ATO benchmarks for beauty services

The ATO's beauty services group covers businesses offering treatments for nails and skin, other beauty work and massage, and some also do waxing or retail salon products. Hairdressers, barbers and tanning studios fall outside it. The ATO picks total expenses to turnover as the key range for beauty services, describing it as likely to forecast turnover more accurately than any other ratio.

Salons and therapists join the group through the main business activity they describe to the ATO. Anyone outside its turnover cut-offs at either end, anyone listing multiple activities, and any business that began trading within the year before the benchmark year opened are left out, and outliers are removed before the bands are set.

Turnover is treatment and product sales counted excluding GST. The ATO's expense total skips anything paid to associated persons, for example a relative helping at the front desk. Beauty services has no published cost of sales ratio, which would in any case exclude salary and wages. The ATO puts out a ratio only where a large enough share of the industry reports that cost, and it notes that many service businesses are unlikely to carry much cost of sales.

With no cost of sales range to sit beside it, the salon's costs are all read through one figure. Wax, lotions, polish and other products used up during treatments sit there, and so do products stocked for sale to clients. Wages and fees paid to therapists, rent on the salon or treatment room, towel and linen laundering, online booking fees and car costs for therapists who work at the client's home all count too. Labour, rent and motor vehicle costs also get their own secondary ratios on the ATO's page, each a slice of total expenses.

A band captures a group of salons clustered near the mean result for their turnover range, so its edges are not limits to aim for. Whole-number rounding applies to every edge, and the ATO draws turnover ranges separately for each industry; for beauty services they are identical in both years.

Each step up in turnover brings a higher expense share, and in both years the band tightens as it climbs. In 2023-24 the lowest and middle bands meet with no gap between them. Between the years, the upper edge of every band is unchanged. The lower edge is lower in 2023-24 for the lowest and middle ranges, and higher for the top range.

Several of the ATO's reasons for an expense share above the band show up plainly in a salon. Wastage, such as wax heated and thrown out or products past their use-by date, adds cost without adding sales. Products taken home for personal use but left in business stock costs do the same. Rostering more therapists than bookings need, or rent that is high for the takings, lifts the share, as do prices set below what other salons charge. Treatments paid for but never entered, or cash from the drawer used to buy wax or polish with no matching sale in the books, push it up as well.

Below the band, the ATO's possibilities include expenses never recorded, cash wages among them, prices with a higher mark-up, and a salon that wastes less. Recording checks come first:

• every product order is entered, small online purchases included
• retail and treatment products on hand at year end are counted
• completed appointments in the booking system tie back to card payouts and cash deposits

Use the salon's profit and loss for an entire financial year: total expenses, less anything paid to associated persons, divided by turnover excluding GST. Then locate the band matching the salon's turnover.

Because new businesses and multi-activity businesses are outside the ATO's group, a salon in its first year or one that also cuts hair is compared with a different population, and figures for less than a year cover only some months of trade. A big one-time expense, a major equipment repair for instance, lifts a single year. The ATO notes that not every business reports every expense: a mobile therapist with car costs and no rent, and a salon with rent and little travel, can carry quite different cost mixes.