Welcome to ABC Benchmarking Cover slide Welcome to ABC Benchmarking

OUR MISSION AT AVEDA IS TO CARE FOR THE WORLD WE LIVE IN, FROM THE PRODUCTS WE MAKE TO THE WAYS IN WHICH WE GIVE BACK TO SOCIETY. AT AVEDA, WE STRIVE TO SET AN EXAMPLE FOR ENVIRONMENTAL LEADERSHIP AND RESPONSIBILITY, NOT JUST IN THE WORLD OF BEAUTY, BUT AROUND THE WORLD.

Wellness

Name and position Salon name and location Hopes and expectations

Day 1 Learning Objectives Calculate key benchmarks that support salon growth and profitability Measure your salon results and determine the best opportunities for growth Make fact-based decisions that support business success Create an execution plan to assess your business 2

Team Competition Back in your seats on time Correct trivia answers “Ah-ha!” moment In groups, determine your team name

Trivia

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Charts Activity What do these charts represent? What do the numbers on the charts have in common? Why are these numbers important? How do these numbers relate to your business? Why would we want to compare ourselves against a set of standards? 4

Varying Viewpoints Activity

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Benchmark: Measure or standard of excellence to which other results can be compared Photo is from: Greenway Cross, Higher Sutton, Cheshire, England 8

Benchmarking: The action of analyzing or measuring the benchmarks 8

Aveda Benchmarks Based on top-performing salons Serve as checkpoints to discover opportunities for growth; also tell us the areas in which we are already performing well and achieving success Measure sales and expenses 9

Purpose of Aveda Benchmarks Provide direction in growing your salon. Measure your salon growth against industry standards. Set achievable goals. Make fact-based decisions rather than emotional ones. Streamline efforts in key areas that will yield the greatest results. GOAL: To achieve a 10% or greater profit. 9

Aveda Benchmarking System Sales Benchmarks: RPCT: Retail per Client Ticket/Transaction SPST: Service per Service Ticket/Transaction % Color Transactions Existing Guest Retention New Guest Retention Staff Retention Productivity % of Service Guests Purchasing Product % of Service Guests Pre-Booked Expense Benchmarks: Service Provider Payroll Professional Product Cost Sales Support Payroll Rent Advertising & Promotion 10

“The beginning of wisdom is the definition of terms.” —Aristotle

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Profitability Factors to Achieve 10% Profit or Greater Implement the Aveda Benchmarking System as a key management tool. Use profit and loss statements (P&Ls) to understand the variances between the benchmarks. Implement processes and systems to increase key benchmarks. 12

Trivia

RPCT: Retail per Client Ticket/Transaction What is it? How much retail product is being sold on average to all guests Why is it important? It builds guest retention. It fills the guest needs. It is a revenue-producer—higher margin than a service sale. 13

RPCT Benchmarks: $10—non-concept salon $13.50—concept salon $16.50—lifestyle salon 13

$27,920 Total Retail Sales ÷ 1,804 Total # Transactions = Calculating RPCT Total Retail Sales ÷ Total # Transactions Example: $27,920 Total Retail Sales ÷ 1,804 Total # Transactions = RPCT: $15.47 13

SPST: Service per Service Ticket/Transaction % Color Transactions Service Benchmarks SPST: Service per Service Ticket/Transaction % Color Transactions 14

SPST: Service per Service Ticket/Transaction What is it? How much service revenue is being produced on average for each guest receiving services or how much the average service guest is spending on services per visit Why is it important? It tells us how well we are selling services to our guests. It indicates the amount of cross-selling and add-on services the salon is doing. 14

SPST Benchmark: Growing every year 14

Calculating SPST Total Service Sales ÷ Total # Service Transactions Example: $69,366 Total Service Sales ÷ 1,295 Total Service Transactions = SPST: $53.56 14

% Color Transactions What is it? The % of hair service transactions that have a color service as part of the transaction Why is it important? Hair color guests are the most loyal to a salon; once they find a color/colorist they like, they are not likely to change. Hair color guests generally frequent the salon more often than other types of service guests. Hair color is typically the highest service ticket in the salon, which increases service sales. The more color a salon is doing, generally the higher the SPST and guest retention. 15

% Color Transactions Benchmark: 50% of total hair transactions should include a hair color service 15

Calculating % Color Transactions Total # Color Transactions ÷ Total # Hair Service Transactions Example: 35 Total Color Transactions ÷ 125 Total Hair Service Transactions = Color Transactions: 28% 15

Existing Guest Retention What is it? The % of new guests who return to the salon for services within 90 days of their last appointment Why is it important? It tells us whether or not guests like the services they are receiving. Happy guests are more likely to return to the salon and tell others about their experience, which can generate new guests. It is easier and less expensive to keep an existing guest than to recruit a new one. 16

Existing Guest Retention Benchmark: 70% of existing guests returning within 90 days 16

Calculating Existing Guest Retention # Existing Service Guests Returning Within 90 Days ÷ Total # Existing Guests Serviced Example: 819 Existing Service Guests Returning Within 90 Days ÷ 1,310 Total Existing Guests Serviced = Existing Guest Retention: 62.5% 16

New Guest Retention What is it? The % of new guests who return to the salon for services within 90 days of their first appointment Why is it important? It tells us about the quality of service we are providing. Happy guests are more likely to return. 17

New Guest Retention Benchmark: 50% of new guests returning within 90 days 17

Calculating New Guest Retention # New Service Guests Returning Within 90 Days ÷ Total # New Guests Serviced Example: 8 New Service Guests Returning Within 90 Days ÷ 40 New Guests Serviced = New Guest Retention: 20% 17

Staff Retention What is it? The % of the staff who stay working at your business year after year Why is it important? Staff retention affects guests retention—guests are loyal to their service providers. There is a direct correlation between high staff turnover and low guest retention. 18

Staff Retention Benchmark: 70% of staff stay year after year 18

Calculating Staff Retention # Staff Members This Year ÷ # Staff Members Last Year Example: 9 Staff Members This Year ÷ 14 Staff Members Last Year = Staff Retention: 64.2% 18

Productivity What is it? How productive (busy) your service providers are Why is it important? We want to maximize the time service providers are working with guests to increase revenue. Without consistent productivity from each service provider, a salon will have a difficult time being profitable. A busy stylist is a happy stylist! 19

Productivity Benchmark: Staff are booked 85% of their scheduled work hours 19

Calculating Productivity Total # Hours Booked with Guests ÷ Total # Hours Scheduled to Work Example: 24 Hours Booked with Guests ÷ 40 Hours Scheduled to Work = Productivity: 60% 19

Calculating Additional Hours to Achieve Hours Booked Goal Step 2: Hours Booked Goal – # Hours Currently Booked = Additional # Hours to Achieve Hours Booked Goal Step 1: 85% x Total # Hours Scheduled to Work = Hours Booked Goal Example: 34 Hours Booked Goal – 24 Hours Currently Booked = Additional Hours to Achieve Hours Booked Goal: 10 Example: 85% x 40 Hours Scheduled to Work = Hours Booked Goal: 34 20

How does productivity affect revenue? Alexa’s current weekly revenue = $1,850 Alexa booked with guests = 24 hours $1,850 current weekly revenue ÷ 24 hours booked with guests = $77.08 Alexa’s current hourly revenue $77.08 current hourly revenue x 10 more hours to achieve hours booked goal = $770.80 increase in weekly revenue $1,850 current weekly revenue + $770.80 potential weekly revenue increase = $2,620.80 potential weekly revenue Alexa’s potential weekly revenue if 85% productive: $2,620.80 21

% of Service Guests Purchasing Product What is it? The % of service guests who are purchasing retail product Why is it important? It shows whether you lost retail sales opportunity. Retail sales build retention and revenue. 22

% of Service Guests Purchasing Product Benchmark: 22

Calculating % of Service Guests Purchasing Product # Service Transactions With Retail ÷ Total # Service Transactions Example: 45 Service Transactions With Retail ÷ 135 Total Service Transactions = % of Service Guests Purchasing Product: 33% 22

% of Service Guests Pre-Booked What is it? The % of service guests who are pre-booked for their next appointment Why is it important? When we pre-book appointments, we increase the frequency of guests’ visits, which increases productivity and produces more revenue. 23

% of Service Guests Pre-Booked Benchmark: 60% of all service guests are pre-booked for their next appointment 23

Calculating % of Service Guests Pre-Booked # Pre-Booked Appointments ÷ Total # Service Transactions Example: 200 Pre-Booked Appointments ÷ 495 Total Service Transactions = % of Service Guests Pre-Booked: 40% 23

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Lunch

Welcome to ABC Benchmarking Cover slide Welcome to ABC Benchmarking Welcome back!

Trivia

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Service Provider Payroll Benchmark: No greater than 45% of the total service sales revenue* * This is gross payroll and does not include taxes or benefits. 26

Calculating Service Provider Payroll Total Service Payroll ÷ Total Service Sales Example: $32,602 Service Payroll ÷ $69,366 Total Service Sales = Service Provider Payroll: 47% 26

Service Provider Payroll Too High? Action plan: Bring in new hires at a lower salary/rate. Assess hourly employees’ schedules, and cut hours if possible. Increase productivity of hourly employees. 27

Professional Product Cost/Backbar Benchmark: No greater than 6% of total service sales revenue 26

Calculating Professional Product Cost/Backbar Total Backbar Cost ÷ Total Service Sales Example: $4,441 Total Backbar Cost ÷ $69,366 Total Service Sales = Professional Product Cost/Backbar: 6.4% 26

Professional Product Cost/Backbar Too High? Action plan: Teach a usage class to show your team how to use less. Create a budget and share with the team. Limit what they are allowed to order and tell them that they must keep within the budget. Coach to the budget if you run out of needed professional items. 27

Sales Support Payroll Benchmark: No greater than 8% of total sales revenue 26

Calculating Sales Support Payroll Total Sales Support Payroll ÷ Total Sales Example: $8,561 Sales Support Payroll / $97,286 Total Sales = Sales Support Payroll: 8.8% 26

Sales Support Payroll Too High? Action plan: Increase total sales revenue. Assess hourly employees’ schedules and cut hours if possible. 27

Rent Benchmark: No greater than 6% of total sales revenue* * Exception: If location is in a high- traffic/retail location, a rent benchmark of up to 10% is acceptable. 26

Total Rent ÷ Total Sales Calculating Rent Total Rent ÷ Total Sales Example: $6,200 Total Rent ÷ $97,286 Total Sales = Rent: 6.4% 26

Rent Too High? Action plan: Increase total sales revenue. Try to re-negotiate your lease, but may not be likely. 27

Advertising & Promotion Benchmark: No greater than 2.5% of total sales revenue 26

Calculating Advertising & Promotion Total A&P ÷ Total Sales Example: $1,892 Total A&P ÷ $97,286 Total Sales = A&P: 1.9% 26

Advertising & Promotion Too High? Action plan: Increase total sales revenue. Evaluate your A&P’s return on investment (ROI) and assess whether it’s worth it. 27

Expense Benchmarks Teachback Activity Service Provider Payroll Professional Product Cost/Backbar Sales Support Payroll Rent Advertising & Promotion Expense Benchmarks Teachback Activity 28

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Trivia

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Profit & Loss Activity

Sales Expenses

Calculating Profit $ vs. Profit % $ Sales – $ Expenses = $ Profit Profit ÷ Sales = Profit % 30

Calculating Profit $ and Profit % $95,000 Sales – $86,400 Expenses = Profit $: $8,600 Profit %: $8,600 Profit $ ÷ $95,000 Sales = Profit %: 9% 30

Calculating Profit $ and Profit % $500,000 Sales – $475.000 Expenses = Profit $: $25,000 Profit %: $25,000 Profit $ ÷ $500,000 Sales = Profit %: 5% 30

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N.O.P. - NET OPERATING PROFIT Net operating profit (NOP) after interest and taxation is the money that is left to either share with the salon owner or reinvest in the business. 34

Calculating Net Operating Profit (NOP) Gross Profit – Fixed Expenses = Net Operating Profit (NOP) 34

Calculating Net Operating Profit (NOP) Gross Profit: $97,286 Sales – $59,583.59 Variable Expenses = Gross Profit: $37,702.41 Net Operating Profit (NOP): $ 37,702.41 Gross Profit – $30,304.91 Variable Expenses = Net Operating Profit (NOP): $7,397.50 34

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Day 1 Learning Objectives Calculate key benchmarks that support salon growth and profitability Measure your salon results and determine the best opportunities for growth Make fact-based decisions that support business success Create an execution plan to assess your business 2

Execution Checklist 36–37

Welcome to ABC Benchmarking Cover slide Welcome to ABC Benchmarking See you tomorrow!