May 14, 2024 • 29 mins
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.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome to the Beauty Business Strategies Podcast.
I'm Christy Hardy and today I'mjoined with Neil Dukoff, the
founder of Strategies.
Welcome, neil.
Speaker 2 (00:09):
Nice to be here.
Speaker 1 (00:10):
I'm so glad to have you.
We're going to talk to Neiltoday about the team-based pay,
business model and strategiesand really I want to get to know
from the founder the why.
Why team-based pay?
Why strategies?
Why did you decide this wassomething that we needed to do
in our industry?
Speaker 2 (00:29):
So to answer that we have to take a trip down memory
lane.
Speaker 1 (00:32):
All right, let's go.
Speaker 2 (00:33):
There we go.
What many of you may notrealize is I was a salon owner.
Went to beauty school, got outof beauty school, worked for the
Glembi company was a departmentstore chain went through the
training with the Chadwicks.
That was my start in thebusiness.
(00:56):
I was working in a Glembi salon.
I was making 45%, I was busy asheck and I had a waiting list.
Speaker 1 (01:06):
Wow.
Speaker 2 (01:08):
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 ownerssay all the time, even today.
Yeah, is what we hear ownerssay all the time Even today.
Yeah, so back in 1973, when Iopened my first salon in Edison,
(01:30):
New Jersey, I did kind of whatGlembie was doing.
Hey, they had 1,200 salons.
I figure they know what they'redoing Right.
But I said I think 50%, think50 is fair oh, how'd that go?
half for them half for me, youknow, and again I was 23 years
(01:52):
old, right, and you know therewas more excitement than
planning and knowledge, right,and I opened up my first salon
20 feet wide, 80 feet long andabout six months into it the
accountant comes in, does thebooks and everything and goes
(02:14):
hey, you lost money.
Speaker 1 (02:17):
Wait what?
Speaker 2 (02:18):
Yeah, and it's like huh, we've been working our
butts off here and I startlooking through our butts off
here and you know I startlooking through, you know, the
P&L.
I had been going to this RedkenChallenge of Success and you
know they would talk aboutfinancials and stuff like that,
but I really dove into thefinancials.
I go.
You can't work.
Even though we're only sixmonths old, you can't work as
(02:41):
hard as we are, and I wasworking six days, three nights.
Oh wow, I also began to resenthow hard I'm working.
Speaker 1 (02:53):
Yeah.
Speaker 2 (02:54):
And I got people hanging out in the back
complaining about me.
Speaker 1 (02:57):
Right.
Speaker 2 (02:58):
Or whatever.
They were complaining about.
Yes, it makes the story betterto say the employees are in the
back and they're complainingabout the boss.
It makes the story better tosay the employees are in the
back and they're complainingabout the boss and it's like,
okay, I got to do something tothe pay.
You know, 50% isn't sustainable.
And then I'm looking at the 45%and I go okay, so if I lower it
(03:20):
to 45, that's going to be a funstaff meeting.
Speaker 1 (03:24):
Right.
Speaker 2 (03:29):
So you know how do I do that.
So, without getting stuck onall that, I did what I would
refer to as a very rude, crudeconversion from commission to
hourly.
So nobody got a pay cut.
We put a cap on the payroll andthen the conversation shifted
(03:53):
to what do we have to do Awesome.
And started to move away fromhow much does each person have
to do.
Now, I was on a call thismorning with a very sharp owner
just talking about her companyand she used that language.
(04:14):
Well, you know, my people aretelling me, yeah, I got some
people making you know $100,000a 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 twohands, x number of hours
available, and so what do we do?
(04:34):
I mean, some in the industryhave done hire an assistant,
right, you know.
Double book, triple book, right.
Welcome to the bone.
Yeah, and yeah, you can jammore through, but to me that
didn't represent the level ofservice that I wanted to deliver
(04:55):
.
And because you're doing youknow, frederick Fakai, I'm doing
$500 seven-minute haircuts.
You know, yeah, but noteveryone's Frederick Fakai.
I'm doing $500 seven-minutehaircuts, you know, yeah, but
not everyone's Frederick.
Speaker 1 (05:07):
Fakai.
Speaker 2 (05:07):
Yeah.
So just looking at the salonmodel, I began to question it.
I questioned commission becauseit was everyone's trying to
build their own book Right, bookRight.
I know, when I opened the salon, all the customers that I did
(05:29):
at the previous place throughsome miracle found me and you
know, and I didn't.
I didn't want my company to getblown up because someone
decided to leave and and workedvery hard at the culture and I
still communicate with peoplethat worked for me back in the
(05:51):
70s and they still remember thatas a really exciting time, nice
that it was.
You know, just call itteam-based pay way back when.
And so, going back to the earlymid-70s, my mind just
(06:14):
completely moved away from thecommission model because you
can't control your payroll whenyou'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 anaverage commission that you're
paying and that average is whatyour service payroll is on your
profit and loss statement and itstill comes out to a percent.
(06:36):
And on commission, if the salesare up, the percent stays the
same and it sucks all thatadditional revenue before you
have a chance to say, hey, butthe rent went up, right, you
know, I was talking to an ownerlast week who said yeah, you
know this product company,you'll know who.
Speaker 3 (06:58):
But this product company they're raising their
prices Again.
Speaker 1 (07:01):
Twice a year, every six months.
Twice a year, I heard that too.
Speaker 2 (07:04):
So what do you do?
You're going to do priceincreases twice a year just to
cover your product charge.
So when you're stuck with afixed percent payroll, you can't
control the thing.
You can't.
You can't make adjustments.
Listen, we need revenue to goup a bit so we can cover the
(07:27):
increased cost of doing business, which has really gone up in
this past year with inflationand whatnot, rent, just
everything.
Everything across the board isup.
And then it comes back to whatI said at the beginning.
What about people that are booksolid and they have a waiting
(07:48):
list?
You know how do they make moremoney?
Industry response.
Raise their prices.
Yeah, all right, great.
So now you've got 10 peopleworking in the salon.
Just pick the number and you'vegot 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?
(08:09):
We've got someone for you.
But that you know.
And the higher price wouldsupport more income based on the
commissionary.
I know people that do thesliding scales.
It doesn't matter, it stillcomes out to a.
When you pay commission, itbecomes a fixed service payroll
(08:31):
percent on your P&O.
Sales go up, payroll's up,sales go down, thank God,
payroll's down.
But then you have people thatare booked solid.
How do they make more money?
Yeah, you can certainly raisethe prices, but what they got to
start double booking, triplebooking, that doesn't make sense
(08:52):
.
Isn't there a value to doingconsistently great work?
Yes, you know you love the workthat you do.
Come to our company and doconsistently great work and
we're going to polish your sworda couple of times a year with
(09:17):
some new education so you canget better and whatnot.
And then we're also going toprepare new people to come in so
they can perform to your levelfaster.
So here's the thing If onteam-based pay.
If revenue goes up because thepayroll doesn't go up just
(09:38):
because revenue went up, itcreates a gap that allows you to
come back and reward peoplethat help the company grow.
If the whole team was doinggreat, great, I want to do
raises across the board.
If a couple people were doinggreat and we need to recognize
them, I can give them a raise.
(10:01):
How about the front desk?
Front desk most importantpeople in the company.
They control your appointmentbook and the productivity rate.
Yeah, and what are you payingthem?
So you know you can direct moremoney to where it matters.
(10:21):
But you don't have the optionsin a commission environment to
say I want to give a raise or Iwant to.
Yeah, you can pay morecommission, but nobody can pay
more commission today.
If anything, you got to find away to lower it.
But have that staff meeting.
I always say if you're going tolower your commission,
videotape it and send me thevideo so I can sit and watch it
(10:43):
with a bag of popcorn, becauseit's not going to be fun.
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 CutterMagazine and I started going out
(11:04):
in the early mid-80s teachingthis salary class and how to pay
differently, but just notcommission.
And people started listening tothat when I started Strategies
in 93, that's when we startedokay, what is this thing really?
(11:26):
Because it's really not salary,salary exempt from overtime,
there's labor law conditions forall that.
So if you really looked at it,it's we need a team of people
working to grow the companyRight.
(11:46):
So everyone has an opportunityto do well.
And for those people that arebook solid, they have an
opportunity to get raises eventhough they physically can't
produce more.
Listen to what I just said theycan get raises even though they
didn't bring produce more Right.
Listen to what I just said theycan get raises even though they
didn't bring in more.
Speaker 1 (12:09):
That's such an incredible concept, isn't it?
Speaker 2 (12:11):
It's the company brought in more.
So what's happening is oncommission busy people get busy
and busier, and busier untiltheir book is full.
Speaker 1 (12:23):
Yeah.
Speaker 2 (12:23):
And then their income levels off and then the company
starts growing around them, butthey're not growing.
Speaker 1 (12:32):
Right.
Speaker 2 (12:32):
Or maybe they're growing incrementally and on
team-based pay.
If the company is growing andwe use language like everyone's
responsible for every hour thecompany has available for sale,
it's wow, we just hired two newpeople and we have to get two
more columns on the book.
(12:52):
Full Right In a commissionsalon.
You hire two new people andit's like those rat bastards are
going to get all my newcustomers.
Speaker 1 (13:00):
Right Column vision.
Speaker 2 (13:02):
right they're the enemy, they're not part of the
team.
Team-based pay says let's getthem busy so we can grow the
revenue, build the brand so wecan all do better.
Speaker 1 (13:14):
Truly building a team .
Speaker 2 (13:15):
But it takes a different type of leadership and
it takes a different level ofunderstanding critical numbers
and financials.
And that's all the additionalthings that to do a great job
and reap the benefits ofteam-based pay, you've got to
(13:38):
become a more well-rounded owner.
Speaker 3 (13:41):
Right, I hate numbers .
Speaker 2 (13:42):
Well, then don't do team-based pay.
You know and, by the way,numbers are easy Dollars in,
dollars out, dollars left andthere's some percentages in
there, but none of it is hard.
You just need to understand.
You know your first haircutwasn't that great, was it no
Good?
Well, the first time you readfinancials you don't know what
you're looking at.
Truth.
Speaker 3 (14:02):
Very true.
Speaker 2 (14:03):
So you know, but we can help you with that.
So team-based pay was a I mean.
It evolved into a businessmodel, you know.
And then there's all the stuffin the industry that people you
know.
Well, how can you pay everyonethe same hourly rate?
(14:23):
You don't pay everyone.
Speaker 1 (14:29):
How could you pay everyone the same hourly rate?
Speaker 2 (14:30):
Yes, that is a true, nice myth out there about
team-based pay isn't there.
You can't pay everyone the samehourly rate.
Yes, you know, if you're acommissioned salon and you
convert to team-based pay, theconversion is based on their
kind of an average of their lastsix months.
Without going into the finedetails, it's based on an
average of what they're makingper hour on commission.
That's the jumping off pointfor team-based pay.
Speaker 1 (14:51):
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 (14:58):
A pay cut is commission mentality.
A pay cut says commission isI'm fine paying you more when
you're bringing in more and I'mnot happy about it, but if
you're bringing in less, thankGod I'm not paying you more.
On team-based pay, it's hey,you got to bring in the numbers
(15:22):
and hey.
But if the numbers go down andyou're still paying them what
they were making on higher sales, how long are you gonna let
that happen before you go?
hey, you know it's been one payperiod and you know you seem to
have gone into a mental coma andyour sales are way down.
(15:44):
I can't pay you this, you know,for this.
I want to pay you this for that.
Speaker 1 (15:50):
Right.
Speaker 2 (15:51):
And, but on commission, how many people you
know their sales come down andthey're making less money and
you don't feel the pain as muchTrue.
And it goes on so long you letit continue and then you get
disgruntled employees and thenthey leave and all the other
nonsense that happens.
But in team-based pay, ifthey're not performing, if their
(16:14):
retention rate is down, ifpre-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, ifthey're not present at meetings,
you know.
Whatever the issue is, you knowyou can't keep paying them for
(16:37):
what you're not.
Speaker 1 (16:39):
Yeah.
Speaker 2 (16:42):
For what they're not giving back to the company.
And if you do a pay cut, you'rein 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 inthe Can you sweep the floor?
I'm not paid to do that.
Can you help someone out withthat?
Hey, we've got Mrs.
(17:03):
You know stylist is runningbehind.
You know your teammates runningbehind.
Can you help miss, you know,can you help?
Speaker 1 (17:14):
with the foil yeah.
Speaker 2 (17:15):
Oh, what piece am I going to get, right?
Yeah, you totally get that, andit 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 sweepthe floor?
I'm not paid for that, oh yesyou are Because you're paid for
every hour you're in the company, which also says you can't have
(17:39):
to grow.
A company can't have peoplecoming and going as they please.
True, not to be mean or nastyor 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 yourcompany if the hours keep
(18:04):
disappearing.
Truth.
So team-based pay is a completebusiness model.
The pay is just the foundation.
Speaker 1 (18:13):
Yeah.
Speaker 2 (18:13):
The hourly rate is the foundation.
It's about consistency.
It's about growing the company.
It's about you know, listen, ifyou can go from 600,000 to
700,000 or 800,000, you know youhave, for every 100,000 in
revenue, there's another 30 to35,000 or so available for
(18:40):
payroll, to hire new or giveraises.
You know, hey.
So if we can increase revenue,the company revenue $100,000,
$200,000 this year, that's, youknow, $60,000, $70,000, $30,000,
(19:01):
$35,000 per hundred that wewould have available to pay more
.
And then a lot has to do withmanaging the productivity rate.
Yes, that's why pre-book,that's why frequency of visit,
that's why first-time retentionand existing client retention.
(19:22):
That's why first-time retentionand existing client retention
the better we drive our criticalnumbers, the higher we can
drive revenue, the more thecompany can afford to pay.
But it's we have to do the workand work together.
And it's not just what's onyour column column, it's being
responsible for every hour,that's on all the other
(19:46):
appointments, schedules, that'steam-based pay.
Everyone's responsible.
But it takes leadership.
That's why daily huddles,scoreboards where are we at?
Everyone needs to know the gameand we know when we do pay
conversions.
You know their owners.
So you want me to like do ascoreboard and everyone's going
(20:08):
to see what the goal is for thecompany for the month.
Yeah, oh, I don't want them toknow that.
Well, how are you going to growa 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 (20:25):
number Right.
We've got to get that mindset.
Speaker 2 (20:28):
It's a different mode of thinking.
It takes engaged leadership, ittakes a better understanding of
leadership.
You need to have the financialdiscipline.
Very easy.
You just got to get into therhythm, but we've got a lot of
systems that can help owners dothat and and and what they find
(20:53):
six months, in nine months, in ayear, in that even the
customers see it.
Absolutely I don't know whatyou're doing different, but this
place is.
It feels better right.
Speaker 1 (21:08):
It feels, different.
Yeah, the vibe is verydifferent.
Yeah, the vibe is verydifferent.
So one myth that I hear a lot,or a question that I get from
owners a lot, is you know, if Iwere to convert to this team
based pay or start taking onsome of these things, it just
feels like so much work.
What's your response to thatquestion of why is it so much
(21:29):
work?
Speaker 2 (21:30):
It's the work you should have been doing anyway.
Speaker 1 (21:35):
Right, yes, absolutely.
Speaker 2 (21:37):
If you're an owner and you're behind the chair 40,
50, 60 hours a week or in thetreatment room, you've got to
rethink that.
Speaker 1 (21:47):
Yeah.
Speaker 2 (21:48):
And someone needs to run the company.
You can still do services, butyou've got to pay attention to
the business.
Speaker 1 (21:57):
Yes.
Speaker 2 (21:58):
And cash flow plans are not optional.
Monthly financials P&L balancesheet critical numbers.
It doesn't take much time anhour or so a week devoted to
looking at your numbers to seethat you're making the right
(22:18):
progress.
It's not hard.
No, it's not hard, but youcan't be if you're trying to
grow a company one column at atime.
That's not team-based pay.
Speaker 1 (22:33):
No, not at all.
That's not team-based pay.
Speaker 2 (22:34):
No, not at all.
Growing a company, a brand,client loyalty to the brand, a
great staff that comes to workto do consistently great work,
without the competition betweenservice providers, chairs,
treatment rooms or whatnot.
It's a better way to dobusiness, but you got to have
(22:59):
the right systems in place tomake it.
Speaker 1 (23:01):
Absolutely, Absolutely.
Do you have any recommendationsfor owners who are feeling like
they're struggling to findsystems to be able to engage
their team differently becauseof scuttlebutt, because of
communication out there, becauseof our industry in general Any
tips, tricks or recommendationsfor owners on how to start that
(23:23):
communication with their team?
Speaker 2 (23:25):
I would urge all owners, even ones that have been
on team-based pay for a longtime, because you can drift
team-based pay for a long time,because you can drift um, answer
the question what are youbuilding?
Yes, just get back to what areyou building and why are you
(23:46):
building it, and answer thatquestion with, as we like to
call it, absolute clarity.
Yep, because when you focus inon what you're building, you
know what do you want it to befor the client?
And when you start looking atwhat are you building, what do
(24:07):
you want it to be for the client?
What do you want it to be forthe employees?
What do you want it to be foryou?
Yes, so it's not just a job.
You know you want to have somefreedom and and you want to
reward financially in time.
You know for what it takes togrow a company and deal with all
this stuff, cause, yeah, it's,it's a lot of work, but
(24:28):
commission that whole thing,you're going to be at the bottom
of your boat in the hullplugging holes.
Speaker 1 (24:37):
Yes.
Speaker 2 (24:38):
And sometimes you're plugging them as fast as they
happen.
Speaker 1 (24:41):
Truth, very true.
Speaker 2 (24:42):
And on team-based pay .
Those holes can be plugged andcapped.
Speaker 1 (24:49):
Yep.
Speaker 2 (24:50):
Doesn't mean you're not going to get new holes.
I mean you're going to springleaks every now and then, but
with the full team-based paybusiness model, you're plugging
those holes and they can staycapped as long as you stay on
your game.
Speaker 1 (25:06):
Absolutely.
Speaker 2 (25:09):
Remember, part of the end game is you're going to
want to sell someday, yes, andhow do you create the value to
make your business saleable?
More willing to pay a premiumfor a company that built a brand
(25:43):
and has a customer base loyalto the brand than buying a
commission company where theclients are loyal to the service
providers that if they don'tlike the new owner, they can
relocate.
Hey, I just bought an emptysalon.
Speaker 1 (25:57):
Isn't this great this is great, some nice chairs
Absolutely Wow.
Well, team-based pay for me wassomething that truly allowed me
to lead in a way where I wasmaking a difference.
For my team members it wasalways about the client
experience, but for mepersonally, I wanted to make
sure that my internal customerwas taken care of at a very high
(26:20):
level, and that included thingslike health insurance.
It included paid time off.
It included paid education Allof those things that a 401k
things that our industry doesn'treally have the ability in a
commission base because all themoney's gone to be able to
provide and for me, that was anincredible way to make sure that
(26:40):
I was leaving a legacy for thenext people who were coming into
our business.
So I thank you for creatingTeamBasePay and getting the word
out to our industry that thereare ways to do business
differently and better so thatwe can all have success in this
beautiful industry.
Speaker 2 (26:58):
If you're looking at your company and it's springing
leaks and you have a highfrustration level in your
company as an owner and you'dlike to build a better tomorrow,
you got to look deeper at whatyou're doing and how you're
(27:21):
doing it and at the very below,the foundation of the footings.
You know a foundation is builton the footings and if the
footings aren't solid, thefoundation can't hold up your
company.
Team-based pay and truthfulnessit's the footings that you
(27:43):
build your company on.
Speaker 1 (27:46):
So true.
Speaker 2 (27:47):
And because the footings create the strength for
the company, it creates thelongevity for the company, it
creates the opportunity for thecompany.
That and again, commission,it's that you know there's a
reason.
The industry has a rich, grandhistory of employee turnover,
(28:10):
yes, and walkouts, yeah, andthat's walkout is part of it is
you can trace it back tocommission, you trace it back to
contaminated culture toxiccultures.
You can trace it back to aleader that was a better
(28:33):
technician than they were aleader Yep.
Or, you know, couldn't managethe 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.
(28:54):
Implement the system and stickwith the system.
Refine the system and you juststart to move away from all the
commission madness.
Speaker 1 (29:01):
Yeah, absolutely, Neil.
This has been awesome, Thankyou.
If you would like moreinformation about how you can
get education and build yourbusiness as a team-based pay
salon or spa, please reach outto us.
We would love to talk to youand, Neil, thank you for again
for not only for today, but forcreating strategies and the
team-based pay business model.
Speaker 2 (29:20):
We appreciate you.
Make a difference.
Speaker 1 (29:23):
Absolutely.
Thank you everyone.
Speaker 3 (29:26):
Thanks again for listening to the Beauty Business
Strategies Podcast.
If you liked this episode, besure to hit follow To learn more
about how strategies can helpcreate more fun, profit and
growth potential for you, yourcompany and your team.
We invite you to schedule afree 60-minute strategy session
by clicking the direct link inthe description of this episode.
Welcome to the Beauty Business Strategies Podcast.
I'm Christy Hardy and today I'mjoined with Neil Dukoff, the
founder of Strategies.
Welcome, neil.
Speaker 2 (00:09):
Nice to be here.
Speaker 1 (00:10):
I'm so glad to have you.
We're going to talk to Neiltoday about the team-based pay,
business model and strategiesand really I want to get to know
from the founder the why.
Why team-based pay?
Why strategies?
Why did you decide this wassomething that we needed to do
in our industry?
Speaker 2 (00:29):
So to answer that we have to take a trip down memory
lane.
Speaker 1 (00:32):
All right, let's go.
Speaker 2 (00:33):
There we go.
What many of you may notrealize is I was a salon owner.
Went to beauty school, got outof beauty school, worked for the
Glembi company was a departmentstore chain went through the
training with the Chadwicks.
That was my start in thebusiness.
(00:56):
I was working in a Glembi salon.
I was making 45%, I was busy asheck and I had a waiting list.
Speaker 1 (01:06):
Wow.
Speaker 2 (01:08):
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 ownerssay all the time, even today.
Yeah, is what we hear ownerssay all the time Even today.
Yeah, so back in 1973, when Iopened my first salon in Edison,
(01:30):
New Jersey, I did kind of whatGlembie was doing.
Hey, they had 1,200 salons.
I figure they know what they'redoing Right.
But I said I think 50%, think50 is fair oh, how'd that go?
half for them half for me, youknow, and again I was 23 years
(01:52):
old, right, and you know therewas more excitement than
planning and knowledge, right,and I opened up my first salon
20 feet wide, 80 feet long andabout six months into it the
accountant comes in, does thebooks and everything and goes
(02:14):
hey, you lost money.
Speaker 1 (02:17):
Wait what?
Speaker 2 (02:18):
Yeah, and it's like huh, we've been working our
butts off here and I startlooking through our butts off
here and you know I startlooking through, you know, the
P&L.
I had been going to this RedkenChallenge of Success and you
know they would talk aboutfinancials and stuff like that,
but I really dove into thefinancials.
I go.
You can't work.
Even though we're only sixmonths old, you can't work as
(02:41):
hard as we are, and I wasworking six days, three nights.
Oh wow, I also began to resenthow hard I'm working.
Speaker 1 (02:53):
Yeah.
Speaker 2 (02:54):
And I got people hanging out in the back
complaining about me.
Speaker 1 (02:57):
Right.
Speaker 2 (02:58):
Or whatever.
They were complaining about.
Yes, it makes the story betterto say the employees are in the
back and they're complainingabout the boss.
It makes the story better tosay the employees are in the
back and they're complainingabout the boss and it's like,
okay, I got to do something tothe pay.
You know, 50% isn't sustainable.
And then I'm looking at the 45%and I go okay, so if I lower it
(03:20):
to 45, that's going to be a funstaff meeting.
Speaker 1 (03:24):
Right.
Speaker 2 (03:29):
So you know how do I do that.
So, without getting stuck onall that, I did what I would
refer to as a very rude, crudeconversion from commission to
hourly.
So nobody got a pay cut.
We put a cap on the payroll andthen the conversation shifted
(03:53):
to what do we have to do Awesome.
And started to move away fromhow much does each person have
to do.
Now, I was on a call thismorning with a very sharp owner
just talking about her companyand she used that language.
(04:14):
Well, you know, my people aretelling me, yeah, I got some
people making you know $100,000a 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 twohands, x number of hours
available, and so what do we do?
(04:34):
I mean, some in the industryhave done hire an assistant,
right, you know.
Double book, triple book, right.
Welcome to the bone.
Yeah, and yeah, you can jammore through, but to me that
didn't represent the level ofservice that I wanted to deliver
(04:55):
.
And because you're doing youknow, frederick Fakai, I'm doing
$500 seven-minute haircuts.
You know, yeah, but noteveryone's Frederick Fakai.
I'm doing $500 seven-minutehaircuts, you know, yeah, but
not everyone's Frederick.
Speaker 1 (05:07):
Fakai.
Speaker 2 (05:07):
Yeah.
So just looking at the salonmodel, I began to question it.
I questioned commission becauseit was everyone's trying to
build their own book Right, bookRight.
I know, when I opened the salon, all the customers that I did
(05:29):
at the previous place throughsome miracle found me and you
know, and I didn't.
I didn't want my company to getblown up because someone
decided to leave and and workedvery hard at the culture and I
still communicate with peoplethat worked for me back in the
(05:51):
70s and they still remember thatas a really exciting time, nice
that it was.
You know, just call itteam-based pay way back when.
And so, going back to the earlymid-70s, my mind just
(06:14):
completely moved away from thecommission model because you
can't control your payroll whenyou'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 anaverage commission that you're
paying and that average is whatyour service payroll is on your
profit and loss statement and itstill comes out to a percent.
(06:36):
And on commission, if the salesare up, the percent stays the
same and it sucks all thatadditional revenue before you
have a chance to say, hey, butthe rent went up, right, you
know, I was talking to an ownerlast week who said yeah, you
know this product company,you'll know who.
Speaker 3 (06:58):
But this product company they're raising their
prices Again.
Speaker 1 (07:01):
Twice a year, every six months.
Twice a year, I heard that too.
Speaker 2 (07:04):
So what do you do?
You're going to do priceincreases twice a year just to
cover your product charge.
So when you're stuck with afixed percent payroll, you can't
control the thing.
You can't.
You can't make adjustments.
Listen, we need revenue to goup a bit so we can cover the
(07:27):
increased cost of doing business, which has really gone up in
this past year with inflationand whatnot, rent, just
everything.
Everything across the board isup.
And then it comes back to whatI said at the beginning.
What about people that are booksolid and they have a waiting
(07:48):
list?
You know how do they make moremoney?
Industry response.
Raise their prices.
Yeah, all right, great.
So now you've got 10 peopleworking in the salon.
Just pick the number and you'vegot 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?
(08:09):
We've got someone for you.
But that you know.
And the higher price wouldsupport more income based on the
commissionary.
I know people that do thesliding scales.
It doesn't matter, it stillcomes out to a.
When you pay commission, itbecomes a fixed service payroll
(08:31):
percent on your P&O.
Sales go up, payroll's up,sales go down, thank God,
payroll's down.
But then you have people thatare booked solid.
How do they make more money?
Yeah, you can certainly raisethe prices, but what they got to
start double booking, triplebooking, that doesn't make sense
(08:52):
.
Isn't there a value to doingconsistently great work?
Yes, you know you love the workthat you do.
Come to our company and doconsistently great work and
we're going to polish your sworda couple of times a year with
(09:17):
some new education so you canget better and whatnot.
And then we're also going toprepare new people to come in so
they can perform to your levelfaster.
So here's the thing If onteam-based pay.
If revenue goes up because thepayroll doesn't go up just
(09:38):
because revenue went up, itcreates a gap that allows you to
come back and reward peoplethat help the company grow.
If the whole team was doinggreat, great, I want to do
raises across the board.
If a couple people were doinggreat and we need to recognize
them, I can give them a raise.
(10:01):
How about the front desk?
Front desk most importantpeople in the company.
They control your appointmentbook and the productivity rate.
Yeah, and what are you payingthem?
So you know you can direct moremoney to where it matters.
(10:21):
But you don't have the optionsin a commission environment to
say I want to give a raise or Iwant to.
Yeah, you can pay morecommission, but nobody can pay
more commission today.
If anything, you got to find away to lower it.
But have that staff meeting.
I always say if you're going tolower your commission,
videotape it and send me thevideo so I can sit and watch it
(10:43):
with a bag of popcorn, becauseit's not going to be fun.
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 CutterMagazine and I started going out
(11:04):
in the early mid-80s teachingthis salary class and how to pay
differently, but just notcommission.
And people started listening tothat when I started Strategies
in 93, that's when we startedokay, what is this thing really?
(11:26):
Because it's really not salary,salary exempt from overtime,
there's labor law conditions forall that.
So if you really looked at it,it's we need a team of people
working to grow the companyRight.
(11:46):
So everyone has an opportunityto do well.
And for those people that arebook solid, they have an
opportunity to get raises eventhough they physically can't
produce more.
Listen to what I just said theycan get raises even though they
didn't bring produce more Right.
Listen to what I just said theycan get raises even though they
didn't bring in more.
Speaker 1 (12:09):
That's such an incredible concept, isn't it?
Speaker 2 (12:11):
It's the company brought in more.
So what's happening is oncommission busy people get busy
and busier, and busier untiltheir book is full.
Speaker 1 (12:23):
Yeah.
Speaker 2 (12:23):
And then their income levels off and then the company
starts growing around them, butthey're not growing.
Speaker 1 (12:32):
Right.
Speaker 2 (12:32):
Or maybe they're growing incrementally and on
team-based pay.
If the company is growing andwe use language like everyone's
responsible for every hour thecompany has available for sale,
it's wow, we just hired two newpeople and we have to get two
more columns on the book.
(12:52):
Full Right In a commissionsalon.
You hire two new people andit's like those rat bastards are
going to get all my newcustomers.
Speaker 1 (13:00):
Right Column vision.
Speaker 2 (13:02):
right they're the enemy, they're not part of the
team.
Team-based pay says let's getthem busy so we can grow the
revenue, build the brand so wecan all do better.
Speaker 1 (13:14):
Truly building a team .
Speaker 2 (13:15):
But it takes a different type of leadership and
it takes a different level ofunderstanding critical numbers
and financials.
And that's all the additionalthings that to do a great job
and reap the benefits ofteam-based pay, you've got to
(13:38):
become a more well-rounded owner.
Speaker 3 (13:41):
Right, I hate numbers .
Speaker 2 (13:42):
Well, then don't do team-based pay.
You know and, by the way,numbers are easy Dollars in,
dollars out, dollars left andthere's some percentages in
there, but none of it is hard.
You just need to understand.
You know your first haircutwasn't that great, was it no
Good?
Well, the first time you readfinancials you don't know what
you're looking at.
Truth.
Speaker 3 (14:02):
Very true.
Speaker 2 (14:03):
So you know, but we can help you with that.
So team-based pay was a I mean.
It evolved into a businessmodel, you know.
And then there's all the stuffin the industry that people you
know.
Well, how can you pay everyonethe same hourly rate?
(14:23):
You don't pay everyone.
Speaker 1 (14:29):
How could you pay everyone the same hourly rate?
Speaker 2 (14:30):
Yes, that is a true, nice myth out there about
team-based pay isn't there.
You can't pay everyone the samehourly rate.
Yes, you know, if you're acommissioned salon and you
convert to team-based pay, theconversion is based on their
kind of an average of their lastsix months.
Without going into the finedetails, it's based on an
average of what they're makingper hour on commission.
That's the jumping off pointfor team-based pay.
Speaker 1 (14:51):
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 (14:58):
A pay cut is commission mentality.
A pay cut says commission isI'm fine paying you more when
you're bringing in more and I'mnot happy about it, but if
you're bringing in less, thankGod I'm not paying you more.
On team-based pay, it's hey,you got to bring in the numbers
(15:22):
and hey.
But if the numbers go down andyou're still paying them what
they were making on higher sales, how long are you gonna let
that happen before you go?
hey, you know it's been one payperiod and you know you seem to
have gone into a mental coma andyour sales are way down.
(15:44):
I can't pay you this, you know,for this.
I want to pay you this for that.
Speaker 1 (15:50):
Right.
Speaker 2 (15:51):
And, but on commission, how many people you
know their sales come down andthey're making less money and
you don't feel the pain as muchTrue.
And it goes on so long you letit continue and then you get
disgruntled employees and thenthey leave and all the other
nonsense that happens.
But in team-based pay, ifthey're not performing, if their
(16:14):
retention rate is down, ifpre-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, ifthey're not present at meetings,
you know.
Whatever the issue is, you knowyou can't keep paying them for
(16:37):
what you're not.
Speaker 1 (16:39):
Yeah.
Speaker 2 (16:42):
For what they're not giving back to the company.
And if you do a pay cut, you'rein 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 inthe Can you sweep the floor?
I'm not paid to do that.
Can you help someone out withthat?
Hey, we've got Mrs.
(17:03):
You know stylist is runningbehind.
You know your teammates runningbehind.
Can you help miss, you know,can you help?
Speaker 1 (17:14):
with the foil yeah.
Speaker 2 (17:15):
Oh, what piece am I going to get, right?
Yeah, you totally get that, andit 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 sweepthe floor?
I'm not paid for that, oh yesyou are Because you're paid for
every hour you're in the company, which also says you can't have
(17:39):
to grow.
A company can't have peoplecoming and going as they please.
True, not to be mean or nastyor 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 yourcompany if the hours keep
(18:04):
disappearing.
Truth.
So team-based pay is a completebusiness model.
The pay is just the foundation.
Speaker 1 (18:13):
Yeah.
Speaker 2 (18:13):
The hourly rate is the foundation.
It's about consistency.
It's about growing the company.
It's about you know, listen, ifyou can go from 600,000 to
700,000 or 800,000, you know youhave, for every 100,000 in
revenue, there's another 30 to35,000 or so available for
(18:40):
payroll, to hire new or giveraises.
You know, hey.
So if we can increase revenue,the company revenue $100,000,
$200,000 this year, that's, youknow, $60,000, $70,000, $30,000,
(19:01):
$35,000 per hundred that wewould have available to pay more
.
And then a lot has to do withmanaging the productivity rate.
Yes, that's why pre-book,that's why frequency of visit,
that's why first-time retentionand existing client retention.
(19:22):
That's why first-time retentionand existing client retention
the better we drive our criticalnumbers, the higher we can
drive revenue, the more thecompany can afford to pay.
But it's we have to do the workand work together.
And it's not just what's onyour column column, it's being
responsible for every hour,that's on all the other
(19:46):
appointments, schedules, that'steam-based pay.
Everyone's responsible.
But it takes leadership.
That's why daily huddles,scoreboards where are we at?
Everyone needs to know the gameand we know when we do pay
conversions.
You know their owners.
So you want me to like do ascoreboard and everyone's going
(20:08):
to see what the goal is for thecompany for the month.
Yeah, oh, I don't want them toknow that.
Well, how are you going to growa 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 (20:25):
number Right.
We've got to get that mindset.
Speaker 2 (20:28):
It's a different mode of thinking.
It takes engaged leadership, ittakes a better understanding of
leadership.
You need to have the financialdiscipline.
Very easy.
You just got to get into therhythm, but we've got a lot of
systems that can help owners dothat and and and what they find
(20:53):
six months, in nine months, in ayear, in that even the
customers see it.
Absolutely I don't know whatyou're doing different, but this
place is.
It feels better right.
Speaker 1 (21:08):
It feels, different.
Yeah, the vibe is verydifferent.
Yeah, the vibe is verydifferent.
So one myth that I hear a lot,or a question that I get from
owners a lot, is you know, if Iwere to convert to this team
based pay or start taking onsome of these things, it just
feels like so much work.
What's your response to thatquestion of why is it so much
(21:29):
work?
Speaker 2 (21:30):
It's the work you should have been doing anyway.
Speaker 1 (21:35):
Right, yes, absolutely.
Speaker 2 (21:37):
If you're an owner and you're behind the chair 40,
50, 60 hours a week or in thetreatment room, you've got to
rethink that.
Speaker 1 (21:47):
Yeah.
Speaker 2 (21:48):
And someone needs to run the company.
You can still do services, butyou've got to pay attention to
the business.
Speaker 1 (21:57):
Yes.
Speaker 2 (21:58):
And cash flow plans are not optional.
Monthly financials P&L balancesheet critical numbers.
It doesn't take much time anhour or so a week devoted to
looking at your numbers to seethat you're making the right
(22:18):
progress.
It's not hard.
No, it's not hard, but youcan't be if you're trying to
grow a company one column at atime.
That's not team-based pay.
Speaker 1 (22:33):
No, not at all.
That's not team-based pay.
Speaker 2 (22:34):
No, not at all.
Growing a company, a brand,client loyalty to the brand, a
great staff that comes to workto do consistently great work,
without the competition betweenservice providers, chairs,
treatment rooms or whatnot.
It's a better way to dobusiness, but you got to have
(22:59):
the right systems in place tomake it.
Speaker 1 (23:01):
Absolutely, Absolutely.
Do you have any recommendationsfor owners who are feeling like
they're struggling to findsystems to be able to engage
their team differently becauseof scuttlebutt, because of
communication out there, becauseof our industry in general Any
tips, tricks or recommendationsfor owners on how to start that
(23:23):
communication with their team?
Speaker 2 (23:25):
I would urge all owners, even ones that have been
on team-based pay for a longtime, because you can drift
team-based pay for a long time,because you can drift um, answer
the question what are youbuilding?
Yes, just get back to what areyou building and why are you
(23:46):
building it, and answer thatquestion with, as we like to
call it, absolute clarity.
Yep, because when you focus inon what you're building, you
know what do you want it to befor the client?
And when you start looking atwhat are you building, what do
(24:07):
you want it to be for the client?
What do you want it to be forthe employees?
What do you want it to be foryou?
Yes, so it's not just a job.
You know you want to have somefreedom and and you want to
reward financially in time.
You know for what it takes togrow a company and deal with all
this stuff, cause, yeah, it's,it's a lot of work, but
(24:28):
commission that whole thing,you're going to be at the bottom
of your boat in the hullplugging holes.
Speaker 1 (24:37):
Yes.
Speaker 2 (24:38):
And sometimes you're plugging them as fast as they
happen.
Speaker 1 (24:41):
Truth, very true.
Speaker 2 (24:42):
And on team-based pay .
Those holes can be plugged andcapped.
Speaker 1 (24:49):
Yep.
Speaker 2 (24:50):
Doesn't mean you're not going to get new holes.
I mean you're going to springleaks every now and then, but
with the full team-based paybusiness model, you're plugging
those holes and they can staycapped as long as you stay on
your game.
Speaker 1 (25:06):
Absolutely.
Speaker 2 (25:09):
Remember, part of the end game is you're going to
want to sell someday, yes, andhow do you create the value to
make your business saleable?
More willing to pay a premiumfor a company that built a brand
(25:43):
and has a customer base loyalto the brand than buying a
commission company where theclients are loyal to the service
providers that if they don'tlike the new owner, they can
relocate.
Hey, I just bought an emptysalon.
Speaker 1 (25:57):
Isn't this great this is great, some nice chairs
Absolutely Wow.
Well, team-based pay for me wassomething that truly allowed me
to lead in a way where I wasmaking a difference.
For my team members it wasalways about the client
experience, but for mepersonally, I wanted to make
sure that my internal customerwas taken care of at a very high
(26:20):
level, and that included thingslike health insurance.
It included paid time off.
It included paid education Allof those things that a 401k
things that our industry doesn'treally have the ability in a
commission base because all themoney's gone to be able to
provide and for me, that was anincredible way to make sure that
(26:40):
I was leaving a legacy for thenext people who were coming into
our business.
So I thank you for creatingTeamBasePay and getting the word
out to our industry that thereare ways to do business
differently and better so thatwe can all have success in this
beautiful industry.
Speaker 2 (26:58):
If you're looking at your company and it's springing
leaks and you have a highfrustration level in your
company as an owner and you'dlike to build a better tomorrow,
you got to look deeper at whatyou're doing and how you're
(27:21):
doing it and at the very below,the foundation of the footings.
You know a foundation is builton the footings and if the
footings aren't solid, thefoundation can't hold up your
company.
Team-based pay and truthfulnessit's the footings that you
(27:43):
build your company on.
Speaker 1 (27:46):
So true.
Speaker 2 (27:47):
And because the footings create the strength for
the company, it creates thelongevity for the company, it
creates the opportunity for thecompany.
That and again, commission,it's that you know there's a
reason.
The industry has a rich, grandhistory of employee turnover,
(28:10):
yes, and walkouts, yeah, andthat's walkout is part of it is
you can trace it back tocommission, you trace it back to
contaminated culture toxiccultures.
You can trace it back to aleader that was a better
(28:33):
technician than they were aleader Yep.
Or, you know, couldn't managethe 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.
(28:54):
Implement the system and stickwith the system.
Refine the system and you juststart to move away from all the
commission madness.
Speaker 1 (29:01):
Yeah, absolutely, Neil.
This has been awesome, Thankyou.
If you would like moreinformation about how you can
get education and build yourbusiness as a team-based pay
salon or spa, please reach outto us.
We would love to talk to youand, Neil, thank you for again
for not only for today, but forcreating strategies and the
team-based pay business model.
Speaker 2 (29:20):
We appreciate you.
Make a difference.
Speaker 1 (29:23):
Absolutely.
Thank you everyone.
Speaker 3 (29:26):
Thanks again for listening to the Beauty Business
Strategies Podcast.
If you liked this episode, besure to hit follow To learn more
about how strategies can helpcreate more fun, profit and
growth potential for you, yourcompany and your team.
We invite you to schedule afree 60-minute strategy session
by clicking the direct link inthe description of this episode.
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