Pricing for PROFIT - A 6 Step Guide

1. Determine Your Breakeven Point:

The first step in pricing for profit is understanding your salon's breakeven point. This is the point at which your total revenue equals your total costs, resulting in zero profit. To calculate this, add up all your fixed and variable costs, including rent, utilities, staff wages, product costs, software costs, insurances, bank fee’s and marketing expenses. Once you know your monthly or annual breakeven figure, you can use this as a reference point.

2. Set Profit Margin Goals:

Beyond covering costs, it's essential to set clear profit margin goals. Profit margins represent the percentage of revenue that remains as profit after covering expenses. To determine your desired profit margin for the financial year, consider factors like your business growth goals, reinvestment plans, and the industry standards for your type of salon. Tip, it’s a great idea to aim for at least 20%

3. Calculate Dollar Value per Hour:

With your breakeven point and profit margin in mind, you can now calculate the dollar value per hour. Let's say your breakeven point is $5,000 per month, and you aim for a 20% profit margin. This means you need to generate $6,000 in revenue each month to achieve your profit goal. If you operate 160 hours a month (40 hours a week), your hourly rate would be $6,000 divided by 160 hours, which is $37.50 per hour.

4. Determine Dollar Value per Minute:

Once you have your hourly rate, break it down further into a dollar value per minute. Since there are 60 minutes in an hour, you'd divide $37.50 by 60 to get your dollar value per minute, which is approximately $0.625.

5. Pricing Services:

Armed with your dollar value per minute, you can now price your salon services. Each service should be calculated based on the time it takes, factoring in the dollar value per minute. For example, if a haircut typically takes 45 minutes, you would charge $0.625 per minute multiplied by 45 minutes, resulting in a service price of $28.13. This is your baseline for a haircut

6. Add Product Costs:

While setting service prices, don't forget to include the cost of products used during the service. This ensures you're not only covering the time spent but also the materials and products used. For example, if the products used during a haircut cost $5, the total price for the haircut should be $28.13 (service price) + $5 (product cost), which is $33.13.

While this approach may seem meticulous and like a lot of work upfront, it ensures that your services not only cover your expenses but also contribute to your desired profit margin. It also allows you to clearly communicate your pricing structure to clients, demonstrating the value they receive in exchange for your services. You can sit firm in knowing what you need to bring in, and how you’re going to do it.

Remember, pricing is not a one-time decision, revisit it twice a year and make sure that you’re still ahead as many things can change within the salon business. For example costs of products can go up, team might leave, you may experience team sick days or unplanned leave. When the unexpected happens in a salon business, we can’t charge our guests 2x the amount because we’re down 2 staff members that day - so it’s up to us to ensure we’re priced correctly and are aiming for a healthy profit margin.

A good rule of thumb - keep your overheads lean, give wage increases through profit share and create salon policies that will protect your business and create a happy, transparent and organised working environment for your team.