In this article I ask you to take a long hard look at your position as a salon owner, and to ask, “Is it really worth it?” if you are not making the money you thought you would.
I talk to many salon owners and the truth of the matter is that some of them would be better off working for somebody else, as it would be an easier, a less stressful life and they’d be paid a lot better too.
Can you relate to that? Well there is a way you can beat the owners blues and it starts by finishing reading this article – and answering the questions truthfully, and then making change happen for you, your team and your clients.
Do the maths
Do you know what you are being paid on an hourly rate? Do yourself a favour and work it out – be prepared for the surprise that may well be in store for you.
Remember to include the time you spend off the floor, but still working for the salon, like the ‘doing the books’, GST/VAT, promotions, marketing etc… you’ll probably find that you are paying yourself much less per hour that you pay your team – ask yourself, is that what you wanted when you first went into your business?
Profitability is key
One issue for salon owners is profitability… well more a lack of it for most and that’s a serious problem for any business. Sure, many businesses are operating on cash flow but this is not a long term option for business viability and stability. Cash flow will never be enough to sustain long term viability for any business.
Profit is all about margin and not necessarily volume. You will all be aware of the proliferation of the daily deal sites that abound today – more about them in another article, for today let’s just ask what are they doing for business? They are providing cash flow which is a short term fix for what realistically is a long term problem.
Don’t get me wrong here, an injection of cash can be useful to pay some outstanding accounts, but if you have not established your profitability by having a good healthy margin you soon will be looking to ‘do another deal’ because you will be once again behind the eight ball with your monthly accounts. Can you relate to this?
Look at your margins, not mark-ups
So this story is really about margin and what having a healthy one actually means to your business. Now let’s not confuse margin with mark-up. Mark-up is the percentage you put on the cost price of a good or service to establish your selling price, margin is the amount of money you make off that good or service.
Do you in reality know the effects on your business when you reduce your prices?
Do you know how much extra business you need to do to make the same profit as you would by not reducing prices?
Did you know if your gross profit (margin) is 20% and you reduce your prices by just 10% that you need to increase your turnover by 100%… just to make the same gross profit?
Conversely if you raise your prices by 10%, you could afford to lose 33% of your sales before you lost any gross profit!
Look at your overall costs
Now let us explore further what margin actually means, margin is the amount of money left over from the sale of a good or service after the cost of that good or service is taken away from the retail price… or in other words, it’s the amount of gross profit made when an item is sold.
Have you calculated how much it is costing you to open your salon every week? If you don’t know, then I urge you to work it out smartly, again, this may surprise you and not necessarily in a good way either. You need to know this figure in order to determine how much you need to charge for services to cover that cost and make a healthy return on your investment of both money and time on the salon.
Fact: most salon owners are not charging the amount of money they should to make their business viable. It is high time they took a long hard look at what they are doing about that.
As a salon owner are you tied to your business ‘behind the chair’ because if you were to actually stop or even reduce the number of day’s hairdressing ‘behind the chair’ your salon would struggle or even go broke because your takings are really what’s keeping it open?
So, what can you do about it?
Here’s where to start fixing that issue, let us look at what people buy, I’m hearing (and far too often!) that people are buying on price today and to a certain extent they do. But people only buy on price when that is the only reason to buy.
What if I ask you: do you provide value? Do you help your clients’ look and feel great? Are you a ‘client centred’ salon? Are your clients happy with your work and do you provide great service and build relationships with your clients? Well, that’s what really matters to clients and if you are providing it, they won’t even question price if they know they are receiving ‘value’.
The real question is, are you providing value for the money you are asking your clients to pay? And, if you are, are you charging enough so you make a healthy margin (at least 25%) to ensure you are going to be in business in the future to continue to improve on that value you give clients?
If you are not making enough margin on your services (and retail products) you will always continue to struggle to pay your bills and earn enough money to justify you being in business in the first place. And here’s the simple truth of it…The easiest way to improve margin is to raise your prices.
When was the last time you actually had a price increase?
In my daily discussions with salon owners I often ask the above question and it shocks me that at least 50% say over one year ago with a lot saying more than two years ago, and that has a devastating effect on income and margin!
Effectively (if you are one of those owners) you have taken a wage reduction of at least 10% over the last two years! Let’s face it, over the last couple of years we have had increases in just about every aspect of our lives, supplier’s increases, rent and rates… so why are salon owners not putting their prices up, why are you not putting your prices up? The answer to that question is fear – a fear of losing clients.
Clients value experience
For this argument I refer you back to my earlier comments on providing value and the fact that people will pay a fair price for it. If people only bought on price then you would find that you will end up with no clients as there will always be someone prepared to do it cheaper than you. I bet that there are salons that charge less than you, so why aren’t all your clients going to them now?
People buy on value and experience and if you are providing both and satisfying your clients needs then you should not be afraid to charge for it.
Let’s agree that you now are convinced that you can raise your prices without losing too many clients, how do you go about it? The secret is to keep it simple and low key, it doesn’t have to be a huge production. Just professional and easy, let clients know that in six weeks your prices will be increasing. Even a small message on each mirror and on your reception desk will work.
You will lose some price sensitive clients but that can’t be a bad thing anyway, and if losing a few of these will make a significant impact on your income, then you have bigger problems than a price increase will fix.
As I said above, sales can fall by 33% after a 10% price increase before it actually translates to a decrease in gross profit! So, the good news is that raising your prices and losing the small percentage of price sensitive clients will actually allow you to make more money by having space in your appointment book to add better quality clients who are happy to pay your prices for the value they are getting.
What is holding YOU back from raising your prices?
Many salon owners are afraid to raise their prices because of fear, they feel that they will lose business and in some cases this does happen, however as I said above you can afford to lose a certain number of clients without actually losing money. If you are providing value in your salon, the majority of your clients will remain loyal.
If you are struggling with justifying raising your prices then you probably doubt that you are providing value for money and it is this belief that will limit your ability to grow your business and your pay packet as well. My advice – start believing in yourself and what you offer in the way of value for clients and start charging accordingly. If you are struggling to provide value to your clients then get some assistance from a business mentor like me and be prepared to put in some hard work to build value into your salon, so you are able to charge a fair price that is more than justifiable.
The bottom line:
Put your prices up by at least 10% or more if you haven’t done so in the last twelve months, this will increase your margin and allow you to remain competitive and continue providing your clients with great value services, and it will help secure your long term viability in your business.
If you’d like more information about managing your salon, including expert tips and a variety of helpful resources for growing your hair and beauty business, visit our salon business management guide: Business management guide for salons, spas and clinics.
Editor’s note: This post was originally published on 22 May 2015 and has been updated for accuracy and comprehensiveness.
- Proven ways to grow your business in the hair and beauty industry
- The how to guide for increasing prices in your salon
- How to increase salon prices without losing your clients