If your profit margin is less than 10%, it’s time. Learn how with our straightforward game plan.
There’s no getting around it: You can’t build a thriving salon without knowing how to change your prices.
But the process is a tricky one, requiring planning, people skills, and plenty of math. If you’re considering making a move but don’t quite know how to start, then you’re in the right place. This post is your go-to guide to price adjustments.
How to find the right time
The most obvious sign that you need to change how much you charge? You’re really busy. If your stylists are spending, on average, 85% of their time working on clients, then you’re past due for a pricing hike. But the booking rate isn’t the only benchmark you should consider. Is each stylist getting more than 130 appointments and eight new clients per month? Is the quarterly retention rate over 60%? If you’re hitting these numbers, it’s time to rethink your pricing strategy.
Economic shifts can also be a green light. Some salon owners see the coronavirus as an opportunity for a pricing makeover. While many are slashing fees, that may not be necessary: Consumers have been incredibly kind during this time. Your clients understand that you have endured government shutdowns, you’ve met rigorous sanitation standards, and that in many states, you’re still not allowed to operate at full capacity. So, if you decide to add a few dollars to their haircut, they’ll likely understand.
Finally, other factors aside, consider raising your prices every year because of inflation. Inflation — an increase in the cost of goods — generally goes up in the US by a few percentage points annually. It functions exactly like compound interest, but in reverse. If you don’t adjust your pricing to match, you can easily find your business in a difficult financial position.
How to make it happen
Once you’ve decided it’s time, you need to figure out how big the adjustment will be. If you haven’t already, this starts with calculating the cost of doing business, including your property bills, employee salaries, supplies costs, and so on. Add up all your monthly dues to see how much you need to keep the engine running. Then, compare that number to your revenue. If your profit margin is less than 10%, you should consider raising pricing to close the gap. But that’s just an average, and you can certainly set a higher target based on the confidence you have in your service.
Knowing where you want to be is (less than) half the battle. Implementation is the real challenge.
To guarantee a smooth rollout, you’re going to need to put together a smart communication plan. Write up a doc with all your channels — social, signage, email, etc. — and come up with a clear, concise, and confident message to guide communications on each. Don’t over-explain or apologize. Do thank your clients and staff.
Timing is everything here. The last thing you want to do is surprise customers with a bigger bill than they expected. To avoid sticker shock, experts recommend getting the word out one client cycle before making any changes. That means if you usually see your clients monthly, then your communication blast should go live one month before the changes are made.
Finally, brace yourself for the inevitable consequence of higher prices: losing customers. Small business expert Lauren Gartland explains:
Expect to lose about 10 percent of your clients. The upside? You need to lose them! Even though you are losing clients, you will be earning more while working less. You also want to replace those clients with your ideal clients, those with the higher service tickets.
Adjusting your pricing can be scary, but it’s completely manageable. Just see where you are, figure out where you want to be, and execute. You 100% got this.
