Last week, we introduced Part 1 as an Overview of our Price Wars series where we discussed the challenge of pricing in the industry, especially in such tough times where we all need to survive. The essential issue to think about is how to price sustainably and how to justify it. Falling into a price war is tempting but can be detrimental to all concerned, whether a large salon or a small startup.
Below is Part 2, followed by a reader response that we received to Part 1 of our Price Wars article - a salon owner who brings up some very valid points for discussion.
Price Wars: How to Price Sustainably and Justify It – Part 2 (A Look at Pricing)
A Look at What Goes Into Pricing
Every hairstylists who wants to run a sustainable business needs to understand the factors that go into creating this business, what they cost, and how to price them in order to make a sustainable profit that will allow the business to succeed.
Not only the obvious costs such as product and rental must be taken into account, but also the “hidden” costs such as:
Industry registration fees
Accounting and bookkeeping fees
Insurance fees
Depreciation and wear and tear of furniture and equipment
Decor and refurbishment costs i.e. fresh flowers, new tiles, new heater / aircon, etc
Phone bill and computer costs
Salon software or booking programme costs
Lights and water
Backup for when lights and water are unavailable – i.e. water tanks, generator
Printing costs
Cleaning supplies and cleaner costs
Laundering costs of towels, capes etc including detergent and electricity
Bathroom supplies
Refreshment costs (under current protocols, you can offer these outside or as a takeaway)
Credit card machine fees
Loans, overdraft and interest fees
Insufficient funds fees – penalties to your account
Insurance costs
Marketing and advertising costs
Slow-moving product costs – products that are standing on your shelves do not earn you turnover
Taking time out of the business – the costs of you doing admin, or having a no-show client
Sanitising and Covid-19 protocol costs
And any other costs that pertain to your business as well as the obvious costs of product, rental, salaries etc
It might seem like a daunting task to add all of these up, but when you do, you will get a better picture of what your true expenses are every month. This will allow you to work on your pricing more knowledgeably, taking absolutely every factor into account.
Obviously these factors will only add up to a tiny portion of every haircut you do. But if you don’t include them you will be doing haircuts at a loss. If you do haircuts at a loss then after a few months your business will not be viable and you will be wondering why you never have any money.
If you have a busy month, some of the costs will be relatively smaller. For example, fresh flowers are purchased weekly and whether you do twenty clients that week or forty clients that week, the cost of the flowers is the same. If you do more clients, however, your cost of electricity, water, product, refreshments, sanitisation, wear and tear on tools, etc will go up as these costs are incurred per client.
Once you have your costs in place you can then experiment with different scenarios of pricing, based on the average number of clients you do in a month. If you don’t yet have records you will need to forecast your business, and having salon software can help you get a better picture, quickly, of where your business is going.
There will be some factors you can economise on. But you need to decide whether going without them or using a cheaper version is worth it or if it might end up being detrimental to your business.
Next time, we will look at price increases and how to handle them.
Reader's Response to Part 1
Good Morning
This pricing war article sounds like a very interesting piece, but I must say that I disagree that it is the smaller salon or one man salon that starts it. Our experience is that it is the Salon Chains that start this with their Crazy "Cut and Blow for R99" Specials. They use their apprentice hairdressers and do the entire industry an injustice with these crazy specials. How can you compare the work of a stylist with 25 or 30 years experience with that of an apprentice with 6 months experience. So before saying that it's the smaller one man/woman salons that start the price wars check your facts as I disagree. I think it's more often the larger or chain store salons with apprentices who do not have clients that do this, to the detriment of all others. The older stylists who are on their own or have one other stylist working with them, normally have a large client base of older clients who have been with them for years. So there is no need to drop the price and cheapen the industry.
Name and Salon Supplied.
