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.
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?
In order to know what’s right, it’s important to understand the three basic fundamentals of running a profitable salon business:
Increasing your revenue
Taking care of your expenses
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.
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.
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:
- Getting existing customers to come back
- Getting new customers
- 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 💲
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:
- Managing your expenses: Two simple business metrics, how they can help track your business growth, and how to deduce them.
- 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.