With increasing costs, supply chain issues and inflation rates brought about by the pandemic, we spoke with business experts for their advice on how to best manage your salon’s finances. From raising your prices to planning your inventory, here are their top tips.
It goes without saying that the past two years have taken their toll on salon owners. Whether because of extended lockdowns, restrictions, or delays caused by the global supply chain issues, many owners have been forced to take a hard look at their business and make significant changes that they’re continuing to implement today.
“Salon owners need to acknowledge that the landscape has forever changed,” says Maurice Venere, co-owner and creative director at Venere Salon, which has four Ontario-based locations in Oakville, Burloak, Burlington and Milton. “I believe that the salons that are going to come out of this stronger are the ones that took the time to really be impacted by what’s happened and recognized and isolated their vulnerable points. All of these things are really important in order for us to continue to not only survive but to thrive beyond this.”
While some owners have been apprehensive about increasing their salon’s prices even before the pandemic hit (with a concern about losing clientele), the lockdowns and rising cost of goods have forced many to take the plunge.
For Venere and his salons, which he co-owns with his two brothers, prices have been increased twice since the beginning of the pandemic, and there’s a commitment to implement regular increases moving forward. “Since 2020, my guesstimate is about an eight per cent total increase,” says Venere. “We’re also making slight additions to pricing on an annual basis; maybe one or two per cent across the board or a couple of dollars here and there. It’s important to stay on top of inflationary costs and additional costs because, if we don’t, we actually start moving in the wrong direction, which of course is not a sustainable business model.”
Like many other salons, Venere Salon also introduced a COVID fee to offset the costs of PPE and other pandemic- related costs. However for Glenn Baker, vice-president of Salon Resource Group and senior director of consulting at Summit Salon Business Center, he advises against solely relying on the fee to generate extra income.
“We never wanted to go with a COVID charge because, at some point, it means we’re going to have to take it away when the PPE costs decrease or when [the pandemic] is beyond us,” says Baker. “Most salons are collapsing it into their new pricing structure.”
When thinking about a price increase, it’s important to consider your salon’s business model. For example, in salons that are multi-level versus a single price- point, implementing a price increase can look vastly different.
“We have six to seven different price levels, meaning that when we go in to look at changing prices, we will normally consider some type of overall amount for a price increase
that we want to have,” says Baker, adding that the last price increase they implemented was between four to seven per cent on all services. “Our prices for haircuts didn’t go up nearly as much as our pricing for colour services because the cost of the products (colour, treatments, foils, etc.) has increased, which has resulted in a higher price increase for some services. If you’re a single salon owner with one pricing structure, most of the time people will just raise it on average by five per cent.”
When it comes to informing clients of any price changes prior to their next appointment, both experts agree that it’s not as necessary as you may think.
“I’m not a big believer in posting a notice about price increases,” says Baker. “We don’t send an email or anything because, to me, it means you’re sending something that might
be a negative in the minds of some consumers. When we decide to increase our prices, we just do it.”
“There’s always a risk involved and even if you’re trying to do the right thing, it’s very easy for a client who would normally come in every eight weeks to say they’re now going to come in every 10 weeks,” says Venere. “You need to be prepared because there’s going to be an impact one way or the other; either you’re going to be negatively impacted by not doing something or perhaps negatively impacted by doing something.”
IF SOME CLIENTS EXPRESS A CONCERN ONCE THEY LEARN ABOUT A PRICE INCREASE, CONSIDER HONOURING YOUR OLD PRICE ONE LAST TIME BUT COMMUNICATE THE FACT THAT NEW PRICING STRUCTURE WILL BE IN PLACE MOVING FORWARD.
Venere recommends looking at ways to add value to your clients’ experience that will justify the price increase or help them look past it. “A client’s comment on price is always going to be tied to the value that they feel they’re receiving within your environment,” he says. “Look at service options and little details within your salon that might create that additional value and lessen the impact.”
According to Glenn Baker, whose consulting division of Summit Salon Business Center includes more than 100 business coaches that work with more than 500 salons and spas in North America, having a successful business requires four key steps.
- MAKE A PLAN
“Having a concrete sales plan in place is absolutely critical. Do I know for the month of April what I’m trying to accomplish in terms of sales? Do I have a month-to-month sales plan and salon plan for what I need to be doing in service and in retail? It should be based historically; not so much on what happened last year because it’s hard to use early 2021 as an indication, but more of our sales plans have been based on the trend analysis from the last six months of 2021. Use that as a benchmark for 2022.”
- CASH FLOW PROJECTIONS
“Based off of the sales plan, if I know how much I think I’m going to be growing my sales by this year, then I can be planning based on my gross profit margin. Ideally, in our industry,
I would love to see the growth profit margin be between 28 and 30 per cent, so this is after I take out all my expenses—labour costs, taxes and benefits, product costs, etc. What I’m left with is 28 to 30 per cent to pay all the other expenses in the company, so having good cash flow projections of where my cash is going on a month-to-month basis is critical for people to know and understand where their business is going to be.”
- BREAK-EVEN POINT
“Understanding where my break-even point is in sales is critical. It’s basically at that point where I’m producing enough revenue to cover the expenses and at least I’m not going into my pocket to keep my business afloat. Am I aware on a daily, weekly and monthly basis of how much I have generate in sales to be able to be at break-even? And what if I was to get beyond that point of profitability; do I know what that number is?”
- LABOUR HOURS
“Do I have enough labour hours and/or people to be able to help me achieve my sales plan? Based on whatever that sales plan is looking like, do I even have people scheduled to work in the salon this week and this month that will allow me to be able to achieve that particular goal? It becomes very critical.”
AS FOR HOW MUCH AND HOW OFTEN PRICE INCREASES SHOULD HAPPEN, BAKER SUGGESTS A FIVE TO SIX PER CENT INCREASE EVERY NINE TO 12 MONTHS
With the global supply chain issues impacting businesses around the world—including salons—it’s created delays with product deliveries resulting in items being out of stock or back ordered for an extended period of time.
“People become overzealous and they just overbuy,” says Baker. “Back orders have been a challenge, but because of the supply chain and not having the normal availability of raw materials and related items, I think what’s happening is that people are running out of product, ordering a three-month supply as a result, and it creates havoc for everybody. We order every single week based on the demands of our business and it helps us to manage our cash flow better by knowing exactly what we’re going to need.”
“We use our POS system to manage our inventory,” says Venere. “We set up our consumable rates, which we monitor because it’s an important KPI for us when managing our business. We really need to manage what our consumable expenditures are in relation to what our service revenue is. We need to come up with a percentage that makes sense because, of course, the higher the consumables, the less the profit margin. It’s important to have it automated so you can take a look and, overall, it makes managing inventory certainly a lot easier.”
“PANDEMIC OR NO PANDEMIC, THERE’S ALWAYS GOING TO BE PEOPLE WHO ARE AFRAID OF RAISING THEIR PRICES BECAUSE THEY WORRY ABOUT LOSING CLIENTS. BUT IF I DON’T RAISE MY PRICES TO KEEP UP WITH INFLATION, MY BIGGEST CONCERN WOULD BE LOSING MY BUSINESS.”
— GLENN BAKER, VICE-PRESIDENT OF SALON RESOURCE GROUP AND SENIOR DIRECTOR OF CONSULTING AT SUMMIT SALON BUSINESS CENTER