's not going to go well. So you know, when I? You know, prior to Strategies, I was editor-in-chief of a company that published Cutter Magazine and I started going out in the early mid-80s teaching this salary class and how to pay differently, but just not commission. And people started listening to that when I started Strategies in 93, that's when we started okay, what is this thing really? Because it's really not salary, salary exempt from overtime, there's labor law conditions for all that. So if you really looked at it, it's we need a team of people working to grow the company Right. So everyone has an opportunity to do well. And for those people that are book solid, they have an opportunity to get raises even though they physically can't produce more. Listen to what I just said they can get raises even though they didn't bring produce more Right. Listen to what I just said they can get raises even though they didn't bring in more.
Speaker 1:That's such an incredible concept, isn't it?
Speaker 2:It's the company brought in more. So what's happening is on commission busy people get busy and busier, and busier until their book is full.
Speaker 1:Yeah.
Speaker 2:And then their income levels off and then the company starts growing around them, but they're not growing.
Speaker 1:Right.
Speaker 2:Or maybe they're growing incrementally and on team-based pay. If the company is growing and we use language like everyone's responsible for every hour the company has available for sale, it's wow, we just hired two new people and we have to get two more columns on the book. Full Right In a commission salon. You hire two new people and it's like those rat bastards are going to get all my new customers.
Speaker 1:Right Column vision.
Speaker 2:right they're the enemy, they're not part of the team. Team-based pay says let's get them busy so we can grow the revenue, build the brand so we can all do better.
Speaker 1:Truly building a team.
Speaker 2:But it takes a different type of leadership and it takes a different level of understanding critical numbers and financials. And that's all the additional things that to do a great job and reap the benefits of team-based pay, you've got to become a more well-rounded owner.
Speaker 3:Right, I hate numbers.
Speaker 2:Well, then don't do team-based pay. You know and, by the way, numbers are easy Dollars in, dollars out, dollars left and there's some percentages in there, but none of it is hard. You just need to understand. You know your first haircut wasn't that great, was it no Good? Well, the first time you read financials you don't know what you're looking at. Truth.
Speaker 3:Very true.
Speaker 2:So you know, but we can help you with that. So team-based pay was a I mean. It evolved into a business model, you know. And then there's all the stuff in the industry that people you know. Well, how can you pay everyone the same hourly rate? You don't pay everyone.
Speaker 1:How could you pay everyone the same hourly rate?
Speaker 2:Yes, that is a true, nice myth out there about team-based pay isn't there. You can't pay everyone the same hourly rate. Yes, you know, if you're a commissioned salon and you convert to team-based pay, the conversion is based on their kind of an average of their last six months. Without going into the fine details, it's based on an average of what they're making per hour on commission. That's the jumping off point for team-based pay.
Speaker 1:Do people ever get a pay cut when there is a conversion to team-based pay? You can't do a pay cut.
Speaker 2:A pay cut is commission mentality. A pay cut says commission is I'm fine paying you more when you're bringing in more and I'm not happy about it, but if you're bringing in less, thank God I'm not paying you more. On team-based pay, it's hey, you got to bring in the numbers and hey. But if the numbers go down and you're still paying them what they were making on higher sales, how long are you gonna let that happen before you go?
Speaker 2:hey, you know it's been one pay period and you know you seem to have gone into a mental coma and your sales are way down. I can't pay you this, you know, for this. I want to pay you this for that.
Speaker 1:Right.
Speaker 2:And, but on commission, how many people you know their sales come down and they're making less money and you don't feel the pain as much True.
Speaker 2:And it goes on so long you let it continue and then you get disgruntled employees and then they leave and all the other nonsense that happens. But in team-based pay, if they're not performing, if their retention rate is down, if pre-book is down, if retail sales aren't there, you know. If retail sales aren't there, if the attitude is bad, if they won't come to education, if they're not present at meetings, you know. Whatever the issue is, you know you can't keep paying them for what you're not.
Speaker 1:Yeah.
Speaker 2:For what they're not giving back to the company. And if you do a pay cut, you're in the commission mentality of hey, if you're busy I'll pay you, but if you're not so busy I want to pay you less, yeah, yeah. Which which gets us stuck in the Can you sweep the floor? I'm not paid to do that. Can you help someone out with that? Hey, we've got Mrs. You know stylist is running behind. You know your teammates running behind. Can you help miss, you know, can you help?
Speaker 1:with the foil yeah.
Speaker 2:Oh, what piece am I going to get, right? Yeah, you totally get that, and it just on commission. It's what do I get? What piece do I get? Am I paid for that? On team-based pay can you sweep the floor?
Speaker 2:I'm not paid for that, oh yes you are Because you're paid for every hour you're in the company, which also says you can't have to grow. A company can't have people coming and going as they please. True, not to be mean or nasty or not be sensitive to a flexible work schedule, but hey, I don't have anyone until 1 o'clock. I won't be until 1.15. You know you can't run your company if the hours keep disappearing. Truth. So team-based pay is a complete business model. The pay is just the foundation.
Speaker 1:Yeah.
Speaker 2:The hourly rate is the foundation. It's about consistency. It's about growing the company. It's about you know, listen, if you can go from 600,000 to 700,000 or 800,000, you know you have, for every 100,000 in revenue, there's another 30 to 35,000 or so available for payroll, to hire new or give raises. You know, hey. So if we can increase revenue, the company revenue $100,000, $200,000 this year, that's, you know, $60,000, $70,000, $30,000, $35,000 per hundred that we would have available to pay more.
Speaker 2:And then a lot has to do with managing the productivity rate. Yes, that's why pre-book, that's why frequency of visit, that's why first-time retention and existing client retention. That's why first-time retention and existing client retention the better we drive our critical numbers, the higher we can drive revenue, the more the company can afford to pay. But it's we have to do the work and work together. And it's not just what's on your column column, it's being responsible for every hour, that's on all the other appointments, schedules, that's team-based pay. Everyone's responsible. But it takes leadership. That's why daily huddles, scoreboards where are we at? Everyone needs to know the game and we know when we do pay conversions. You know their owners. So you want me to like do a scoreboard and everyone's going to see what the goal is for the company for the month. Yeah, oh, I don't want them to know that. Well, how are you going to grow a company if you don't keep score Right? True, what are we playing for? You know, just hit your number, or can the company hit its?
Speaker 1:number Right. We've got to get that mindset.
Speaker 2:It's a different mode of thinking. It takes engaged leadership, it takes a better understanding of leadership. You need to have the financial discipline. Very easy. You just got to get into the rhythm, but we've got a lot of systems that can help owners do that and and and what they find six months, in nine months, in a year, in that even the customers see it. Absolutely I don't know what you're doing different, but this place is. It feels better right.
Speaker 1:It feels, different. Yeah, the vibe is very different. Yeah, the vibe is very different. So one myth that I hear a lot, or a question that I get from owners a lot, is you know, if I were to convert to this team based pay or start taking on some of these things, it just feels like so much work. What's your response to that question of why is it so much work?
Speaker 2:It's the work you should have been doing anyway.
Speaker 1:Right, yes, absolutely.
Speaker 2:If you're an owner and you're behind the chair 40, 50, 60 hours a week or in the treatment room, you've got to rethink that.
Speaker 1:Yeah.
Speaker 2:And someone needs to run the company. You can still do services, but you've got to pay attention to the business.
Speaker 1:Yes.
Speaker 2:And cash flow plans are not optional. Monthly financials P&L balance sheet critical numbers. It doesn't take much time an hour or so a week devoted to looking at your numbers to see that you're making the right progress. It's not hard. No, it's not hard, but you can't be if you're trying to grow a company one column at a time. That's not team-based pay.
Speaker 1:No, not at all. That's not team-based pay.
Speaker 2:No, not at all. Growing a company, a brand, client loyalty to the brand, a great staff that comes to work to do consistently great work, without the competition between service providers, chairs, treatment rooms or whatnot. It's a better way to do business, but you got to have the right systems in place to make it.
Speaker 1:Absolutely, Absolutely. Do you have any recommendations for owners who are feeling like they're struggling to find systems to be able to engage their team differently because of scuttlebutt, because of communication out there, because of our industry in general Any tips, tricks or recommendations for owners on how to start that communication with their team?
Speaker 2:I would urge all owners, even ones that have been on team-based pay for a long time, because you can drift team-based pay for a long time, because you can drift um, answer the question what are you building? Yes, just get back to what are you building and why are you building it, and answer that question with, as we like to call it, absolute clarity. Yep, because when you focus in on what you're building, you know what do you want it to be for the client? And when you start looking at what are you building, what do you want it to be for the client? What do you want it to be for the employees? What do you want it to be for you? Yes, so it's not just a job. You know you want to have some freedom and and you want to reward financially in time. You know for what it takes to grow a company and deal with all this stuff, cause, yeah, it's, it's a lot of work, but commission that whole thing, you're going to be at the bottom of your boat in the hull plugging holes.
Speaker 1:Yes.
Speaker 2:And sometimes you're plugging them as fast as they happen.
Speaker 1:Truth, very true.
Speaker 2:And on team-based pay. Those holes can be plugged and capped.
Speaker 1:Yep.
Speaker 2:Doesn't mean you're not going to get new holes. I mean you're going to spring leaks every now and then, but with the full team-based pay business model, you're plugging those holes and they can stay capped as long as you stay on your game.
Speaker 1:Absolutely.
Speaker 2:Remember, part of the end game is you're going to want to sell someday, yes, and how do you create the value to make your business saleable? More willing to pay a premium for a company that built a brand and has a customer base loyal to the brand than buying a commission company where the clients are loyal to the service providers that if they don't like the new owner, they can relocate. Hey, I just bought an empty salon.
Speaker 1:Isn't this great this is great, some nice chairs Absolutely Wow. Well, team-based pay for me was something that truly allowed me to lead in a way where I was making a difference. For my team members it was always about the client experience, but for me personally, I wanted to make sure that my internal customer was taken care of at a very high level, and that included things like health insurance. It included paid time off. It included paid education All of those things that a 401k things that our industry doesn't really have the ability in a commission base because all the money's gone to be able to provide and for me, that was an incredible way to make sure that I was leaving a legacy for the next people who were coming into our business. So I thank you for creating TeamBasePay and getting the word out to our industry that there are ways to do business differently and better so that we can all have success in this beautiful industry.
Speaker 2:If you're looking at your company and it's springing leaks and you have a high frustration level in your company as an owner and you'd like to build a better tomorrow, you got to look deeper at what you're doing and how you're doing it and at the very below, the foundation of the footings. You know a foundation is built on the footings and if the footings aren't solid, the foundation can't hold up your company. Team-based pay and truthfulness it's the footings that you build your company on.
Speaker 1:So true.
Speaker 2:And because the footings create the strength for the company, it creates the longevity for the company, it creates the opportunity for the company. That and again, commission, it's that you know there's a reason. The industry has a rich, grand history of employee turnover, yes, and walkouts, yeah, and that's walkout is part of it is you can trace it back to commission, you trace it back to contaminated culture toxic cultures. You can trace it back to a leader that was a better technician than they were a leader Yep.
Speaker 2:Or, you know, couldn't manage the cash? Yeah, get the footings in right. Yeah, team-based pays. To really reap the benefits, you've got to implement the system and stick with the system. Refine the system. Implement the system and stick with the system. Refine the system and you just start to move away from all the commission madness.
Speaker 1:Yeah, absolutely, Neil. This has been awesome, Thank you. If you would like more information about how you can get education and build your business as a team-based pay salon or spa, please reach out to us. We would love to talk to you and, Neil, thank you for again for not only for today, but for creating strategies and the team-based pay business model.
Speaker 2:We appreciate you. Make a difference.
Speaker 1:Absolutely. Thank you everyone.
Speaker 3:Thanks again for listening to the Beauty Business Strategies Podcast. If you liked this episode, be sure to hit follow To learn more about how strategies can help create more fun, profit and growth potential for you, your company and your team. We invite you to schedule a free 60-minute strategy session by clicking the direct link in the description of this episode.