Saturday, May 24, 2008

Revenue Per Hour

We're working with our new Strategies coach and we've been focusing on Revenue per Hour. That's not a figure I've paid much attention to in the past, but I'm taking a closer look now. Fortunately, our salon software (Millennium by Harms Software) does a great job of tracking metrics that are important to our business.

Revenue per Hour (RPH) can be confusing. Most of us probably thing of RPH in terms of what our prices are. If my haircut costs $50 and I do two haircuts in an hour, then my RPH is $100. Well, that would be true if you were 100% productive, but in the real world that rarely happens. So actually:

Revenue per Hour = Revenue
Hours available for sale

So in a one chair salon, if my revenue for the day was $750 and I worked 10 hours, the revenue per hour is $75.

Revenue per hour doesn't have much meaning until you compare it to Cost per Hour. I can calculate that the same way - by taking all my costs and dividing them by the hours I have for sale. If my cost per hour is higher than my revenue per hour, we've got a problem! (For the most useful results, omit retail revenue and retail cost from your calculations. The result will be Service Revenue per Hour and Cost of Providing One Hour of Service).

When you know these two numbers you can make better decisions for your business.

If RPH is too low it could be an indication that your prices are too low. Alternately, it could be a sign that you are overstaffed - too much unproductive time will push down your RPH.

Knowing your revenue per hour can also be useful when dealing with compensation issues. If a technician requests a raise, you can evaluate their RPH and the salon's Cost per Hour to determine if an increase is warranted.

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