Salon Costings: Get a grip on your business before your business gets a grip on you!
By Simon Clark, Simon Clark Hairdressing, Port Elizabeth
The first step to getting a grip on your business is to understand its cost structure and how these costs interact to affect your bottom line and profit. At the end of the day if you do not know what it costs to run your business you are never going to know when you are actually making a profit.
As an analogy if you turn over R100k a month but your business costs are R101k you are losing money! However if you are an owner operator this loss will probably go unnoticed as it will just come out of your salary.
Business costs can be grouped in to two categories, fixed costs and variable costs. In salons these can be broken down again into materials costs; shampoo and color, business costs; such as rent and electricity, staff costs and regulatory ones; such as SARS and the bargaining council.
Fixed costs are things that don’t change; rent or your bargaining council subs are good examples.
Variable fixed costs are things where the amount you spend will vary depending on how much you use; water and electricity or hair color are good examples. Though for the purposes of costing it is often easier to use average values to calculate your prices ie if your water and electricity is usually around R3,500 per month consider this the fixed cost for your calculations. I will deal with hair color in a separate article. You need to know all of your variable costs before you can start calculating what you need to charge to make money.
Pricing for hairdressing can become incredibly complex, however the basic fundamentals are the same for any business money in must be more than money out.
Imagine a salon with 3 stylists and 8 stations and fixed costs as laid out below: (This is a starting point for our example.)
Based on the above the salon has a monthly fixed cost base of R27,500 and yearly total cost of R330,000. This however does not take into account the costs of owner/ manager salary which I am going to set at R20,000 a month, and makes no allowance for marketing at R5,000 per month, bringing the total monthly cost of a salon to R52,500 or R630,000 a year.
You might argue that including the owners salary at the start is a little unfair. My rebuttal is to many owners are hairstylists that spend too much time on the floor trying to keep themselves solvent and as a result spend to little time actually doing the necessary management to make money! Or put differently in the real world a share holder in any business would expect all of these costs to be covered and the business to still make a profit of at least 10-20% after this!
Could your salon do this before Covid struck?
Now we need to calculate a daily and then per appointment fixed cost. Easy R630 000.00 divide by 365 days in the year. Wrong we usually only work five days a week so that only gives us 261 working days but we also would hope to have 3 weeks a year holiday so that actually only leaves us with 246 days. When was the last time you took a full three weeks leave? And that’s without public holidays interfering.
Now we have established that it really costs R1,585.37 a day before the salon even opens its doors. We need to calculate a base rate for the cost that the stylists need to cover each appointment. 3 Hairdressers, 7 hours each a day, everyone needs a break, gives 21 billable hours is R75.489 per hour assuming they are fully booked. The reality is that they won’t be, as you can’t always back book your appointments (in covid times you can only see a single client at a time) and not all hairdressers are equally busy.
A simple way to calculate this is to calculate the number of appointments the salon has and divide by operating cost.
Our salon averages 250 appointments a month which gives us 12 appointments per day. Note for this calculation a root touch up and a cut are considered 2 appointments, 1 for each service) The calculation works as follows appointments per month 250 x 12 months / 246 working days gives 12 per day and a cost per appointment of R1,585.37 / 12 = R132.11 per appointment. Remember you need to make this just to cover your basic costs!
Now we need to look at all your variable costs that need to be covered, refreshments ( I know we can’t serve them but they should have been part of your calculations) shampoo, styling aids, capes and their washing, cleaning materials for the salon, wear and tear. For the sakes of this article I am going to assign them a collective value of R50.00 (This is probably far too low but it is a start). I am excluding additional PPE as this should be added as a separate surcharge.
This means that your costs before you have paid your stylist just for a cut or blow are R182.12 and you will need 12 of them just to break even!
If you pay your stylists 50% commission you need to double this to give you a total cost for a standard cut or basic blow dry of R365.00 and that is before you even start making any profit. Now need to add a mark up to that of 30%* giving you R474.00 base cost per appointment slot. This is before you add on any color charges to the service.
If your rent is R30k a month and everything else stays the same, this number will increase to R745.00 per appointment. However if you can double the number of clients you see, because it is a better location it will drop to R375.00. You also need to be doing this turnover everyday without exception to just meet your basic target to cover basic costs!
How many salons are able to charge these prices this just for a cut? I think for too long the industry has focused on the craft side of the trade to the detriment of the business. If we do not get a grip on our businesses they will well and truly have a grip on us. ….
Next time I am going to look at base pricing for a home salon.
# for the sake of simplicity I have left out VAT
*This in reality will only translate to a 15% profit as half of the mark up would be eaten by legislated stylist commission.
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