Salon Costings: Why Fixed Costs can be Variable by Simon Clark
By Simon Clark, Simon Clark Hairdressing, Port Elizabeth
In the last two articles I looked at costing what you charge for your basic services and yes I realise that what I found will have been a shock to a lot of you. However In order to fix our industry we need to understand basics as without them we will never be able to fix the problems.
Now I want to look at the fixed and variable costings in a little more depth. The interesting thing is when you apply these to a hair salon your fixed costs are actually variable and your variable costs are fixed. Put a different way the amount you spend on tea or coffee per client is not going to change very much from client to client. Nor is the amount you spend on shampoo or conditioner. As such your variable costs per client are going to pretty much stay the same. It is also probably fair to say that these will be pretty consistent regardless of whether you have a home or shopping center salon. Yes you can use cheap as chips shampoo and conditioner at the basin but I am willing to bet you will probably not be making as much of a saving as you think. For the sakes of our scenario I laid out a hypothetic variable costs list below.
It is important also to remember that in terms of the rules you need to double this, as based on Bargaining Council rules your stylist is entitled to commission on these costs too. If your stylist commission is 40% you will need to charge R83.33 or at 50% R100 just to make sure you are covering your costs. This applies to home salons to! Just because you wash your towels at home does not mean that this cost disappears. It might be more economical because you have vertically integrated your cleaning into your business, but it will still be there and you need to remember the purpose of your business is to make money! The lesson from this is the first R100 from any appointment will just cover your basic variable costs regardless of where you do business.
The same however does not apply to your fixed costs as the more clients you see the lower your fixed cost per client will be. From our previous articles we found that the point for profitability was an average appointment price of R475 with the home salon seeing 5 clients and the shopping center 15 . In an effort to try and create a formula I am going to treat the R475 as an average service docket per client. I am leaving color costs and retail out of these calculations completely.
As you can see the more clients you see the lower your fixed cost becomes! However if you base your fixed cost calculations on a high number clients the harder you will have to work to make your money! So the key to a successful business is your break even point must be based on as few clients as possible.
As you can see the break even point for the home salon is 5 clients at an average docket of R475 but for the center one it is just sneaking in at 10. The problem now comes that very few salons can achieve an average docket of R475 just on a cut.
If we take a price for a cut at R200 (pretty standard for Port Elizabeth) look what happens to the numbers.
The Home salon will only start to break even at 15 appointments a day while the Center one is still not making money at 20! Or to put the home salon differently you will need to see 13 more clients a day to make the same profit that you would if you had seen 5 at R475.
When I originally started working on this article series I decided to leave color out of the calculations as my goal is to show how by failing to do our costings properly we are not properly billing for our time. To continue the example if we assume that our home salon in Port Elizabeth genuinely pays all their expenses at an average docet of R475 if and its a big IF. If they can average 5 clients a day they will only be pocketing around R20k a month before tax. Put differently that’s about the same as a fitter and turner just out of college and they work far better hours!
I hope you now have a basic understanding the basic costs that go into your business. Next time I am going to look at adding hair color to your service costings and try and create a template for cost structuring.
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