If you’ve been hanging around here for a while, you’ve probably heard that there are a ton of benefits to owning your own salon! However, big, fat profit margins aren’t generally one of them.
That’s not to say that there aren’t plenty of salon owners doing really well for themselves, but there are easily 10 times as many who are barely getting by and wondering why they put it all on the line to run this thing anyway.
So what is it that makes the difference between healthy profit margins and scraping by month after month?
Here are eight strategies that successful salon owners are following today to keep their head above water and turn profits:
CREATE A BUSINESS PLAN
It’s tempting to spend hours on Pinterest picking out cute coffee mugs for your beverage station and researching gorgeous salon stations, but you need to prioritize what’s most important.
When you decide to open a salon, the most fun part is looking at paint colors and choosing cute accent pillows; but before you get to the fun stuff, you need to create a real business plan.
Use the SBA Business Plan Builder Tool to create your business plan and know your numbers.
If you’re thinking about opening even a small salon, take the time to work out your business plan so you know what you’re getting yourself into.
CONSIDER LEASING YOUR SALON EQUIPMENT INSTEAD OF PURCHASING IT OUTRIGHT
Does dropping $10,000 on new stations and chairs make you want to throw up a little bit? It’s a ton of money! Want to know something awesome? There’s actually a better way.
When you buy the salon equipment outright, you’re entitled to a depreciation tax deduction, meaning you’ll get to write off a little bit each year for the lifespan of the furnishings (here is an official article from the IRS on that and here is one that is easier to understand). In our industry, the lifespan is almost always considered to be seven years.
There are some major tax benefits to leasing your chairs, stations, shampoo bowls, dispensary equipment, retail shelves, and more instead of purchasing them upfront. The IRS will allow you to fully deduct the payments you make throughout each year as equipment rental. This could be a pretty sweet annual deduction for you instead of a fairly small depreciation deduction depending on what your payments look like (the IRS breaks it down here).
For example, if you purchase $2,000 worth of salon furnishings upfront on an accelerated depreciation schedule, your annual deduction could only be $286 (no, you can’t deduct the full $2,000). If you had leased the same furnishings (let’s say using a three year lease with interest) and you paid $686 in payments through the year, the entire $686 could be the deduction instead.**
This popular company offers salon equipment leases. We can’t vouch for their services personally, but they know our industry and they are a common leasing choice.
BE PATIENT
It takes an average of 1,000 days for a new small business to turn a profit.* That means for three years, you’ll either just earn the income you produce behind the chair or even less than that because you’ll likely need to put more of your hard-earned money back into the business.
Remember, you’re in this for the long haul. While the first few years might be tough, you did this for a long term gain. Like with any investment, results will take time.
Don’t be tempted to just throw in the towel. Success is reserved for those who willing to fight through the tough years to achieve greatness. If salon ownership was an instant slam dunk, everybody would have done it already.
WATCH YOUR FINANCES
Your business plan will help with this for sure, but it’s important that you’re well aware of the money coming in and going out every month.
It is still shocking to hear how many small business owners just deposit money in the bank through the week, pay their bills (hopefully on time), and pray there is enough money in the account each month for everything to clear.
You need to know EXACTLY how much money you’re paying out every month, projections of how much you’ll bring in, and what your budget will be.
Using this amazing Quickbooks tool, you can see exactly where your money is going every month, where you’re overspending, how much you’re projecting to take home, a daily update on your estimated quarterly taxes, and more without any extra work on your part.
The awesome part is that it syncs right to your bank account AND you can screenshot receipts into the app! When it’s time to file your taxes, you can just send a quick report from the system to your CPA and there is zero extra work on your part.
DON’T STOCK TO FILL
Once you start watching your finances, you’ll notice that you’re likely spending way more than you should be or even more than you need to be.
Most salons run on a stock-to-fill system, meaning if you use one tube of 5N color today, you buy one tube of 5N tomorrow or if you sell one bottle of shampoo, you buy one bottle of shampoo to restock your shelf. That actually isn’t an effective model.
Here’s why: Let’s say you sell a bottle of shampoo for $30 and it cost you $15 to buy it initially. When you sell it, you’ve made $15 profit. Awesome! Except you take that profit and use it to buy another $15 bottle of shampoo… There goes your profit and now you’re back at zero.
It’s the same with the color. If you’re doing a stock-to-fill system but you’re already overstocked, you could have hundreds or even thousands of dollars tied up in inventory expiring or going to waste on your shelf.
We talk about a more effective way in Thrivers Society, but challenge yourself to start thinking about ordering based on budget versus stock-to-fill.
HIRE A COMMUNITY THAT GOES WITH YOUR VIBE
Salon owners often complain that finding good people is hard, but it doesn’t have to be that way! Just by scrolling through Instagram, you can see that there are thousands of insanely talented stylists in small towns and big cities across the world who would make amazing team members.
So the real issue is that you aren’t attracting these awesome stylists to your business, right?
Stylists today want to be a part of something. if you create a true salon culture (beyond “we are happy people who do good hair”), great stylists will line up outside your door, begging for the chance to work for you.
Remember, culture isn’t fancy furnishings or high priced services. It is the common cause and belief system that your entire team is working within.
DON’T OVERPAY EMPLOYEES AND CHARGE ENOUGH RENT
This is the big one, and it’s generally where most salons go broke.
Having commission or hourly stylists is really freaking expensive. You’ve got to pay half of their taxes, stock their color, support them with an hourly wage whether they’re seeing a single guest or not (here are the FLSA guidelines on this), and bonuses to keep them motivated. Some salons also like to offer benefits like vacation pay and insurance. This adds up quickly!
Most salons today start their new stylists off at 35% commission, and most commissions top out at 45 – 50% maximum for top performers where there’s a bit of margin due to higher price points.
You could try paying 60% commission to “motivate your staff” (don’t do it), but your staff could still be MISERABLE, demanding, and you could be losing about $5,000 a month. This has happened to salons time and time again.
It’s crucial you watch your bottom line and only pay out what you can afford. Spend some time looking at what your business plan’s break even is for each employee and be sure you aren’t overpaying.
Take notes from this Thriver: She knew it was time to raise the rent she charged to her team, but she was nervous. She knew her salon was unique for her area, she offered top amenities, and working in her salon was basically like hitting the lottery. However, by raising the rent she would charge more than all other salon owners in her city. She knew it was overdue though, so she pulled the trigger. And guess what? She explained to her team that the rent was going up January 1. They all knew she was an exceptional salon owner to work for, so she retained her whole team and nobody complained even a bit.
Note: In California, a bill was passed in 2015 making commission pay for stylists EXTREMELY difficult to do legally, so most California salons running their business legally pay stylists an hourly wage or salary with bonuses instead of traditional commission. Listen to this podcast episode for more info!
INVEST IN MARKETING AND EDUCATION
Having a small business costs two things: time and money. It takes money to make money, and if you’re saying “I don’t even have the money to market myself,” you’re essentially cutting off any hope of survival. You don’t have to spend a ton; a solid $500 budget a year is all you need if you’re willing to put in the time to learn to leverage online marketing
Marketing is your lifeline. Don’t rely on word-of-mouth. That isn’t how business works anymore thanks to the internet. You need to put yourself out there if you’re going to survive. We are living in a fast-paced world where your online presence isn’t important, it’s crucial.
You need to network locally, use social media correctly, and not discount to get guests through the door. We cover all of this in Thrivers Society, but in the meantime, skip the magazine ads (waste of money), passing out brochures (waste of time and money), and flyers (when is the last time you did anything you learned about on a flyer?), and get strategic with your efforts.
DON’T DO IT FOR THE MONEY
The most successful salon owners today aren’t money hungry at all. They are inspired, passionate, focused on staying current, and fighting to be cutting edge. Their passion and drive push them to do incredible things, and the money comes as a result of how they do things differently.
The best part of being a salon owner is that you get to shape a new direction of the industry’s future. Today’s stylists don’t want just any chair to cut hair behind and today’s clients don’t want to go to just any salon. Here’s what makes today’s hottest salons as successful as they are.
Happy business building, salon owners! You’ve got this. If you’re feeling overwhelmed, hopeless, or defeated, please know that every business is savable and has the potential to be successful. It’s up to you how hard you’re willing to work to make it happen.
*source: Entrepreneur.com
**note: Britt is not a CPA nor is she offering any legal or financial advice. Do your own research to find the laws and best practices for your business by speaking directly to a certified tax professional, lawyer, or other professional service provider.
