Running a business is complex. From the initial concept through to launch, there’s an endless list of factors to consider. Whether you manage a large organization across different time zones or a small fashion boutique, there are challenges all business owners face. The hair and beauty industry is no exception, and running a successful salon can be a tough but rewarding experience. Creating an effective pricing structure is essential to developing a thriving business. Here, we look at a guide to salon pricing and the best ways to approach this.
What factors should influence your prices?
Whether you’re just starting out or are an existing salon looking to give your list a rework, getting your pricing right is crucial. Profitability is the most obvious motivation: you want your business to make you money. While this is certainly a great reason to think about the way you set your prices, they can affect other aspects of your business too.
How you price your services says a lot about your salon’s identity and brand, and how you pitch your prices will determine your relationship with customers and their perception of you. It will affect how you position yourself against other salons too. You should always consider your financial stability and long-term business goals when deciding how to charge.
As there’s no definitive guide or rules for setting salon prices, this can be a complicated process. So, let’s take a look at some key factors that should influence your decision.
Costs
You need to determine how much each service you offer will cost in terms of staffing, products, time, and any other outgoings. You can then work out what you need to make to cover your overheads and how much profit you’d like to earn on each treatment.
Your location
Your salons’ location will have a significant bearing on how you pitch your services. If you’re in a busy part of town, you can expect to charge a higher rate than someone in the suburbs. You also need to see how many similar salons operate in the same area.
Competitors
Local market analysis is a great way to gain insight into what sort of pricing is appropriate. This information is only a guide to inform your ideas; you don’t need to carbon copy someone else’s price list. Be original and create something that suits your salon.
Customers
Look at the social and economic make-up of your potential customer base. Who lives in the area, and how will that translate into who visits your salon? Conduct some market research on what people want, can afford, and how that matches with what you can offer.
Demand
The standard business principle of supply and demand applies here. Find out what types of services are popular – you may be able to charge more for these. Also, think about your staff and if they have special skills that may appeal to customers. If there’s high enough demand in the area, you could consider scaling business up in the future.
As you can see, there’s some overlap between several of these factors, so use a holistic approach, considering them all when deciding on your prices. This will help you make a balanced and informed choice.
Strategies
So, now you’ve gathered this information, how can you apply it?
There are several standardized pricing frameworks in the health and beauty industry. Each has its benefits (and potential drawbacks), which we’ll look at below. Think about which one is most suitable for your business and how you want your salon to position itself before making a decision.
Market penetration
This is where you set your prices low to attract customers then raise them once you’ve secured a loyal clientele. It can be a good approach for new salons to get people through the door, and it’s very attractive to customers for whom affordability is a deciding factor. But tread carefully – the road to opening a new salon is paved with mistakes to sidestep.
For instance, low prices can have the unintended consequence of implying low-quality service. It may also be difficult to raise prices later when your customers are used to paying a lower rate. You might need to run at a loss for a period of time too, so make sure this strategy is viable for you before giving it a go.
Skimming
This technique is about setting your prices high and then reducing them over time. This can work well if you have limited competition or can offer a unique service. You can establish top-end prices, then lower your fees if other salons start offering similar options.
This allows you to still make a reasonable profit, despite bringing your fees down. It also has the benefit of initially drawing in high-end clients and then making you attractive to a wider audience when rates are lowered.
Premium pricing
If you have prestige services and/or products on offer, this could be the strategy for you. You’ll have to market your salon as an exclusive destination for it to work, building a brand identity in keeping with your clients’ premium lifestyles.
You can then charge higher rates in step with this perceived notion of luxury. You should strongly consider how to improve customer experience if you’re aiming to appeal to this audience.
Economy pricing
Marketing yourself as an inexpensive salon can be a very successful technique too. By offering more affordable services than your competitors, you can connect with those on a low income or attract those who like to get a good deal.
To appeal to this market, do your research to determine what’s perceived as a reasonable rate and set your prices accordingly.
Things to consider
So, you’ve identified the factors that will affect your pricing and decided which type of strategy is most suitable for your salon. You now need to put your plan into action, but what other elements do you need to consider? A few key areas are outlined below.
Pricing formulas
You may be surprised to learn that a lot of salons’ price lists aren’t created using a formula but are a result of guesswork or what the owner feels it’s reasonable to charge. Don’t make this mistake!
Failing to sit down and properly work out your prices can have a significant negative impact on your business. You need to calculate all of your running costs, then what you need to charge to cover these and make a reasonable profit.
To kick things off, you’ll need to work out your cost per minute. This is the cost of the service and the time it takes to complete it. To illustrate this simply, if a haircut and blowdry costs $60 and takes an hour (60 minutes), then the formula is $60 ÷ 60 minutes = $1 per minute.
Once you have your costs per minute (and then hour) determined, you can look at your monthly overheads, which will include rent, taxes, equipment, insurance, and marketing. Further calculations will produce your total service cost and should inform your pricing structure.
There are many salon calculator software apps available, so have a look online to find one that suits you.
The price is right
Whichever strategy you use and whoever your target demographic is, it ultimately comes down to the price working for them as a customer and you as a business. Your enterprise pricing should be suitably pitched to attract your intended audience and keep your business running sustainably.
To boost your revenue, run special offers over typically slow business periods. If Tuesdays are your quietest day, give discounts to students or senior citizens to increase bookings on that day.
To produce data on customer bookings, you can look at the AOV average order value to determine how much clients spend on a typical salon visit.
Be straightforward and upfront
Clarity and consistency are key. A price list with too many options, customizations, and add-ons can be confusing and off-putting to customers. Keep your messaging simple so people know exactly what they’re paying for. This avoids potentially awkward situations where a client’s expectation is different from what they’re charged for.
If your salon does offer more bespoke services, don’t attempt to include them all on your list. Outline your standard options and costs, with the instruction to call the salon for more info regarding specialist treatments. Make sure your staff are knowledgeable and friendly when walking them through this, as fostering good communications with customers is crucial.
If your pricing structure is set to change, let your customers know. Take a proactive service approach and communicate with them before they have to contact you. This can be done via an old-fashioned phone call or by sending out an email shot – just make sure a client doesn’t finish their appointment with an unpleasant surprise waiting for them at the end.
Summary
Although there’s a lot of information to consider, there’s no need to feel overwhelmed. If you go over the actions outlined above, you’ll be able to choose an appropriate strategy for your business.
Remember that research is everything; the more informed you are, the better your pricing will be. This will only help increase the success of your salon.
Bio:
Jessica Day – Senior Director, Marketing Strategy, Dialpad
Jessica Day is the Senior Director for Marketing Strategy at Dialpad, a modern business communications platform that takes every kind of conversation to the next level—turning conversations into opportunities. Jessica is an expert in collaborating with multifunctional teams to execute and optimize marketing efforts, for both company and client campaigns. Jessica Day also published articles for domains such as Breadnbeyond and Brightpearl. Here is her LinkedIn.
