Do You Need To Go On A Budget Or Raise Your Prices?Jul 12, 2022
Do you need to go on a budget?
Let’s take a look at the importance of a written budget.
Here at The Savvy Groomer we teach something called The Roadmap To Financial Success. The first step on that journey is The Written Budget.
This may seem like a very tedious situation but the truth is it’s incredibly important. Write your budget down. I sound like a broken record talking to groomers about the importance of a written budget but I want you to remember that I am here, like your grooming instructor, mentoring your groom and guess what? Your groom is only as good as your bath is. If you have bad prep work it’s really hard for you to have a good groom. That is the same for your personal budget, a written budget, and your finances.
The truth of the matter is when you write down your budget (and I honestly do every month) it gives you permission to spend. I am setting a contract with myself. I am holding my word of honor and integrity to myself. I am agreeing that I am not going to spend more than what I’ve written down. By that same token, I’ve also agreed not to make myself feel guilty for spending that money either.
Rachel Cruze says, “Your budget gives you permission to spend money.”
A great example is that I have a $600 Starbucks budget per month. So if a coffee is $6, I could literally buy 100 coffees. Let’s divide that by 30 days - I could buy 3 coffees every single day and just hit my budget. I’m setting myself to indulge and take really good care of myself.
Let’s remember that the grooming salon is a place of chaos. Things are always changing. It’s a dance between having a system and acknowledging that that system only works with flexibility. It’s the same thing with your budget. We often call your budget the appointment book for your finances. If you had an appointment book and you never actually did anything, just letting dogs show up whenever they wanted to, your shop would be chaos.
Let’s assume that you’ve decided that you will only spend $200 this month on food but then you realize that you simply can’t eat ramen every night. I see this all the time where people are going to go on these really lean monthly budgets. They thought that they could live on $4 a day and that doesn’t buy anything anymore. It’s okay to admit to yourself, “Okay, maybe that was a bit too ambitious.” You can always go back, take from one category and fill another, as long as the budget still balances to $0 left over.
You have complete control of your budget. Without it, you’re probably not going to know how much you’ve spent so far. Your written budget is so important. It’s the difference between you guessing and knowing. I wouldn’t keep sounding like a broken record if it weren’t true.
Now this is the first step on The Roadmap To Financial Success. I strongly suggest that you watch all of the episodes on our Roadmap series that way you can see where you are personally on that journey.
I know that the budget is a very boring thing to do, but it’s going to be so important to your success.
And if you’re confused, don’t worry about it. I do have a class. It is a 12-module class called Personal Finance On A Leash where we teach you to go from surviving, to living, to thriving. We teach you how to create a personal budget, we teach you how to do a zero-based budget, and we help you create habits that way you can live in a way that is on your terms, within your budget, but also working towards long-term goals.
If you’re like most groomers, you actually make a lot of money - you just need to make that money work for you.
Now on the flipside, should you increase your prices?
The first question I want to ask is, are you profitable? And that’s not always as clear cut as an answer as you’d like it to be. We tend to talk about percentages instead of just a dollar amount, because everyone has a different opinion on what is a good amount of money to have or what’s not a good amount of money to have.
Investopedia.com defines net profit as the profit you make after deducting the costs of providing your services.
I always suggest that 30% of that should go into payroll, and that’s including you.
15-25% should be set aside for taxes.
15-25% is pretty normal for overhead.
5-25% for debt or upgrades.
That’s anywhere from 65% to 105%.
Even with using the 30% metric for payroll, you could easily actually lose money.
Now let’s look at 45-60% payroll.
You’re looking at those numbers being 80% to 135%.
That’s not a lot of meat on the bone.
If you’re at 100% or above with your metrics, that means that you don’t get any return on your investment besides owning a job.
Don’t forget, you want to pay yourself out of that payroll, to pay yourself for the work that you do. We also want to make money for investing, the same way that you would invest in a house and you rent it out. You want to earn more money than what you’ve invested. If you’ve invested in the stock market, you want a return on that money.
And I always talk about owning a job, because if you could work for someone else and make the same or more it doesn’t make any sense to own your own job. You’re putting up so much more risk. You’re at risk of the IRS auditing you, liabilities, all of the things that come with business ownership, not to mention all of the extra work. There’s so much when you’re a business owner.
What is the average grooming ticket that you guys have?
This means the average dog that walks into your shop. So I tend to use a Shih Tzu or Yorkie 5 all over with a teddy bear face.
I like to use the average of $50 for the average ticket price.
Let’s say this dog takes an hour from check in to check out.
That means it’s $50 an hour, and your groomer earns $15 an hour.
If minimum wage in your area is only $10, then that’s okay money. But if it’s $15, then you’re going to have one pissed off groomer.
Now let’s say the average ticket is $60, so that’s $60 an hour, and your groomer is earning $18 per hour.
$70 would be $21 an hour for your groomer.
We want to make sure that we are paying ourselves and our groomers a livable wage, and this means different things in different areas.
$105 would be $31.50 an hour and that’s great.
Let’s look at an example.
So let’s take a look at a “normal” grooming salon that pays 50% commission.
So let’s say you have 2 groomers, and each grooms 8 dogs at $50 a dog. That’s $800 in gross profit, and $400 in payroll total (each groomer is making $200).
You have a bather and a receptionist that’s there 10 hours (because they come in an hour before the groomers and leave an hour after for prepping and cleaning). The bather makes $15 an hour so that’s $150 a day. The receptionist makes $10 an hour so that’s $100 a day.
So again our gross profit is $800.
This payroll equals $650.
Now I’m only earning $150.
This is less than 20%. Taxes are 15-25% by itself. At best they paid their employees and their taxes. It didn’t cover overhead, any of their own pay, didn’t pay off any debt. They literally made enough to pay their employees, groom all these dogs, and pay their taxes. They break even at best.
If there was ever a time to increase prices, it’s now. Fix your ratios and actually make your business profitable. You should own a business and not just a job.
If you’re looking at your budget, and saying, “Okay, my metrics are off” - then it’s time to actually increase those prices or restructure them. A lot of people assume that the Price Increase Masterclass is all about increasing your prices. But a lot of times it’s taking a look at what services make sense for my budget, what services don’t. Am I undercharging for big dogs but charging appropriately for small dogs? Am I adding things like de-matting and more exotic haircuts? Are these breed standard haircuts being charged appropriately or do I really need to evaluate if this is something that we can offer? The Price Increase Masterclass is there for you to figure out what is going on in your business, help you figure out your metrics, and decide where you’re going financially in your business
It’s really up to you to decide if it’s a situation where you need to pay attention to where all that money is going, or if your metrics are off and you need to figure out what the next step is for you in your business.
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