Are you struggling to make your salon budget work? Unsure how to put together a financial plan for your salon, spa or barber shop? Do you wake up at night, wondering if you’re charging enough?
Your business is ALL about money because that’s what makes your salon sustainable. Without money you can’t rent your premises, pay your team or order in stock.
If money’s on your mind, then you’re in the right place.
Our guides cover everything from calculating your hair salon prices to different pay structures for salon salaries, and everything in between. You’ll find proven profit formulas, upselling tips, hacks for igniting your retail sales and salon KPI templates. We’ve even gathered intel from the industry experts to help you smash your financial goals.
Money matters don’t have to be stressful. Growing your business, making more money and feeling well-rewarded for what you do takes work. But you’re worth it. Once you have a real handle on your current money situation and understand where the cash is going, you’ll be able to create a plan to reach your financial and business goals.
Give yourself the chance to set a budget, sort out your pricing and explore creative ways to unlock the hidden cash in your salon. We’re here to help you every step of the way. Let’s do this.
What is salon revenue and why does it matter?
Salon revenue is the total amount of sales made by a salon. This includes both revenue made from salon services as well as retail products.
So, how can salons increase their revenue? There’s five main ways you can bump up your bottom line:
- Grow your client base
- Increase your average dollar sale
- Increase your rebooking rate and frequency in which clients visit your business
- Reduce your salon expenses
- Sell a high amount of retail
We don’t need to tell you how important your salon’s profitability is. Whether you want to grow your revenue to hire another staff member, or you’d like to increase your gross profit to open a second location, profitability is your ticket to smashing your business goals.
To crack the profitability code, it’s important that your salon service pricing is in tip top shape and provides you with sufficient margin to be profitable. Equally so, you should have full visibility over your business expenses such as staff salaries, rent, products, equipment, insurances, education, and marketing.
Timely revenue growth success blueprint
Are you ready to fast track your way to profitability?If you want to unlock the hidden cash in your salon, barber shop or spa, here’s the steps you’ll need to take:
1) Surface your financial data
There are loads of accounting apps that can do everything from tracking expenses, taking payments, managing your bookkeeping, and paying bills. We recommend Xero or Quickbooks (as a bonus, they play nicely with Timely!) Do you use appointment booking software? If so, you can run the reports available to get a better picture of your revenue.
2) Get clear on your cash flow
Review your biggest expenses (in most salons, these are wages and stock). Remember to include any business debt you might have: make a list of what you owe, the bills that are weighing you down and any outstanding long term or short-term accounts.
3) Review your staff pay structure
There are four main types of pay structures for salon salaries: hourly rate, annual salary, commission-based and performance-based. We’ve weighed up the pros and cons of each in our salon salaries guide. Be sure to check this out before making changes to your current pay system – make sure any changes are thoroughly researched and thought through.
4) Dig into the numbers
Look at your discounting habits. Any work you do at ‘special’ rates is work that earns you little or no profit. Sit down and work out how many no-shows your salon had last week, last month and last year. Get ready to be surprised (and possibly frustrated) at all the money lost as a result. Review your retail sales. Do you know what your best and worst selling retail products are? Does your stock ordering system reflect this? Look at your calendar – what’s the busiest day of the week? Are you rostering your staff in the most efficient way? Could you maximise productivity and profit by only showing online booking availability before and after booked timeslots?
Let’s get real: if you want to be successful, you need to set a clear financial goal that’s anchored to an overall business goal. Start with the big ‘WHY’ and then build out your money goals from there.
5) Set your financial goals and budget
Let’s get real: if you want to be successful, you need to set a clear financial goal for your salon that’s anchored to an overall business goal. Start with the big ‘WHY’ and then build out your money goals from there. Write them all down! Then, set your budget. Repeat after us: budget is not a dirty word. Your budget ensures that you’re ultimately profitable, and allocates monthly spending on things like advertising, supplies, and utilities.
6) Sort out your service pricing
Understand how to charge what you’re worth! Undercharging for your work doesn’t improve your self-worth, your reputation or your bottom line. Remember to research your competition when you’re working on your pricing. You need to understand your market, what’s realistic, and get a good idea of what isn’t so that you can price accordingly. Look at how you can bundle your low-cost services into package deals to increase your average dollar sale.
7) Set targets for your staff
Set small targets (perhaps an average dollar sale) that are personalised for every single member of your team (including you). If you find it hard to talk about performance with your staff, targets will help. Having real figures at hand will make it easier to have a meaningful conversation. Set times in your calendar for weekly meetings with each team member to review how they’re going.
Commonly asked revenue growth questions
Still struggling to wrap your head around how much you should pay your staff, or the best way to get your bookkeeping in line? There’s no need to get tangled up in knots – we’ve got you covered! Let’s consult some of the best salon and business coaches in the biz, and hear their two cents on profitability:
What % of my total revenue should be made up of retail sales?
The reality is this – if you look after 100 clients in a week and 50 products minimum are not leaving your salon, you have some work to do! The industry average profit margin for services is 20% at best. So you have to turn over $10k to get a return of $2k.
The industry average profit margin for services is 20% at best. So you have to turn over $10k to get a return of $2k.
As for retail, it’s a much simpler proposition. Most products are 100% markup, which means you only have to turn over $4k in sales to get the same $2k return! Your retail sales should be contributing to 20% of your total turnover minimum – anything less than that, you are missing out!
What’s the best salon commission structure for my staff?
The industry debate has always been on how much to pay and many base their terms on a structure of 3 times the wage which was the norm over 25 years ago. But, employment, training and business costs have changed since then. Understanding turnover and costs – and the available labour hours to meet these costs – should form the basis of any commission structure. All commission structures should be ex gst.
In my own salon, regardless of turnover, expected service targets based on colours, retail, treatments and rebookings must be met before any commission is paid. Focusing on services not only creates a more loyal clientele but ensures an optimum experience for the client, higher productivity and higher profits.
Should I discount my services during a promotion period?
A salon plans a promotion to encourage more clients to visit the salon and to increase income, but does it increase profit?
The promotion is a package of different services bundled together. The normal price of the combined services is $125. The discount offered for this promotion is $25. The package price is $100. Great value to the client but is there value to the salon?
The time and cost to provide this service does not change and it is normal to spend more dollars and time on marketing to promote this package.
The profit on this bundle of services is $30 when it is charged at full price.
The profit on the services at the discounted price is therefore $5. So, to be in front with this type of promotion you would need to do at least 6 more clients.
The other danger to be aware of is that clients who are making a decision to visit you largely based on price will often not be loyal when there is not a discount type promotion being offered.
When planning a discount or offer, consider the cost, benefits and profit to you, and judge if it is a good investment.
What’s the best way to ensure my salon stays profitable?
Let me introduce you to “The Profit Equation” I teach my clients:
Sales – Profit = Expenses
Firstly, you will need to get your head around the fact that the profit is the focus, as opposed to expenses:
So, let’s get you profitable in two easy steps:
Know your running costs. Add up all your monthly costs (including debt repayments) and times them by 12. Then, add any annual fees, such as insurance. Divide this figure by 12 so you know your monthly running costs. You can further break this down to weekly & hourly, if you wish.
Divide your monthly revenue into the following categories
- 20% Profit
- 45% Payroll
- 20% VAT or Tax – This may vary depending on which country your business is based
- 6% Rent
- 6% Stock
- 2% Advertising
- 1% Other
Set up separate bank accounts to keep each pot of money separate – especially your VAT, Tax and Profit. This will give you strict budgets to adhere to. If you do not save profit, you will not make any. If you do not save for VAT or Tax, you probably struggle to pay it. The key is being proactive and not reactive in your business.
How can I increase my average dollar sale?
Review the full range of services you provide. Are some of them rarely (if ever) requested? Why not replace those underperformers with something new, affordable, fast and easy-to-sell to your clients?
After all, your clients are busy people – a visit to the salon can be a welcomed escape from the hustle and bustle of a work day. Create and promote an express service package that is 30-45 minutes, affordable and something simple that anyone can enjoy on a lunch break.
Owning a successful salon, spa or barber shop requires a unique blend of business skills and creativity. You have to be talented at your trade and ready to hustle for clients. On top of that you also need to have a solid head for the numbers of running a business, and that starts with financial planning.
As a salon owner, you’ll need to make a lot of decisions about cash flow, budget, and finances. But don’t worry! Just as you picked up the art of cutting hair or massaging away stress, you can pick up number crunching, too!