Payroll: How Much is too Much?

Ever feel like you want to fire everyone and cover all 100 hours of the shifts to save on payroll? We hear that a lot from frustrated studio owners. We also hear about the cases where it feels like payroll is sucking the studio dry of all it’s precious cash flow. So how much is too much?

The goal for most studio owners should be no more than 20% of sales for gross payroll. This excludes the studio owner’s compensation. So let’s do some quick math. If your gross sales for the studio are $5,000 for a week, your payroll to employees should be no more than $1,000 gross. So that’s about 100 hours at $10 per hour average — maybe a full time and two or three part timers.

You can also use this formula for important scheduling decisions. If you have some historical numbers, look at the prior year’s sales and take 20% of that number for your payroll calculations. Let’s say last year’s revenue for the week you are scheduling was that magical $5000 again. Again, we’ll do some easy math and say that everyone in your studio gets paid $10 per hour. That means that you should have no more than 100 hours of employee work time on your schedule. You get the idea on how this works.

So what if you just want to dip your toe in the waters of incentive pay systems? How about we start with something simple like parties and classes. Look at how much your studio gets in revenues for these items and offer to pay a flat rate incentive to your employees. The go-getters will really shine and rise to the occasion in most cases. Let’s say that you want to create an incentive for your employees to sign up people to come to classes. You charge $25 per student. That would mean that your payroll for that revenue should be 20% so you could pay $5 to the employee who signs someone up for the class. Keep the math simple for your employees and give them a round number so they can see the incentive right in front of them.

Example for Offering an Incentive to Promote Classes:

• Go Getter Employee signs up 10 people for classes

• You get an extra $250 in revenue (10 people times $25 per person)

• You pay Go Getter $50 incentive through payroll

• Don’t miss an opportunity if you have different classes like glass, ceramics, clay, canvas! Give a bounce back coupon at each class to give them a freebie or small discount to try a different kind of class. Or offer an incentive for signing up for their next class while they are there (and paying of course!).

A common problem that causes studios to exceed the 20% benchmark is lower than expected revenue. We know we just can’t control the busy times and slow times, but you can control payroll by moving to an incentive driven system. Many find it very hard to change once hourly rates are established but new studios should strongly consider how to structure payroll on a full incentive basis. You still have minimum wage to deal with but that’s better than paying $12 per hour when your studio revenues cannot support the payroll dollars. We have developed a structure for full studio payroll and can help advise you on how to implement.

So now you have some important information squared away. We work with several studios so we can use peer and industry information to help our clients grow their studios. Its easy to work with us and we’ll be happy to help you make key decisions like your payroll to make sure that your studio works for you too! Let us know if you would like more information about how we work with studios. We would love to talk with you and be a part of your future.