Raising Salon Profitability in Just Four Useful Steps

Raising salon profitability should be the number one goal of any salon, regardless of whether you’re just starting or have an established business. Revenue is the money your business takes in. Profit is the money you take home. Revenue strokes your ego, but profits put food on the table. So being more profitable should always be your goal. Many salon owners think that getting more customers will magically make them more profitable. Sadly, that’s not always true. Being busy doesn’t always mean being more profitable, because revenue is only one part of the profitability equation. Costs are another part of the equation. If you want to learn how to control costs better, generate more revenue, and become more profitable, keep reading.

Estimated reading time: 8 minutes

Step #1—Cutting Costs

Strategically cutting costs is an important if you want to raise salon profitability. Use these tips to cut costs the right way.

Know Your Numbers

The first step to improving your salon’s profitability is to know your numbers. Specifically, know your business’s monthly profit and expenses. Professional salons typically use accounting software like QuickBooks or FreshBooks. These programs usually link to your business bank account and credit card, recording your expenses and deposits in real time. Just make sure each expense is tagged with the proper expense category. This is very important because you can use this statement to help make decisions that affect your business. Once you’ve confirmed all income and expenses are assigned to the right accounting category, pull your profit and loss statement for the month.

What You Can Control Right Now

The first thing to do is study your expenses. There are two types of expenses: those within your immediate control and those outside it. For example, the cost of the products used when performing your services is something you can immediately control. To reduce those costs, you can go to a supply store and find lower-cost products. Your rent, on the other hand, is not something you can quickly change. You may have a lease, but even if you don’t, it may take time to find new space and customize it to your needs.

The Numbers Don’t Lie

Make a list of the expenses you can easily control and find ways to lower them without sacrificing the customer experience. You will need to separate facts from feelings. For example, you may love a particular shampoo brand and use it on your clients. Don’t let your love for that brand stop you from finding a comparable shampoo at a lower price. If you do, make the switch. If your customers can’t tell the difference and it saves you money, swapping brands is the right business decision, regardless of how much you love the old one. Remember, your feelings can trick you, but facts don’t lie.

If your salon is located at bello Salon Suites, most typical expenses charged at other salon facilities are included in your rent. Therefore, unlike salon owners at other places, bello salon owners get things like cape and laundry service, beverages, daily trash pickup, parking fees, and more included. Depending on how many bello amenities are used, a salon owner can save almost $200 per week in extra expenses. Salon owners at other facilities should look into lowering the costs of parking, beverages, and laundry. Getting into the habit of driving down costs and keeping them low will benefit your profitability.

Step #2—Picking the Right Service Offerings

The next step towards greater profitability is to determine your profit margin for each service you offer. The gross margin is simply (the price of the service – the expenses required for the service) / the price of the service.

For example, if you charge $100 for the service and the expenses required to deliver it are $45, the gross margin formula is (100 – 45) / 100. The gross margin is 55%. Determining the costs can be complicated, depending on how granular you want to get. Some salons determine the per-treatment cost of shampoo, nail polish, and serums. The more detailed you get, the more accurate your margins will be.

To determine net margin, first add overhead and tax expenses, then divide that total by the number of clients you get in a month. If your total overhead and taxes cost $2,000 and you see 50 clients a month, you spend $40 per client on overhead and taxes. Next, take that number and subtract it from the gross margin formula. The net margins formula is (100-45-40)/100, making the net margin 15%.

Once you’ve done this for all the services on your menu, you can quickly see which services are the most profitable and which ones are not. Some services may barely break even. At this point, you have two options.

Option #1

Discontinue offering services with the lowest margins to new customers. This applies to new customers only. Don’t upset current customers who enjoy your low-margin services because they may find another salon.

Option #2

Raise prices on low-margin services. Just be careful about price increases. Raising prices can send customers fleeing for the door, so make sure the timing is right. For more information on timing, keep reading.

If you’ve lowered your expenses and resolved low-margin services, but you’re still not very profitable, there are only two options. You can either raise your revenue per customer or get more customers.

Step #3—Raise your Revenue per Customer

There are two ways to do this:

1. Raise Your Prices

There is always a risk to raising prices. You may experience pushback, and customers may find a more affordable salon elsewhere. Before you raise prices, take a look at how busy you are and how far in advance you are booked. According to an article in Style Seat, “In the salon industry, a good indicator of readiness for a price increase is being consistently fully booked, ideally at least 85% of the time or about 3-4 weeks in advance.”  If you are not there, raising prices now may not be an option.

2. Sell More Products

Selling more products for customers to use at home will increase your revenue per customer and your margins. Never be afraid to showcase product benefits to your customers. Research new products through trade publications, at salon stores, and at trade shows. Attending trade shows is a great way to find new products at discounted prices. For a list of annual trade shows, dates, and locations, please see our Trade Show Schedule Page.

Step #4—Get More Customers

With costs down, revenue per customer up, and your menu trimmed to only high-margin services, getting more customers is the sure-fire way to increase profitability. 

First off, be sure to rebook every customer while they are sitting in your chair. Don’t rely on them rebooking online. Urge them to rebook now to get the best times still available. Position it like you are looking out for them and doing them a favor. Additionally, double down on your marketing efforts. Find a roadmap to salon success, with marketing tips to attract more customers in our Salon Building Action Plan. Since customers are always coming and going, it’s always the right time to market your salon. Consistent, effective marketing will drive new customers, grow your business, and increase your net profit margins.

Conclusion to Raising Salon Profitability

Raising salon profitability requires knowing your numbers. First, make sure you have complete and accurate accounting reports. The P&L will provide factual guidance on reducing costs. Calculating your gross and net profit for each service you offer will help you eliminate lower-margin services. Another way to raise salon profitability is to raise your prices, but only if you are already in a good position to do so. If not, selling more products for customers to use at home is another way to increase your revenue per customer. Finally, getting more customers always helps, especially after you’ve done everything else. More customers means more revenue, and if you’ve already trimmed costs and eliminated low-margin services, greater profitability is a sure thing.  

The team at bello Salon Suites can help you review your numbers and give insights on ways to cut costs and grow your business. Plus, the amenities that come with your suite already save you time and money, so you can focus more on your craft and delighting your customers. It’s just one of the ways we support your success.

bello Salon Suites is a collection of 108 custom, private salon suites for rent to hairstylists, barbers, and beauty professionals in Sacramento, California. Privately owned and locally based, our facility features five stylish lounges and an outside garden for a truly zen-like experience. Additionally, we offer more support, resources, and amenities than any other salon suite company in town, including ample free parking just steps from our front door. Take a tour today and see for yourself. For income potential, perks, and value, nothing compares to bello.