The Price of Luxury
I recently talked to a few people outside of the industry about what they think is a “fair price” to pay for beauty services.
We, beauty industry folks are so immersed in our own issues that we often don’t see the forest from the trees and we don’t math properly either.
The general feedback I got was that consumers feel that $35-$40 is a reasonable price for a pedicure done by someone straight out of school (performed in a clean, respectable salon). They also think that such a pedicure would take about 45 min.
The reality is that most people straight out of school take about 1:30 min to do such pedicures and they are expecting to be paid at least $15/hr plus tips. That is fair to them because you know, they went to school and they are professionals.
Consumers on the other hand think that the workers are paid minimum wage because they get tips. The minimum wage is currently $11.40, going up to $11.60 in October 2017 and to $15 in Jan 2019 in Ontario, Canada.
So for an employer to pay someone $15/hr (soon to be minimum wage) is actually paying about $20/hr (vacation pay, CPP, IE etc). 52 weeks x 40 hours = 2080 hours x $20 = $41,000 a year.
In order for a business to pay someone $41,000 the employee needs to generate about $120,000 in gross sales because generally, a business cannot pay out more than 35% in its gross sales in payroll.
That $120,000 needs to be generated in 48 working weeks (2 weeks of obligatory paid vacation and 10 days of paid statutory holidays here in Ontario plus proposed 2 paid personal emergency days)
120,000 divided by 48 weeks equals $2500 income needing to be generated each week. Now, we all know that’s impossible for any employee to be booked literally 100% every single day of the year. Cancellations happen, slow days happen, people need to be trained (and they expect paid training) etc. It’s safe to say that the booking rate is 70% (which is still VERY optimistic) 40 hours x 70% is 28 hours.
That $2500 needs to be made in 28 hours making it $89/hour.
So that 1:30 min pedicure by a newbie would cost $133. And that is for the employer to pay a newbie “measly” $15/hr!
So let’s say our industry is “different” and it’s OK for a salon to payout 50% of gross sales in payroll and walk a thin line between “I’m almost there” and bankruptcy. That “other” 50% is NOT a profit. It’s other expenses like rent, equipment, banking fees, utilities, loans, future renovations etc. The actual profit of a healthy running salon might be around 5% if you’ve got your numbers straight and if the business takes off (at some point).
At 50% of gross sales going to payroll $82,000 income would need to be generated in 48 weeks making it $1708 a week.
$1708 divided by 28 hours (@70% booked) = $61/hr the salon must bill to pay someone $15/hr. That 1:30 min long pedicure would still cost about $90. Plus tax and plus tip.
Let’s look at it from the consumer expectation of a $40 pedicure:
Newbie pedicures would cost $40 and take 1:30 min. That means that the newbie is generating $26.50/hr if they are 100% booked (which they won’t). Let’s say they are 70% booked.
If they are booked 70% (fully booked) they would be generating $34,000. If they are booked 50% they would be generating $24,750. Generating for the business, NOT making!! What business can afford to pay a $41,000 salary (that is the requested $15/hr) for an employee who is generating $25,000- $34,000 worth of gross sales? (Rhetorical question)
Is commission an answer? Even if the newbie would be 100% booked every single day and was paid 50% commission (which will cost the salon about 60-70% in payroll which is a suicide) the employee would be making 25,500 so less than minimum wage.
Let’s think about this for a minute. How unrealistic consumer expectations are and how unrealistic new (and experienced!) people in the industry are thinking that starting hourly rate should be around $15 up to $25 if you are experienced, with current pricing?!
Let’s just amuse ourselves with figuring out what it would take for someone to get paid $25/hr.
That’s a $47,000 salary. Which would cost the business about $55,000. If that 55K was 35% of gross sales they generated they would have to generate $155,000 in gross sales.
Divided by 47 working weeks (at that point they probably have 5 years of experience and they deserve/earned 3 weeks off) = $3300/week. Divided by 28 hours (@70% booked)= $117/hour.
Some pros I talked to say that they book 1-1:15 min for a pedicure and that pedicure costs about $55.
In reality, your 1:15 min pedicure would have to cost $145. For real!!!! And tip, right? And tax.
Let’s say a salon paying out 50% of gross sales in payroll. That is still 110K of gross sales needed to be generated to pay out about 55K in salary. $110,000 gross sales, divided by 47 working weeks which is $2300/ week.
$2300 a week divided by 28 working hours (@70% booked)= $83/hr
That 1:15 min pedicure ($104) would have to be shortened to 1 hour and cost about $83 for the business to pay someone $25/hr with legit days off, room for training, and not working them to death so they burn out just when they get their “timing right”
This could be done I guess with incredible training, mentoring and lots of practice. But why?
The industry is destroyed by rock bottom pricing where it’s a “norm” that the workers are not paid living wages and rely on “generosity” to allow people to have the luxury of spa treatments at “affordable” pricing.
More on this topic from a slightly different angle written by Tina Alberino: Greedy salon owners. How can they take 50% of MY money? Selective Ignorance. The Actual Cost of your Discount Manicure.
PS. Going back to that self-employed person who charges $55 for pedicures? Sounds good, right?
That $55 for 1:15 min is really $44/hr. x 28 hours (@at 70 booked) is $1232 generated in a week $1232 x 47 working weeks (let’s say that you have the same luxury of 2-3 weeks off as employees) = $57,904
It’s safe to assume that business expenses eat up 50% of your gross sales and you are left with $28,952. Wow. Is that below minimum wage?
That has to pay you for your 52 weeks in a year, each with 40 hours because I don’t know about you but I spend many more hours with business-related work than when sitting in front of the client.
That $28,952 divided by 52 weeks is $556 a week and divided by 40 hours (haha, I wish!) and we end up with a whopping $13.91/hr as a self-employed person!
To me right now, that minimum wage of $15/hr does not look so bad.