How do you start taking control of your finances when you've just been winging it…
We’re going to be looking at some numbers today because I want you to understand the why behind what you make as an employee or as a business owner, and I want to shed a little light onto the reality of this situation. I’ve seen a whole lot of people talking about how terrible the pay is from a lot of massage employers and a lot of business owners who either aren’t paying themselves at all or aren’t paying themselves enough. Employees, I want you to see that what a lot of you are making is actually pretty good, and what goes on behind the scenes you probably do not realize. Not everyone, by any means, but that’s where these numbers come in, so we’ll dig into that. And employers, I want you to see how important it is to take care of your employees and pay them well, but you can’t forget to pay yourself well in the process. So let’s dig into why you make what you make so you can know what you can actually do about it, either as an employee or as a business owner. And I’m going to go ahead and tell you, there’s some tough love in here today.
Whether you’re an employee, a solo business owner, or you have employees yourself, we’re going to get into the actual numbers behind this stuff. So I put out a request in our Facebook group for people who would be willing to privately share some of their behind-the-scenes numbers and I had several responses, so I’m going to share some of those here as we go through this, because I want you to see real world situations, the real numbers of real people running real businesses, so that you can get a better sense of the reality of things.
You see, a big problem is that those who either don’t own a business yet or are just starting one, there can be a lot of misconceptions about what the numbers are really like, and a lot of disappointment when it doesn’t match up with what you thought. So, when I say numbers, in this instance, I’m talking revenue and expenses generally as well as total work hours, benefits, and pay, and we’ll get into some of the details especially once we get into those with employees.
So there are 5 main components I think it’s important to discuss.
#1 What you charge vs what you make
Charging $100 an hour doesn’t mean you make $100 an hour. This is basic business.
So let’s run with that and use it as an example real quick and look at a scenario of a solo business owner…say you charge $100 an hour with no extras like retail or anything like that, just to keep this math simple. If you see 20 clients a week that’s 80 clients a month roughly, for a revenue of $8,000, right? Following so far? Alright, so let’s say that all your overhead, both direct and indirect, all your expenses, everything you pay out over the month– and this includes your tax responsibilities and a regular deposit into your business savings account, by the way…important stuff there – it all comes out to $5,000. So that leaves $3,000 in profit, correct? Again, trying to keep the math simple. So your $3,000 in profit is your take-home pay, right? Now, how many hours did you work that month? For simplicity, we’ll say double your client hours – so you did 20 hours of hands-on work per week, let’s say you did another 20 per week on business tasks, marketing, in-between appointment times, all that stuff. So a 40-hour work week. That’s 160 hours you worked that month. $3,000 divided by 160 equals is $18.75 per hour. That’s your take-home pay. You made $18.75 an hour.
And what if you spent more than 40 hours working a week. Let’s say you spent a whole bunch of time doing your bookkeeping, making graphics and plugging stuff into social media, trying to design some brochures and stuff…whatever. What if you spent 50 hours working that week? That takes you down to $15 per hour that you’re taking home.
Now, how are you feeling about that $8,000 monthly revenue?
A lot of people set their prices arbitrarily, they aren’t super keen on keeping their costs as low as possible, and just look at that hourly rate number and what that means for revenue, they really like that big dreamy number and forget to actually sit down and calculate what their realistic overhead is, what their hours look like, and what their take-home pay would be based on that. That’s why the whole 6-figure practice or million-dollar business, it doesn’t mean much unless that’s referring to net, not gross, and they’re not killing themselves working a ton of overtime in the process.
This is why I preach about planning your business out and knowing your numbers. So let’s look at some real-world examples. One is a solo business owner and the other has a total of 7 employees, 5 of those are massage therapists and 2 are front desk staff. We’ll look at their average numbers, because obviously there’s peaks and valleys, so we like to average these things out over periods of time.
First, let’s look at the solo business owner…
She’s got a monthly revenue of $6,850
Her expenses are $2,500
Her weekly average workload, both hands-on and hands-off is roughly 40 hours.
Her rate for an hourly massage is $135
So we do all that math and her hourly pay is $27.18
This is the reality of the difference between that chunk of change you’re charging and what you’re actually taking home for your time.
Now the business owner with several employees.
Monthly revenue averages $13,500
Expenses total out to about $11,500 (this includes employee pay and benefits)
Their rate for an hourly massage is $100.
Therapists are paid $28/hour.
A lot of people scoff at that, thinking it should be at least a 50% / 50% split, because for some reason that’s been argued a lot. But, just like most employers, the cost of payroll and other employee costs (which we’ll get to in just a minute) are more than 50% of their overhead. That means that your pay is going to be proportionate to how it stands in their overhead ratio. So in this example, she’s paying out almost 60% of her revenue straight in payroll and employee costs. Most employees only look at hourly rate and hourly pay, thinking everything the business makes on top of that is just gravy, but it’s not that simple.
Another employer shared her numbers showing that while revenue is right at $150,000, her payroll expenses alone took right at $100,000 of that. Just payroll y’all! That’s not any other overhead. That $50,000 remaining has to take care of rent and insurances and supplies and all that other stuff. And overhead is a lot, especially when you start adding in employees, the extra space for all those treatment rooms, extra amenities and supply costs, tax obligations, extra accounting costs, employee management time, and all that stuff, so please understand that it’s not nearly as cut and dry as a lot of people want to make it out to be.
For those of you who are employees and want to complain about how much your bosses are “making off of you”, keep this in mind please.
#2 Consider your education and skill level
A lot of y’all might not like me after this. An associate’s degree, that’s 2 years full time at a traditional or vocational college, is a little over 2,200 classroom hours depending on the exact setup of the school. Nowhere in the US requires that for massage therapy. Most of us had about 500 hours, some 750, some 1,000, and if you’re in Canada your requirements are much closer to an associate’s degree. Now, the average income in the US for those with an associate’s degree is about $46,000 a year…that’s roughly $22 an hour, 40 hours per week.
See where I’m going with this?
Yes, what you do is amazing. And yes, you can help all kinds of people if you’ve got the hands-on skills, and yes, you may have taken a lot of training outside of massage school, but just please understand that pay is based on value.
The more unique your offering, the better your skills, and quite honestly the better you can market those skills, the more you can charge and therefore the more you can make. But I see so many employees complaining about making $20/hour, 30 or 40 hours a week, and calling it “slave wages” which, to be honest is a really insulting term in and of itself, given slave wages are ya know…nothing. But beyond that, it completely disregards what you bring to the table versus what your employer brings to the table, and that brings me to my next point…
#3 Risks = Rewards
I’m going to speak strictly to those of you who are employees for a second…Your employer has taken huge risks and therefore qualifies for more rewards. Those startup costs and the investments into equipment and supplies, their name on every financial obligation with contracts requiring payment whether they ever make a cent or not, and the marketing they do to bring clients in the door for you…all of those things are risky and deserve to be rewarded. As an employee, you’re showing up to supplies and equipment paid for and setup for you, clients who have been marketed to and scheduled for you, and protocols and systems in place to keep things running smoothly for you. You go in, take care of your clients, and go home. You’re not the one carrying the risks. You’re not the one managing it all. You’re not the one that stands to lose in major lifechanging ways if things go wrong. I’m not saying that all employers are God-sends and shouldn’t be criticized at all, by any means. There’s good and bad in everything, and there may be ways to better the business and employee care overall, but please employees, unless you’ve run a business yourself, unless you’ve managed employees, unless you’ve absorbed all those kinds of risks and know what it’s like through experience, stop making your employer out to completely be the bad guy for not paying you 80% of the service fee or because they’re driving a nice car or whatever it is I’ve seen splattered all over Facebook in complaints about business owners. If it’s so easy and you can do it so much better, then go out and do it. Please. Really. If you have new things to bring to the table and you’d be a much better employer, then seriously, go start your own place and be that better employer. We need more. But until then, humble yourself on the things you don’t understand because you’ve never done it.
#4 Employee benefits
If you’re a business owner, pay attention. You’ll want to be competitive in the job market, just like you do with the client market. You’ll want to not only attract quality candidates, but those who will stay with you long-term. This means offering good benefits. A lot of owners, especially those who are just hiring one or two people, solely consider pay. But in order to stay competitive in the market you have to offer more than just a paycheck. People are looking for benefits and incentives to work, stay, and perform their best. And if you’re an employee, it’s important to do your research within the job market to find companies that offer good benefits.
Now, for most small businesses offering benefits is a scary proposition as that stuff usually costs some big money, but oftentimes benefits can offset some pay. So really good benefits means pay can be lower. The fewer benefits offered, the higher employee pay needs to be.
Here’s a few examples of benefits that go beyond just a paycheck…
Liability insurance coverage or reimbursement
Health insurance coverage or HSA contributions
Specific skill training
Bonuses based on performance
Trade days and self-care time
Paid time off and vacation days
Student loan repayments
As an employer, yes I know that many of those things mean more money per employee, but these are the things to factor in when you’re ready to expand and hire on. Run the numbers and see just what you can realistically manage. Just like any investment into your business, investing in quality employees pays off big time in the long run and when done well, is worth every penny. And as an employee, take a look at both pay and benefits to see what you’re really making.
Benefits usually put real pay up to 1.25 to 1.4 of the salary. So if your pay is, like using the example above, $28 an hour, with good benefits, that puts the real cost for the employer up to $35 to $39 per hour just for your pay and benefits. THIS is what a lot of people do not consider, both employers and employees.
And this brings me to my last point…
#5 The Extra Costs of Having Employees overall
If you’ve never had employees you may not realize that there are several extra costs that go into it. First, one that you can’t get away from, tax and legal obligations. Depending on your area, this includes unemployment taxes, Medicare and social security contributions, additional accounting costs, and then any benefits I just covered. This is on top of paying for job advertisements and onboarding and training, which is a serious investment if the right people aren’t hired each time and that time and money are wasted when they quit. According to Investopedia, on average small companies spend, more than $1,500 on training, per employee. Plus there’s time managing all employee care, so, writing up policies and systems, scheduling, writing paychecks and withholding state and federal tax obligations, managing conflicts, and so on. There’s a lot more to it than people tend to think. So employers, consider this stuff before you hire to make sure you’re really financially ready to take on employees. And employees, take a look at all that goes into having you as an employee and what that really costs the business.
So there’s my 5 points, but what does it really all mean? First, I hope this opened your eyes to the real numbers behind this and what your pay is actually based on. Secondly, I hope you will now go figure out exactly what it is you’re making per hour if you don’t already track that. And thirdly, I just want you to realize that if you want to make more, which is possible for pretty much every one of you whether you’re an employee, solo business owner, or employer yourself, you’ve got to start by knowing what your numbers are now and determining exactly what you want them to be, then develop a plan to get there.