Team Bonuses: How do you figure it out?

I recently came across a really great blog written by Sally McKenzie of McKenzie Management; a dental management solutions company. Her article on Bonus Plans really resonated with me, so I’ve decided to ©SPAdapther blog and target it to the global spa industry. I know many of you struggle with the whole team bonus model, and hopefully this piece will help you make decisions that are both sustainable and beneficial for everyone involved…

There are many moving parts to consider when calculating team bonuses.

So many in fact, that some spas simply opt for the ‘gut feeling’ approach and end up assigning bonus dollars to the team when it ‘feels right’… and in dollar amounts that follow fairly rough scales and thought processes.

It would be so easy to say all staff members will receive the same bonus once a campaign is over, or quarter-end numbers are in, but that doesn’t work in the real world.

Seniority often dictates scheduling and client bookings, which in turn can skew service and sales opportunities. Because of this, it’s pretty fair to assume that the more senior positions will probably be in a position to attain higher level contributions and therefore realize higher rewards, more easily.

But then the question becomes, what is the criteria you used to award a staff member seniority? Staff only deserves the benefits of senior status if they meet the highest tiers of criteria, but what criteria is that exactly? Do you know?

And will senior members come to believe that they are the main bread winners in the bonus campaign, demanding more and feeling disgruntled if they aren’t recognized and rewarded sufficiently for their value and results? On the other side of the coin, are your junior positions enjoying fair play and opportunities?

If you’ve read our previous blogs or listened to any of our webinars on KPIs, you know we’re fans of tracking individual staff performance stats. So if you have set up this quarter’s campaign to reward staff with a bonus simply by saying; ”If we make more money, you’ll get rewarded”, you’ve effectively just taken the focus off the real business performance indicators, and put it solely on the money.

You may make your goals for the quarter for any number of reasons, for example; retail sales were up because staff now have $ signs in their eyes (which is partlygreat), but what happens if at the same time this causes quality of service to go down and therefore causes a drop in client prebookings, service sales per square foot, referrals and retention?

Normally, as metrics improve, so does revenue, that’s the whole idea behind monitoring results; but in some cases and as with this (extreme) example, you can see that there is potential for the two to come in conflict.

As Sally states in her blog, consider that staff get paid their usual wage whether sales are up or down, and they get their wage plus a bonus when sales are up – that’s a win-win. Spa Owners benefit when sales are up, but they still have to pay base wages when sales are down – that’s a win-lose.

In the spa business, it helps if your pay structure is based solely on productivity (fee for service), but many spas pay a base hourly wage now, so that means you must either be able to schedule your staff through the eye of the needle to minimize gross profit erosion (paying staff based on no sales), or send them home during down times. Neither of these scenarios are good business practices. If you do find yourself between this rock and hard place, remember that if staff do stay on site without administering services, get them busy with Mini Marketing assignments that will help generate revenue in the future.

Keep in mind that a team bonus really should be based on profit, not sales. So this means your employees should probably have some kind of understanding of how the formula works. The problem is that Owners often hesitate to reveal financial information to their staff, and their staff don’t really care about those details anyways.

So when the quarter is over and everyone sees that sales goals have been met, how will you tell them that you didn’t realize a profit after all? In fact, this isn’t even your staff’s fault, unfortunately the responsibility for profitability lies squarely on your shoulders. So if you continue to run your bonus campaigns based on profitability and never actually reach profitability, you may be digging yourself a very deep hole.

Experience tells us that ideally, staff wages should run somewhere between 20-35% of service revenue. The lower end is best wherever it is fair, because don’t forget you still have payroll burden and any other staff expenses that must be added to your total staff costs.

But in many cases, we see wages running too high, at upwards of 35-50% of service revenue.

So the bottom line is if you are within an acceptable wage/service % ratio, you will stand a chance at profitability and therefore a team bonus may be feasible. BUT, if you are out of bounds on this ratio, you probably need to reassess your staff compensation before you can even consider a team bonus. Your COG may be depleting profits so significantly that a team bonus program is impossible for you to reap any benefits.

Is your team bonus and your good intentions becoming an exercise in frustration, or even worse, a bone of contention among staff?

As you move through the process of determining if team bonus is right for you, we’d love to hear your views. Do you consider it to be a work in progress, needing time to perfect; OR is team bonus the best recipe you’ve ever seen for a bad idea!

Whatever your situation, there will be no mistakes if you’ve done the math. Enjoy!