As we are halfway through the year, in this edition of industry insights, we’ve put together data from Kitomba Benchmark to give you an idea on key areas where incremental improvements will ensure long-term success for your salon, spa or beauty clinic. Kitomba Benchmark is a feature of Kitomba Salon and Spa Software that compiles and compares anonymous data from across the hair and beauty industries.
Winter is the perfect time to refocus your business and finish the year in a strong financial position.
Here are three ways to increase revenue right now:
- Increase your average client spend
- Increase your salon prices
- Increase retail sales
These things are sure to improve the profit of your hair or beauty business.
Increase your average client spend
Encouraging your clients to spend more per visit is the most direct way to increase your business income. The hair and beauty industries in New Zealand and Australia saw an increased demand for services and retail in 2020 after lockdowns, and the average client spend went up. A useful way to think about per client spend is to consider how much effort goes into attracting new clients. A general rule: remember that it takes the same amount of time, effort and expense to attract a new client, regardless of the amount they spend at your salon or spa in the future. Once clients are through the door, use the opportunity to upsell or bundle your services, sell more retail and gradually increase your prices.
Here’s an example:
If your average revisit period is 8 weeks (6-7 visits a year) and your average spend per visit is $120, this would amount to $840 of average spend per client per year. If you have 20 clients, your revenue will be $16,800.
Now, imagine that you increased your average client spend to $150. You will increase your revenue by $4,200: $16,800 + $4,200 = $21,000.
Increase your average client spend to $200, and your annual revenue will increase by $11,200: $16,800 + $11,200 = $28,000.
Increase salon prices: everything you wanted to know about doing a salon price increase (but were afraid to ask)
When is the right time to do a price increase? What do I base my pricing on? Will it drive clients away? We reached out to Malcolm Gibbons from Salon Business Coach to learn more about successful price increase strategies for salons and spas. Malcolm says:
“Many salons are not charging enough to cover their costs and make a decent profit, and it is keeping them from growing the business and rewarding themselves for the investment, energy and effort they are putting into it.
Many salons are not profitable enough to pay their team members a decent wage either. It’s been a problem associated with the industry for years. If you get your pricing right and are making the profit you should, you will be able to pay yourself well and also reward your team with fair wages.
As a basic rule prices should be increased based on the increased cost of doing business. Other factors to consider include the Consumer Price Index (CPI)* rate that is currently sitting at around 1.5% (the consumers’ price index (CPI) is a measure of inflation for New Zealand households).
A good rule of thumb is at least double the CPI. What’s more important is to know that your pricing is covering your costs and giving you a fair profit for your investment. A great way to determine your pricing is to calculate the amount of revenue you need to make per hour of operation (including a fair wage for you and a profit margin too). Once you know the cost per hour you can then calculate your pricing based on this:
- If you need to make $95.00 per hour and you take 1 hour for a women’s cut and finish then the price of that service should be $95.00.
- To calculate colour pricing, determine your hourly rate down to the minute: using the above $95.00 per hour would mean that $95.00 / 60 minutes = $1.58 per minute so a colour taking approximately 1 hour 45 minutes = 105 minutes or 105 x $1.58 = $165.00 for that colour service.”
What are some common price increase strategies?
We also asked Malcolm for advice on the best strategies when it comes to planning an increase in prices at your salon or spa. Here’s what Malcolm recommends:
“Many of my clients who are salon owners, after initially being scared to increase prices, tell me that their clients tell them it’s about time after they’ve had an increase! There is always going to be someone who would complain and then it’s up to you to decide if these are your target clients or if you might be better off without them, therefore, allowing space for better quality clients who are happy to pay your prices to book in with you.
There are many factors in determining how much you should increase prices at your hair salon, spa or beauty clinic. Start by asking yourself the following questions:
- How long has it been since your last price increase?
- How much was that increase?
- When do you expect to raise your prices again?
- Are you profitable now based on your current prices?
It’s time to stop being scared of raising your prices and apply the following strategies for regular price increases.
- Schedule a general price increase once a year (at the same time every year), for example on the 1st of November (a good time as clients are in Christmas mode and won’t be that concerned about an increase). This is when you increase the prices across the board by at least the current CPI.
- Schedule two more price increases (for example, end of March and end of July) for selected services such as colour service, treatments, blow-waves, hair-ups, etc. Next time when you do your general price increase, it may be by only a couple of dollars. It’ll also be much easier to communicate to your clients as it’s not even the price of a cup of coffee these days and you’ll gain confidence in your annual increases.
- Think about any other plans, changes and factors that you need to take into account. Are you expanding your hair business? Are you planning to add new products and services? Are you introducing a new loyalty program or perhaps, planning to invest in quality salon management software?
Overall, hair salons and beauty businesses should be undertaking at least one price increase yearly and consider up to three increases a year. If you haven’t increased your prices in two to five years, now it is definitely time to do so.”
How should you communicate a price increase?
“It is a fact of life that costs and expenses rise when you run a hair or beauty business or any business for that matter, and therefore so does the cost to deliver your services. If you follow the strategies described above and plan a steady and moderate increase in prices, it will come as less of a shock to your clients. I don’t believe that we should be inclined to let our clients know prior to an increase or to forewarn them, we never did in our salon and never had an issue with clients objecting.
If you do wish to inform your salon clients of a recent increase then a small note on the front desk, once you have increased your prices, along the lines of below is appropriate:
Thank you for your continuing support of <SALON NAME>.
We wish to advise you that we have had an increase in prices effective from <DATE>.
Because of the increased business costs, we could no longer maintain all of our prices at their previous levels.
We value you as a client and hope that these increases will not affect our good relationship with you.
Malcolm Gibbons is one of New Zealand’s foremost specialist Salon Business Coaches and consults with salon owners wanting to streamline their businesses, become more profitable and claim more hours in the day to do the things they want to do – not doing the things they have to do. Contact him to see how he can help you live the dream you had when first going into business.
Increase retail sales
The hair and beauty industry is based around service with clients coming to relax and focus on themselves.
The hair and beauty industry is based around service with clients coming to relax and focus on themselves. This experience can continue at home with professional and exclusive retail products. We recently reviewed statistics for the average basket value for the beauty and hair industries in New Zealand and Australia. Comparing year on year, we noticed a steady increase in the average client spend on retail products as the average price of retail items has gone up and clients purchase more items per single transaction.
However, our data shows that in hair salons across New Zealand and Australia, on average, only 20% of all visits include the sale of retail products. At spa or beauty clinics this number drops even further, to 10%. This means that around 80-90% of all visits do not include any retail products in the experience. This is a huge opportunity for hair and beauty businesses to learn more about the best practices and upsell products that enable clients to have a high-quality experience between visits.
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Read more articles like this:
- Industry insights: Average client spend for the hair and beauty industry
- Industry insights: Retail statistics for the hair and beauty industry
- Industry insights: The truth about ‘regulars’ and what they really mean to the hair and beauty industry
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