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A Way to Instantly Increase Salon Profitability

I recently did a survey of 1217 salon owners and the results were pretty shocking.  When I say recently…I’m talking about November 2011.  One of the questions that I asked in the survey was sort of a throw away question.  In other words, I was just curious. 

The question had to do with something called service charges (or cost deductions in HairMax).  Basically, a service charge is when a salon owner takes a small portion of the service price paid by the client and gives that to the house.  This typically is used to “cover” the cost of product used in a service. 

So, if a color service is $50, the salon owner may take $3 away from the price of the service and credit the stylist $47 for the service.  The client pays the $50 and the salon gets $3 and the stylist is “paid” on the $47.  

Now, this may seem like a real pain to keep track of…but the good news is that your HairMax salon software takes care of it all.  Just set it up and it takes but a few seconds to run the report at the end of the week (another reason why you non-HairMax salons should think about climbing aboard). But that’s not what I wanted to talk to you about today. 

As I said in the first paragraph… I recently did a survey of 1217 salon owners and I asked how many of them were doing “service charges”.  Forty-one percent (41%) said that they were doing service charges currently.  My question is this…what the heck is wrong with the other 59% of you? 

Look, this is the biggest no-brainer in the salon industry.  Costs are going up.  There is little question about that.  And profit margins are going down or staying flat at best.  A small cost deduction (service charge) makes a huge difference in your profitability.  Let me explain. 

If your salon has a profit percentage now of 5% at the end of the year (with you not doing any service charges), if you only do a 1% service charge…you’re actually increasing your profit percentage by 20%!   And guess what…you will get some push back initially from stylists but once they get used to paying it (like after a few months) it will be like it has always been that way. 

Now, I’m not suggesting that you reduce the person’s pay.  That is never a cool thing.  But here is how you implement the service charge.  You increase the salon prices in 2012 and then apply the service charges.  Ok, get off the floor. 

Yes, every once and a while you’re allowed to raise your service prices.  In fact, I would raise them by 5% across the board and apply a 2-3% service charge.  This way here, the staff is actually still making more than they were BEFORE the price increase.  Then everyone is happy. 

Now, I know 2-3% doesn’t sound like a lot…but it is.  If your salon does $10,000 a week in service sales – that amounts to $200-$300 a week.  That money can be allocated to marketing the business and driving in new customers (what a concept!).  

Anyway, I know that I always get my share of hate mail whenever I suggest that a salon owner “take the bull by the horns” and run the business correctly.  But that’s ok.  I also know of hundreds of salons that could never imagine running their businesses like the old days (without service charges). 

Think about it if your salon is in the 59%.  The beginning of a year is always a great time to increase prices.  Give your clients a 60-day notice and go up 5% across the board.  You will be happy that you did. 

As always, aim high…and dream even higher… 

Steve Sampson 

HairMax Salon Software is a product designed to be the best investment your salon has ever made.  It is not only the easiest and most powerful salon software on the market.  It is from a company dedicated to becoming the ultimate VALUE source to the industry.

Comments

One Response to “A Way to Instantly Increase Salon Profitability”

  1. Mark Palumbo on December 6th, 2011 6:06 pm

    Steve I have been doing this for years and I also included Profit sharing in one of our price increases. I took 2% of the 10%price increase and had the clients fund the profit share plan. “how many salons offer this” great way to put in place. Every body wins. Thanks Mark

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