Are your staff constantly busy yet still not making budget? Is there no room in your appointment book but no money in the bank to pay your bills? Are you working harder than ever and completely frustrated at never having enough money?
The answer may lie in your pricing.
Most salon owners set their prices by checking out what everyone else is doing and deciding whether theirs should be lower, higher or about the same, but sometimes that’s the blind leading the blind! There’s no point charging the same as everyone else if you’re still losing money!
Pricing in time-based service industries like ours must be factored according to the income you require per hour.
In fact, what we sell is TIME.
We literally buy 38 hours of our stylists’ time (in return for wages etc), add a number of other costs such as stock to perform our services, rent and fitout costs to create an appealing environment for our clients to enjoy and a gazillion other costs, then sell these back to our clients in the form of 15-minute appointment blocks.
Once you know your Stylists’ gross wages costs (including tax, superannuation, annual leave with loading and sick leave etc), you can then work on a multiple of that total (for example, our old standard of 3 x wages costs, but the industry ranges from 2.5 x to 4.5 x, depending on your market segment) to determine your Stylists’ weekly targets. This becomes their breakeven point for you.
Divide that by 38 hours (although I’d recommend something more achievable, like maybe 30-32 hours) and you have your Stylist’s hourly minimum target. Dividing the weekly target by 32 hours when they work 38 to formulate your hourly pricing, allows them to still achieve their target at 80% productivity. Everyone has a no-show occasionally, the odd gap or a last-minute cancellation. This allows for the inevitable to happen now and then without ruining their chances of making bonus this week!
So, now you have your hourly target, this becomes your minimum charge-out rate on which to base your pricing.
Let’s work on an example of $100 per hour, which equates to $25 for every 15-minute appointment slot.
A 15-minute service must be charged at a minimum of $25
A 30-minute service must be charged at a minimum of $50
A 45-minute service must be charged at a minimum of $75
A 60-minute service must be charged at a minimum of $100.
So, how much should you quote for that service? Well, how long will it take? Then use this pricing as your guide.
But that’s not the whole story.
Pricing has a ‘floor’ and a ‘ceiling’.
Your ‘floor’, or minimum charge, is the minimum amount you can charge for your time and remain profitable. This is what I’ve explained above. However, that’s certainly not the maximum you can charge if you’re delivering outstanding service. You see, your clients will set your ceiling price with what they’re prepared to pay. If they see great value in what you deliver, (or love what you do so much that they don’t care how much you charge!), they’ll happily pay more- and give you your life back!
When you’re really hitting your straps in terms of mastering your client experience, you should be testing your ceiling by regularly ‘adjusting’ your prices to see where you start to face resistance from your ideal clients.
Note: I didn’t say, ‘face resistance from any clients!’ Of course, you’ll have a few clients who want to pay the lowest price possible, but these guys are keeping you broke. If we can replace 10 of those with 3 ideal new clients who’ll pay far more because they value what you do, you’ll be way happier, trust me!
So, what’s the impact of not setting your prices accurately? Well, let’s say you charge $65 for a 45-minute service when you need to make a minimum of $75. Each time you perform that service, you literally go backwards by $10! If you do 30 of those services every week, you’re $300 behind the eight-ball.
Ever wondered why you need to work 50 or even 60 hours per week (not 35) to cover your bills? This could be it. You haven’t made enough money in your 35-38 to cover your costs, so you have to keep working until you do.
Correcting your pricing will CHANGE.YOUR.LIFE.
It’s a game-changer. If it’s time you got off the hamster wheel and started creating a business that makes you money, start here.
And if you need some guidance to make that happen, give me a call.