Note: This blog is Part 2 of a 2-part series: The 3 simple secrets of making more money from your salon/beauty business

In Part A: Increasing your revenue, we talked about what are the three core ways to make more money in your salon, business metrics that are used to measure this, and how to boost these numbers.

Further in this blog:

Part B: Taking care of your expenses talks about two simple business metrics, how they can help track your business growth, and how to deduce them.

Part C: Making sure you don’t run out of money talks about cash flow in the salon business, what it means, why maintaining a steady cash flow is important, and how to pump up your cash flow.

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Part B: Managing your expenses

This part involves looking at the your monthly expenses and finding out whether they match up the industry standard to make your business profitable or not.

This is important because numerous times salon owners are unaware of little-yet-crucial facts like what is the optimum price setting, or how much an employee is supposed to work in order to stay productive for the business.

Below are the three metrics to monitor your expenses and make sure your business is, and stays profitable.

1. Net Profits or Profitability

Net Profits are calculated by deducting the total expenses from total sales. Net profits can be calculated as:

Net Profits = Net sales – Net expenses

Net profit margin is the percent revenue left after deducting total expenses from total sales. This reveals the amount of profit that you can extract from your total sales. It is calculated as:

Net profit margin = [Net profits/Net sales]*100%

If the net sales generated at the end of the month in your salon is $8000, and your expenses are somewhere around $7000 (rent, salary, taxes, etc.).

That means, your net profit is $1000 per month.

And, you net profit margin is 12.5% per month.

Or, 12.5% of your sales is converted to profit.

When we need to compare salons of any size or scale for profitability, percentage net profit margin gives an accurate number. Even if the actual figures for total sales and expenses differ, you can easily compare net profit margin percentage and understand which business is more profitable.

• Industry Standard

As far as the industry standard is considered, there’s no magic number for salon profitability. Profits in the industry range from 4%-18%. But for a medium-tier salon, anything close to 8%-9% is considered a decent number.

• Tips to increase Profitability

1. One obvious way to increase profitability is by increasing the revenue. There are three core ways to make money with your current setup. These are further elaborated in the previous part of this post, Part A: Making more money.
2. Increase your prices: This is pretty straightforward. Every time a client comes in, and pay a little more for your services, it means more net profits.
3. Put up a live deal offer for walk-ins during no shows: No shows suck. In order to engage the idle staff, put out a live deal offer board to attract walk-ins.
4. By reducing your costs: Another way to increase your net profits is by cutting some of your expenses. You can do this by:
   • Investing in a scheduling software instead of paying for a receptionist. The software provides numerous additional features that are beyond the work of a receptionist, in a fraction of the salary cost.
   • Being energy efficient: Turn off high energy consuming equipments when not in use. Involve your team in this too. Encourage and educate them about the importance of energy saving and seek their support.

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2. Revenue Per Employee

Revenue per employee is the total revenue generated divided by total number of hours.

This is a very crucial metrics to understand how efficiently you’re utilising your employees to make your salon profitable. A high revenue per employee suggests that you’re operating efficiently. While a low revenue per employee suggests that you can find ways to squeeze more sales from your employees.

• Industry standard

For most businesses to be profitable, an employee should be generating a revenue worth 2-3x his salary.

But that again depends on various factors like overheads, location of the salon, and the type of establishment that your salon is.

For ex: Consider a salon in a very expensive area of the town. For this salon, the rent and other overheads will be higher compared to its competitor in a relatively cheaper neighbourhood. Hence, in order for the salon to be profitable, its stylists might have to generate a revenue worth 3-3.5x their salary.

While the other salon might be able to break even at just 1.5-2x its stylists’ salaries.

Tips on increasing revenue per employee

• Cash incentives to staff for achieving targets: This might sound counter-productive at first, but think about it;

Imagine an offer to reward an employee with $250 per month for completion of an additional 20 services throughout the month.

If the average service cost at your salon is $35, then the additional revenue generated will be $700.

Your net benefit will be $450. That’s a whopping 180% return on investment.

• Increase your prices: Increasing prices not only helps in boosting your profits, but also increases the revenue per employee. Increased prices mean increased sales, and with the same number of employees, it means an increased revenue per employee.
• Fill up lean times by sending out deals and discounts. During cancelled appointments, and no-shows, don’t let your staff sit idle. Send out deals in targeted texts/emails with you salon scheduling software, and fill up empty time slots in advance.
• Avoid no shows by sending timely notifications to your customers in order to improve productivity. This is another feature that you can find in your booking software.

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Part C: Making sure you have enough money

Do you know that up to 80 percent of all new small businesses fail within 18 months?

And more than half of them fail because of not having enough cash reserves.

The key to this problem is Cash flow. Your end of the year Profit and Loss sheet has nothing to do with this. The point is having enough cash to sustain you expenses on a month by month basis.

Let’s dig in some more.

Cash flow is the movement of money in and out of your salon every month.

The inflow of cash is via channels such as payments for services, retail sales, or gift certificates. (Ah! the good times).

While, cash flows out when spent in salaries, inventory, rent, taxes, employee training, marketing efforts, etc. (Meh!)

Two important points to note in reference of cash flow:

• Don’t confuse the term ‘cash’ here with the routine use of the term. The ‘cash’ in cash flow can mean both physical money in hand, and the money in your bank account.
• Credits and loans don’t add up in the inflow of cash. Only money in the pocket counts. For example, the payment amount that clients owe you (if any), doesn’t add up in the cash in flow for that month. It only adds up when you actually receive the payments.

Why monitoring cash flow is important?

• Because expenses are to be paid in lumps but earnings occur distributed over time.

At the beginning of the month, you know you’ll earn enough through the next 30 days to pay all your dues and sustain your business. But that’s the point. The earnings will come in over 30 days. On the other hand, most expenses (rent, salaries, etc.) are required to be paid in lumps.

Hence, it’s crucial that you have a cash reserve to sustain your next month’s worth of expenses. It can only happen via regularly monitoring your cash flow.

• It helps you plan your expenses.

What if you need to buy a new manicure chair? Or invest in an attendance system for the salon? How do you know in if you have enough money to spend a little extra while sustaining your business?

Cash flow sheet shows how much money you have left, and your expenses for the past month. This information helps you understand whether you can afford a new expense that month or not.

• How to pump up your cash flow?

  Cash flow management is a simple concept. You need to take as long as possible to pay your bills and collect earnings as soon as possible.

In other words, the debtor days, or how quickly cash is collected by you need to be less. And, the creditor days, or how late you’re paying your dues need to be more.

A few ways to do this are:

1. Gift certificates: Gift certificates are great. They’re basically money paid in advance for a particular service.
2. Try to push dates for paying rent, or your staff’s salaries. This increases your creditor days and gives a window for cash to pile up before you need to spend it.
3. Don’t stock up on inventory. Since it has to be pre-paid for, it decreases your creditor days. Instead, replenish every month. You may also try buying from the same vendors to get the products at negotiated prices.
4. Accept full/partial pre-payments for your service, if you allow customers to book online. This helps in getting a partial/full payment in advance, and also reduces no shows.

Running your own business requires you to take care of different things, to be at multiple places, and to learn something new everyday.

Back in the day, it was never meant to be a one-person task. But today, with the Internet, and cloud-based services expanding everyday, anyone who aspires to run their own business can.

There are business solutions for marketing, staff management, online scheduling, pre-payments, and what not. A few minutes worth of Google search will tell you the enormous number of salon software out there. But you need to choose one that fits both your needs, and your budget.

Appointy is an online scheduling software that is trusted by 5000+ salon owners across the world. It provides a complete solution for all your business needs. Equipped to serve salons of every scope and size, Appointy comes with a free plan too!

Request a demo today. Or try Appointy right now!

Admit it. Most business owners wouldn’t say no to making more money from their current setup.

But only a few are aware of (or pay much heed to) the basic business mechanics of running a salon. With numerous guides available on the Internet, and advice from fellow business-owners, you could easily get confused about what to do in order to earn more from your business.

Should you…

Focus on getting new customers through the door?

Or getting existing customers to come back more often?

Or knowing if you’re earning enough?

Or start selling more retail products?

How do you know what’s right?

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In order to know what’s right, it’s important to understand the three basic fundamentals of running a profitable salon business:

1. Increasing your revenue

2. Taking care of your expenses

3. Making sure you don’t run out of money

Based on these three fundamentals, this blog is divided into three parts where,

Part A: Increasing your revenue talks about three core ways that can help you make more money from your business. It further defines three business metrics that quantify these growth channels and elaborates on them.

Part B: Taking care of your expenses talks about two simple business metrics, how they can help track your business growth, how to deduce them, and what are the industry standards for them.

Part C: Making sure you don’t run out of money talks about cash flow in the salon business, what it means, and why maintaining a steady cash flow is important?
The first section is covered in this post, and the remaining sections are continued in the next post. You can find its link at the bottom or visit it from here.

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Part A: Increasing your revenue

First things first. Understanding what’s right for your business

Different businesses have different needs. Before deciding to venture into finding new customers, or increasing your prices, you need to understand what’s going to work best for your business. There are two major factors at play:

• Employee and resource utilisation percentage, Or how busy your employees ( like stylists) and resources (like manicure chairs) are. This will affect your decision about which channel to opt in order to earn more.

Consider this,

What if your employees are already working full time, and all your appointment slots are full. Launching a marketing strategy to get new customers doesn’t really make sense for this scenario, does it?
Instead, you might want to focus more on retaining your customers, increasing your service prices, or hiring more staff members.
This is actually an example of a business that doesn’t need new customers in its current state.

You can calculate Employee Utilisation Percentage by,

Utilisation Percentage = [Average hours worked by the employee/Available hours]*100%

There’s no fixed standard for staff utilisation levels in the salon/beauty standard. But according to an overall industry standard, 80% utilisation is the magic number for most service industries. It roughly translates into a 40 hour work-week with 32 hours logged in for providing services.

• Another factor is your business type.

Take the case of a bridal salon. While client retention may be a sure shot growth hack for other salons, the same trick won’t work for them. It’s the kind of business that (most) people visit just once.

Once you’ve looked into all your business variables, and decided what works and what doesn’t, you’ll be ready to pick a channel to increase your revenue.
In salon business, everything around making more money rounds up to these three core ways:

1. Getting existing customers to come back
2. Getting new customers
3. Earning more from each customer

The basic equation goes something like this:

[(Existing customers coming back + New customers)]* (More money from each customer) = Happy salon owner! 😍

Let’s dig in some more!

1. Getting existing customers to come back

Your existing customers are your most valuable assets. They’ve already been to your business once, there’s a certain level of trust, and chances are they’re probably already thinking of booking an appointment with you.
In fact, according to a recent fact by BIAKelsey, 61% of SMBs report that more than half their revenue comes from repeat customers.

Business metrics to measure this: Repeat Customer Percentage

• Repeat Customer Percentage is the number of repeat customers that you get in a month as a percentage of total paying customers you receive in that month.
• It gives a measure of how many of your existing customers re-visited your salon in a particular month.
• Repeat customers are people who have visited your salon at least twice. While total paying customers are people who have visited your salon once or more.
• You can calculate Repeat Customer Percentage as:

Repeat Customer Percentage = [Repeat customers in the month/Total paying customers in the month] * 100%

Numerous salons report an 80% repeat customer percentage.

Tips for increasing Repeat Customer Percentage

• Provide a good service experience. The most crucial aspect of getting your customers to come back is providing high-quality service in the first place. To achieve this, you need to clearly understand your customers’ needs and provide a distraction-free, focussed service experience to your client.
• Don’t wait for your customers to come back to you. You need to invite them over regularly by sending emails and texts. To increase your chances of success, tailor the email/text according to any personal information that you might have about their preferences. Like a particular shade of hair colour, or a special product that’s back in stock.

Tailoring personalised emails manually can be a tiresome task, but there are numerous tech-solutions that can help you do this. Online scheduling software give you an option to collect and save information about customers in the form of notes. You and your stylists can make quick notes right after providing a service and use them while drafting emails to send your customers.

• Additionally, use referral discounts, and loyalty programs also help in bringing back repeat customers more often.
• Stay connected to customers by creating a dedicated Facebook page for your salon. Keep adding more customers to it and post regular updates so that you’re always in your customers’ field of sight.
• Create convenience. Customers need to be able to know when you’re free. No one wants to walk into a salon and wait in a long queue. Neither do they want to wait for you to pick up the phone in order to make an appointment. Give your customers an option to schedule their appointment online prior to their visit, and any time they want.

2. Getting new customers

If you think your appointment book isn’t full, and staff utilisation levels are low, you should definitely try getting more customers coming in.

Business metrics to measure this: Net New Customers

Net New Customers is the number of new customers as a percentage of total customers received in a month. It’s a measure of how many new customers are visiting you every month. If there’s anything new that you’re trying, like starting a marketing campaign, or a referral program, monitoring this metrics becomes crucial to determine how well your strategy is working and which one’s working better for your business.

You can calculate Net New Revenue by:

Net New Revenue = Number of new customers in the month/Total paying customers in the month

How to increase Net New Customers?

• Getting more customers through the door requires an increase in the visibility of your salon among the right kind of audience, or your target audience. One brilliant new way to do this is by getting listed on Reserve with Google. It a search-and-book platform by Google that allows your customers to search and book your services directly from Google search, Google maps, and a dedicated website.

• You can also increase your online bookings by integrating a ‘Book Now’ button to your website and your Facebook page.
• By using salon marketing tactics like selling gift certificates, creating deals and discounts, and social promotion.
• Try running an affiliate program with local businesses that your target customers might be visiting. For ex: bridal salons can make the local wedding planners their affiliates, or a popular bridal clothing store.
• Referral programs are another great way of getting new customers by leveraging your existing customers’ loyalty. For example: you can reward any customer who refers your salon to a new customer by giving them both a $10-$15 discount on their next service.

3. Earning more from each customer

This particular method requires a little more effort than the first one but gives whopping returns. You can earn more from each customer either by cross-selling, up-selling, or increasing the average service price.
Most of the effort that goes into the process at this stage is in the analysis that is required to either recreate your pricing, or training employees to communicate better and with tact.

Business metrics to measure this: Average Revenue Per User [ARPU]

• Average Revenue Per User is the sum of revenue generated from all users divided by the total number of customers that you received in a month.
• It gives a measure of how much money a single customer makes for your business.

You can calculate Average Revenue Per User by:

Average revenue per employee = Total Revenue/ Total customers

How to increase ARPU?

• Cross-selling refers to the art of selling an additional service to a customer. For example: pitching someone to get a pedicure while getting a manicure is cross-selling.
• Up-selling, on the other hand, is the art of convincing the customer to purchase a comparable high-end service. For example: pitching someone to get a full length blow-dry instead of a partial blow-dry.
• Increasing your service pricing. Most salons dread raising their pricing due to the fear of losing their customer base. But in reality, only a slight increase ($5-10) can change yearly numbers by a great deal without losing you any customers.
• Another, and very important channel to increase ARPU is by retail sales. Customers have a tendency to look upto their stylists for recommendations about their hair/skin. This can usually be leveraged to recommend and sell retail products to them. In fact, the industry standard says that 20% of your total sales should be via retail.

All these three metrics, and how they help in increasing your revenue are related as:

[Repeat Customer Percentage ⬆️ + Net New Revenue ⬆️] * [Average Revenue Per User ⬆️] = More money 💲

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This was Part 1 of the 2-part series, The 3 simple secrets of making more from your existing salon/beauty business. The remaining two sections of the blog talk about:

1. Managing your expenses: Two simple business metrics, how they can help track your business growth, and how to deduce them.
2. Making sure you don’t run out of money: Cash flow in the salon business, what it means, and why maintaining a steady cash flow is important?
   

   Click here to go to Part 2 and understand the rest of the equation to start making more money from your salon/beauty business today.  

Travel, food, and entertainment take the spotlight on Independence day. For business owners, big and small,  it’s time to retire for a long weekend and be with friends and family.

This fourth of July, we are celebrating the fact that we bring people together with businesses from industries across the US on a daily basis.

A hundred thousand businesses grow everyday with Appointy by giving their clients the freedom to choose when they want their services. With a significant presence in the American market, we would like to wish all our customers a very happy Fourth of July.

We are hard at work so that as and when you get back from putting back the covers on your grill and bidding farewell to guests, you’ve no missed appointments or lost business. With Appointy, you’ll be able to return to your daily schedule, just like you left.

Just one more thing…

We know this isn’t really a gift-giving holiday, but we still have a little something for you.

For the past six months, our tech team has been busy in creating a new interface for Appointy that is faster, more intuitive, and looks fabulous. We’re in the final stage of development, and the update will be ready soon.

There’s a great story behind this update that we’re calling Appointy 9. Read it here!

As of now, just sit back and relax!

After all, it’s a time to take a break, be with family, enjoy barbecues, and get dazzled by fireworks.

Have a safe evening and a great Fourth of July.

🙂