Why Your Gross Profit May Be The Most Important Number to Track
As a salon owner, you probably keep a close eye on your sales numbers. While high sales feel great, there's actually a more important number you should be watching:
Your Gross Profit
So, what is gross profit?
Your gross profit is what's left after you subtract your direct costs (like stylist commissions and product costs) from your total sales.
Here's a simple example: Let's say your salon brings in $30,000 in sales for the month.
$15,000 goes straight to stylist commissions (50% commission structure)
$6,000 goes to product costs for services and retail sales
This leaves you with $9,000 in gross profit (30% of your sales)
This $9,000 is what you have left to cover everything else:
Rent and utilities
Front desk staff wages
Marketing costs
Insurance
Your own salary
And all other operating expenses
This is why gross profit is so crucial - it's the money you actually have available to run your business. You could have amazing sales numbers, but after commission and product costs, it may not be enough to cover your overhead expenses which impacts profitability.
Key areas that affect your gross profit
Commission Structures:
This is often your biggest direct cost. Whether you're paying 40%, 50%, or even 60% commission, this money leaves your business immediately. Before setting commission rates, calculate how much gross profit you'll need to cover your overhead.
Service Pricing:
If your prices are too low, you might not have enough gross profit left after paying commissions and product costs. This is why regular price reviews are essential.
Product Usage:
High product waste in services directly reduces your gross profit. Proper training on product usage can make a big difference.
Retail Sales:
These often have better gross profit margins than services because there's no or a lower rate of commission to pay. This is why many successful salons also focus on retail sales.
How to improve your gross profit
Review your pricing regularly: Make sure your prices leave enough gross profit after commissions and product costs
Train staff on proper product usage to reduce waste
Consider a sliding commission scale that rewards higher-performing stylists while protecting your gross profit
Focus on retail sales, which typically have higher gross profit margins
Track product costs carefully and negotiate with suppliers for better rates
Remember, your net profit (what is left after ALL expenses are deducted from sales) is still very important to track, but gross profit is what you need to watch day-to-day. If your gross profit isn't high enough to cover your operating costs, no amount of cost-cutting will make your salon profitable.
Take Action
Look at your last month's sales and calculate your gross profit. Is it enough to comfortably cover all your operating expenses? If not, it's time to review your pricing, commission structure, and product costs.
Knowing your gross profit comes down to reliable data. Does your current bookkeeping provide this information clearly? If not, we can help! Book a discovery call!
The Glow Standard organizes financial data to help salon owners make better business decisions.
