Passion + Profit = The Secret Sauce, Says Business Guru Alan Austin-Smith. Here’s Where You’ll Find The Magic Ingredients
by | THE COST OF DOING BUSINESS
I’ve been helping salon professionals around the world be more successful for nearly 40 years and I’m just as engaged and committed to growth today as I have ever been. During that time, I’ve pretty much seen it all: recessions, high inflation, high unemployment, massive business operational changes, salons closing, salons opening, pricing issues, staffing issues, discounting… And so on.
However, I’ve also seen and worked closely with businesses of all shapes and sizes that consistently overcome those challenges and come out of difficult times on top.
And…They all share the same common characteristic – a perfect balance between the passion for what they do and a profitable business. I call it the Passionate Profit Formula and there are four key steps:
Step 1: Refocus on your passion.
Step 2: Set your profit goals.
Step 3: Work backwards.
Step 4: What gets measured gets done.
Let’s look at these in turn. First, refocus on your passion. You don’t have to sacrifice passion for profit – you can have both. In fact, you need both. Profit starts with the heart – your passion is the foundation you build your business on. However, it’s not enough on its own.
A passionate business that isn’t profitable will start to drain the energy of the leader; you lose your mojo. When that happens, it impacts on everything within your business. And by the way, it doesn’t work the other way, either – a business focused solely on profit without passion will quickly leave the team and customers disengaged. You need both.
So, step one of the Passionate Profit Formula is to refocus on your passion. It’s no wonder that after the pain and stress of the past few years a lot of business owners have lost sight of their passion, their dreams, their vision – the reason they started their business in the first place.
Get back to basics, rebuild the foundations and refocus on ‘your’ passion. Passion starts at home. If you’ve lost yours, then it’s no surprise that your team may be losing theirs.
Second, Set your profit goals. Move on from ‘hope’ business management and switch to ‘focused’management. Focused management is based on a clear understanding that you are more likely to achieve something when you are focused on it, it’s why goals, targets, etc, work.
However, that’s one of the main reasons why so many businesses aren’t profitable. If you’re more likely to achieve what you are focused on, what happens if you are focused on break–even – on survival?
The answer is you break–even – you survive!
I speak to many business owners who are crystal clear of what they must put in the till, in order to pay the bills and salaries. That’s break–even! When I ask the same people how much profit they are targeting, I rarely get a clear answer. A business that’s only focused on how much they need to breakeven, with no idea how much profit they need, will always struggle to grow.
Question one: how much profit you need? Profit enables reinvestment in the business. Better salaries all round, improved working conditions, smarter marketing strategies and the ability to weather the storm of rising costs and taxes.
Question two: how much profit do you want? As business owners, we pour our hearts and souls into our businesses. We deserve to reap the rewards of our hard work, whether that’s through financial success, personal fulfilment, or a combination of both. This should be over and above the owner’s salary. Assuming you are ‘working’ in the business, then your wage is exactly that – a wage – it’s not really profit.
The answer to question two is how much money you feel is a fair reward for running your business, on top of your salary. Add those two amounts (need and want) together and you have a profit goal. (By the way, if you are using Floomly or have The Fantastic Hairdresser Calculators, it’s easy to work out what you must take to make the profit you want and need. If not, then you might need some help from your accountant or bookkeeper.)
However, don’t just add it to your break–even – we have high variable costs in salaries and stock purchases, and even with tight control of those, they’re still going to come in around 60 per cent(remember to include your salary in that percentage). That’s 60 per cent of your sales that will never go towards your profit target. Your profit target should pay the bills and give you the profit you need and want.
And now the fun starts with step three: Work backwards.
Working backwards from your annual target for profit, you can make some key decisions. Pricing, for example. People ask me how much they should increase their prices or even if they should increase their prices. My answer is always the same: I have no idea!
Because the first decision on pricing must be based on your target for profit, so unless I know that I have no idea. Too often pricing decisions are based on market data: competitors’ prices, average incomes, etc, alongside the courage and belief (or lack of) in your business. You should consider market data, but only after the finances.
You can work out how many weekly customers you need and what average bill you should be targeting. That might influence the services you promote, the space you have available, your staffing levels and even your opening hours. You are making a plan – a plan for profit.
I usually suggest a two-year plan: set your profit goal for year two and make the changes needed in year one, and then just keep it going, year after year!
Finally, I always say that the most dangerous time in business is when you are doing well – because you take your ‘eye off the ball.’ Measure your sales, your team performance, your key metrics, your expenditure, and so on against benchmarks based on profit. Just knowing what you did isn’t enough – you must know what you are achieving against your targets for profit. Setting targets isn’t enough – measuring how you are doing consistently is the key to a laser–like focus on profitability.
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