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
We Answer Britt Seva's Questions About Team-Based Pay
In this special episode, we answer questions about Team-Based Pay (TBP) raised by Britt Seva in her Thriving Stylist podcast episode titled "Commission Structures That Work Today."
Listen to her episode of reference here: https://thrivingstylist.com/podcast/332
As fans of the Thriving Stylist podcast, we were thrilled to be included in the conversation about pay.
In this episode, we're excited to answer her questions, as well as bust some common Team-Based Pay myths, including:
- Top performers are at a disadvantage in TBP
- Employees will get a pay cut
- It discourages individual achievement
- Running the Team-Based Business Model is more work
This episode is a great resource for salon, spa, and medspa owners who are considering switching to the Team-Based Business Model and want answers to common questions.
Watch the video version of this episode: https://youtu.be/Gy_stS4rAAU
To learn more about how Strategies can help you create more profit, fun, and growth potential for you, your business, and your team, schedule a free 60-minute strategy session:
Schedule a free 60-minute strategy session: https://strategies.com/free-coaching-session
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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 we have a unique episode for you. We're big fans of the Thriving Stylist Podcast with Britt Siva, and she mentioned strategies on a recent episode where she gave her take on team-based pay. She had some great insight and also some great questions around it, so we wanted to take this opportunity to answer Britt's questions and also bust some myths about team-based pay that we hear often. So today we brought Neil Dukoff, the founder of Strategies and creator of the team-based pay business model, here to address some of the questions that Britt had brought up and to bust some myths. So welcome, neil. I'm always glad to sit next to you and learn from the best.
Speaker 2:I'm happy to be here.
Speaker 1:Awesome. So let's dive into a couple of questions that came up from the podcast, and one of them that I think is really important for us to address is the question around bonus and a team bonus, and how do top producers not miss out on a bonus if someone else maybe isn't performing at that same level? Discuss, discuss.
Speaker 2:Okay, britt brought up a good point and yes, it's something that we hear all the time, but there's an explanation. But what I want everyone to kind of lock into is the component of team-based pay, which is an hourly rate pay program with a bonus structure. It can be, we would recommend, a team bonus. Got to hit the goal, ring the bell and then there's X amount of dollars in the bonus pool which can be calculated all kinds of different ways. An owner, to be safe, can say I'm going to put $1,000 in the bonus pool, whatever they want, but $1,000 in the bonus pool and that's there. That if we hit the goal, we can do the bonus, because you can't hit goal and go oops sorry guys, there's no bonus, even though we rang the bell, but the there is no profit.
Speaker 2:Or if the team missed goal but a top producer busted his or her butt to drive as much revenue as they physically could with their own two hands. But what if the rest of the team or certain members of the team didn't put their effort in? They were too busy on TikTok in the back room or whatever they're doing? Here's what the top producers make out in a team-based pay company. So there's two points here. One is their pay and the other is bonus Strategies.
Speaker 2:To be fiscally responsible, we teach our coaching clients that if you create profit, you can take a piece of that profit and distribute that among the team. As a team bonus, everyone gets a fair share among the team. As a team bonus, everyone gets a fair share. Or you can divide that up where, based on your percentage of the payroll, you get a bigger piece and newbies get a smaller piece. So there are lots of different ways to do it. But you also got to look at the financial reality of the company. If they've been struggling for profit, we got some things that we need to get under control to start creating profit so we can do bonuses, so that's the bonus piece. But if you're looking at the hourly rate, the benchmark that we use that is really rock solid is service payroll. Payroll for hands that do the work needs to be 30 to 35 percent of total revenue. Service sales plus retail sales equals total sales.
Speaker 2:Got it 30 to 35 percent, which means and everyone stay with me on this for every additional $100,000 that that business can generate in revenue. There is another potential. Reality may say something different based on the financial reality of the company. Reality may say something different based on the financial reality of the company, but there could be potential for $30,000 to $35,000 in additional payroll service payroll available that the company can pay.
Speaker 1:Right.
Speaker 2:What do you want to do with that? We'll just say $30,000. It's easier, the $30,000. What do you want to do with that? Well, let me look at my people and who deserves a raise? Christy, you are busy as heck. You just slam every day. Every client gets taken care of, High retention, high revenue per hour. Pre-book rates are 180%. You're getting clients in five times a week. You help out, you mentor everything. I want to give you a raise. I'm going to get you up to $150 an hour, $170 an hour, like Britt said. I can do that as long as I keep my payroll within 30 to 35% of total revenue Right right right.
Speaker 2:So I can pay you an extraordinary amount of money on team-based pay that if you are on commission, your book is full. You got a waiting list.
Speaker 1:Yes.
Speaker 2:Here's how much you charge for your work. You're 110% productive, but you've hit the ceiling because you're going to get a percent of what your hands could generate. On team-based pay, we completely eliminate the ceiling for how far somebody can grow because we're putting our service payroll dollars where the performance is, but overall performance, not just how much money they bring in.
Speaker 1:Yeah, what does that really entail? What is overall performance for someone who's watching?
Speaker 2:Hey, you have an attitude.
Speaker 1:I do.
Speaker 2:You know, do I want to pay you more for attitude? Right hey you get to work late. Do I want to keep paying you 50% of whatever you bring in and you come in late? Right, you come in with your attitude. You, you, you know. If there's a meeting, you sit there like this and you're in late, you come in with your attitude. If there's a meeting, you sit there like this and you're looking at your clock or on your phone what's your first-time retention rate? Existing client retention rate your pre-book rate.
Speaker 1:Ability to mentor others.
Speaker 2:Ability to mentor others. Consistency Are you consistent? Do you support company initiatives? So there's overall performance that we look at in a team based company that we want to reward. And for again, all of you watching you know just, you don't even have to do math, but just think if you had all of your payroll, your next payroll, in cash in front of you and you wanted to divide it up based on the performance, overall performance of each individual in your company, including those fine people that work at your front desk.
Speaker 1:Yes.
Speaker 2:You know, would you want to distribute it differently than your commission is automatically. Because on commission you can't say how you want to distribute it. The commission is going to say here's how it's getting doled out. So that's why we say and Britt pointed this out on our podcast that one of the things, the mantras that we say at Strategies is everyone's responsible for every hour the company has available for sale. If we can keep our productivity rate in that sweet spot that 80, 85 percent, 75 to 85 percent, some days are going to hit 90, 95. But if we can be productive and we can bring in another $100,000, we have money that we can say Chrissy, you're doing an amazing job, we're going to give you a raise and, being you, you have the potential to make more money as a top producer in a team-based company. And again, just guys, think of this we just hired two new people Commission Salon. They're going to get all the new customers.
Speaker 1:Yes, they're going to get all the new customers, yeah.
Speaker 2:Oh man, I'm not liking this. They're going to get all the new customers. Yeah, oh man, I'm not liking this. They're going to get all the new customers. Team-based company. We're going to hire two new people, put them through training, they're ready to go on the book and now it's team. We have two more columns on the book we need to fill. Yes, because if we can do that extra $100,000, there's another $30,000 to $35,000 available for pay?
Speaker 2:Yes, and it can go back to the people that helped get others busy so everyone can grow. There are many different moving parts in payroll. And again, commission's easy and that's been the problem Right, you pick a percent, put it out there, here's what they brought in, here's what they get, sliding scales, whatever. But you come up with the formula and that's all predetermined.
Speaker 1:Yeah.
Speaker 2:In team-based pay. There are decisions you can make. A lot of them are fun. Some of them may not be fun. Maybe you overhired and I can't afford all the people that.
Speaker 1:I hired yes.
Speaker 2:But there's more mechanics that an owner needs to learn and understand. Nothing hard, yeah, but needs to learn and understand how to get things dialed in nicely. And that can always change based on conditions in the business.
Speaker 1:Yeah, how things ebb and flow. Absolutely, that was a great explanation, thank you.
Speaker 2:I try.
Speaker 1:So let's talk about a few misconceptions. Here's one, and as you have all already heard, I'm sure that we're going to be able to address this one in literally one statement, but the myth that's out there about team-based pay is everybody makes the same amount of money.
Speaker 2:God, that'd be great, wouldn't it.
Speaker 1:As long as I'm making $150.
Speaker 2:Everyone makes $15 an hour.
Speaker 1:How's that? Isn't that great.
Speaker 2:No, everyone on commission is paying an hourly rate, they just don't realize it, just don't realize it, they don't realize it.
Speaker 2:If you're commissioned, you convert to team-based pay. What were their scheduled hours? Divide their scheduled hours by what they grossed on the paycheck and there's your commission, your hourly rate on commission. The hourly rate will be an average of what they were making per hour on commission. And then we massage that a little bit because, because you want the new hourly rate when you do a conversion, you want the new hourly rate to be a little tiny bit better than what they were making on.
Speaker 2:You can't go crazy, but you know, 25 cents, 50 cents a dollar, more an hour or something. But the new starting pay is going to be a little better than a mirror image of what they were making, so nobody's getting a pay cut.
Speaker 1:Good, that was another one of those myths that's out there.
Speaker 2:You know, we wouldn't be in business 30 years if we were teaching how to do pay cuts.
Speaker 1:Yeah, no, not at all. You'd see all the nuclear mushroom clouds from all the salons that we were coaching.
Speaker 2:And we teach our coaches that when we do a pay conversion, we're there representing the employee yes, the company but we are representing the employee, and all fairness and integrity must prevail to make sure that everything that we're presenting to the employee is as fair as absolutely possible.
Speaker 1:Yeah, that's great.
Speaker 2:That's why very, very few companies that we and we've done thousands of pay conversions. That's why very few have a lot of turnover after. Yeah, they may lose one or two. Quite frankly, sometimes they need to lose one or two Right.
Speaker 1:That's usually the ones that need to go.
Speaker 2:Or the people had already left, but keep showing up at work and then we come in and help them finally leave.
Speaker 1:Finally leave Love, it All right. So here's a kind of based on this, a myth that's out. There is that team-based pay discourages individual achievement.
Speaker 2:If you're passionate about the work that you do and you're committed to delivering the best experiences possible as a professional. There's nothing in team-based pay, when properly communicated and properly led and has the right support systems around it and the right culture. There's nothing there that says because you're not paid a piece of what you do, you're being penalized. Yeah, what we're doing is saying in measured increments, performance reviews, pay reviews. There's an opportunity to earn more. And if the company is performing, if you're performing, because I'm not going to hold you back from getting a pay increase, so I can't get a raise because they're not doing the work you can't. That's not fair to you, right? So we teach our clients how you know. Listen, we've got to do something for Christy. Yeah, got to do something for Christy. You know the company's doing okay, but you're really working hard at it. We need to take care of you and we'll make the adjustment in the budget.
Speaker 1:That's good.
Speaker 2:But there's a fallacy about everyone that commission is the motivator, and I always like to use retail commission as an example. Yeah, you know, if commission was a motivator, why aren't you guys?
Speaker 1:knocking it out of the park when it comes to selling retail. Agree, agree.
Speaker 2:Well, you know I'm not a salesperson, bob, and all that other nonsense that goes in there. How about this? You guys want to see a massive change in revenue, charge the right pricing for everything and stop giving things away or undercharging clients. How many clients are still getting charged the same price as three price increases ago? Because you're afraid? Mrs Smith is going to have a fit, yes, so no, it doesn't demotivate. Give us one more, because our time is running out.
Speaker 1:How about the fact that running the team-based pay business model as a company is more work for the owner?
Speaker 2:We've heard this Gee, your system sounds like a lot of work. How do you run your business now? Right, are you doing a cash flow plan? I'm really not into the numbers.
Speaker 1:Yeah. It shows Right. It shows Right.
Speaker 2:What's your current running net profit based on your last profit and loss statement? On the team-based pay business model, there are requirements, disciplines that an owner needs to embrace to get the full potential of the system. The numbers you need to track. We'll keep saying cash flow plans, cash flow plans. You've got to look at your P&L. Is your balance sheet? Are you getting healthier? So it's not more work. In many eyes it's more work than you've been doing, or a lot more work than you've been doing because you haven't been doing the work at all.
Speaker 1:Right. So ultimately, it's the work that needs to get done to run your business.
Speaker 2:It's the work that needs to get done. Period, that's it.
Speaker 1:Yeah, Good stuff. If you would like to have a custom consultation to really see if any of these myths need to be busted in your business or if there's anything that we can guide you and educate you on to do business better in your business, we'd love to chat. Neil, thank you for busting some myths. Thank you, Britt, for the mention of strategies and the opportunity for us to be able to continue to educate our fans and the future of the beauty business industry. Thank you again for joining us for the Beauty Business Strategies Podcast and we'll see you again next time.
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.