The health of any beauty business depends on a delicate balance of income versus salon expenses. For every dollar you save in costs, it goes directly to your bottom line. That’s why it’s essential to watch the expenditures of your business. With a little planning and persistence, you can keep everything in check and make sure you keep more of your hard-earned money.
What are typical salon expenses?
Salon Expenses vs. Profit
This chart represents 90% of beauty salons, according to salon coach Derek Hull of Salon Ops. In cases where salon owners pay themselves as employees, it’s found that the average salon runs at a negative five percent profit, which is simply not sustainable. In such a case, here’s how salon expenses break down:
Hair Salon Monthly Expenses
- Payroll 50%
- Rent 10%
- Retail 10%
- Misc 10%
- Professional products 9%
- Taxes 8%
- Utilities 4%
- Bank/cc fees 4%
- Profit -5%
Whether you’re a veteran business owner or just starting a salon, here are some of the top ways to control hair salon business expenses:
Payroll: 50% of Salon Expenses
Typically the most considerable expense for any small business, payroll tops 50% of all expenditures. Receptions, assistants, service providers, and other employees are necessary to run a successful salon or spa. To stay profitable, commission salon business owners need to keep service providers busy working on clients. When stylists, colorists, facialists, and other salon or spa specialists are booked, everyone profits, including the salon itself.
Here are a few ways to help spend wisely for your salon payroll:
#1. Staff Lean
Limit the number of people you employ to just what’s needed and then hire as your business grows. You don’t want to cut back so far that it affects customer service or that you are in a bind if someone is out sick. Do streamline your hiring and make better use of the staff you have.
#2. Cut Back Hours
For less busy times, you may need to cut back on hours for staff. Naturally, employees need to make a living or may leave to find other employment. If things stay slow, you may need to take more drastic action.
#3. Tap Your Downtime
Make the most of your staff by assigning easy go-to tasks for any downtime. Think dusting, trash removal, smock and towel folding, etc. If your team can pull together and manage more of the daily tasks, you might be able to scale back your professional cleaning crew and save a little green in the process.
#4. Work Smarter
Feel like you and/or your team are always busy working and not spending enough time servicing clients? Reducing office work or scaling back overly redundant employees is a good idea. For example, consider using salon scheduling and management software to help streamline your salon’s booking and confirmation process and eliminate the need for as many receptionists.
#5. Offer Online Scheduling
To help free up your staff, use online booking features in your salon software. You can use the feature to help fill any gaps in your salon or spa’s schedule. By opening up online scheduling, you can help fill each service provider’s schedule even during the off hours when many people think to book their services.
#6. Encourage Pre-Booking
Ask your clients to book their upcoming appointments as far in advance as possible. That way, you can budget the time, manage the schedules for your services providers and support staff more efficiently. Consider offering reward points or some other incentives to encourage this behavior.
#7. Rethink Walk-ins
Depending on where your beauty salon or spa is located and how much foot traffic wanders by, consider revisiting your policy for taking walk-ins. If there is room for additional clients at any given time and you have the staff available to manage those times, great. However, is it worth keeping someone around just to say that your business takes walk-ins? If that person mostly sits around waiting for walk-ins to wander in, it may not be worth the effort and expense.
On the other hand, if you’re in a high-traffic area and have the room and staff available to take on walk-by traffic, do so. Just consider making it something that’s only offered on certain days or times to help cut down on staffing.
#8. Stay Efficiency Focused
Explore products and services that might save you and your staff time. To be effective, pay attention to the trade publications and always keep an eye out for new time-saving technology. Spending a little time seeking out better ways to run your business could pay off in the long run.
Retail & Professional Products: 19% of Salon Expenses
Here are a few ways to save on the product side:
#9. Take Control of Your Inventory
If you are at a loss for how much product to order, most salon software will provide the information you need. Some will even allow clients to pre-order products when they should be running low or will enable them to reserve items for their next salon visit. Such features can help you to order what your clients need without overstocking.
#10. Sell Online
Another inventory option is to go for touch-free retail for some or all of your needs. You may want to keep best-sellers on hand, but why spend the money on inventory if you don’t need to? Open an online store and offer various products that your clients can browse anytime and anywhere. Perhaps with less stock, you can add another styling station.
#11. Make Smarter, Less Wasteful Choices
Look for better product options for your back bar, for your color, and for use by service providers. See if you can find a more economical product solution that still fits your client’s needs. Also, ask your team to tighten up on the waste.
Hair color is one area where salons witness a fair amount of product waste. Have stylists and colorists mix just what they need and apply as sparingly as possible without compromising the results. More color can always be mixed if required. There are also color dispensing systems that may offer a more economical solution to the over-mixing problem.
Utilities: 4% of Salon Costs
#12. Flip the Switch
When it comes to cutting costs on utilities, the best bet is to ask employees to be aware of waste. When not in use, turn off lights or heated appliances and keep doors and windows closed when the heat or air conditioning is on. Other than that, there’s not much more that you can do to save in this area.
Taxes, Rent, Misc: 28% of Salon Expenditures
#13. Get Strategic
With taxes, licenses and permits, there is no room for negotiation. Taxes are taxes, and it’s unlikely that you will find any savings there. However, it never hurts to consult your CPA to see any write-offs or strategies you can plan for down the line.
#14. Get Square with Your Footage
When it comes to rent for your salon space, you can go to your landlord and negotiate a better deal. However, the amount of available property will dictate your likely success. If you have a larger facility and can either rent a portion of it out or try to exclude it from your lease, give it a shot. Just keep in mind that you’ll be responsible for any costs associated with the action.
#15. A Little of This and That
You might be able to trim some of your costs under miscellaneous. Don’t skimp on your training efforts or with needed salon equipment repairs and maintenance, but do consider comparing insurance rates and spending wisely for any advertising or other expenses in this catchall category.
Bank and Credit Card Fees: 4% of Salon Expenses
#16. Shop Banks
Banks will charge fees for their services, and these fees average about one percent of all salon expenses. Consider shopping for a bank with better rates or an account where you are not charged for service fees because you maintain a certain balance. Some banks will even accumulate amounts from all accounts to make the minimum.
#17. Compare Processors
One area that you can cut costs is with your credit card processing. Look for a merchant processor with the best possible effective rate, which is a balance of processing and transaction fees based on your volume of sales. If your salon does take credit cards as payment, you’ll also want to shop wisely for point of sale equipment.
How to Assess Your Salon’s Expense Situation
#18. Do a Self Audit
Create a salon expenses spreadsheet to help you answer the question: how much does it cost to run a salon monthly? Use the totals on your salon income and expense sheet as a hair salon budget template.
#19. Get Professional Help
If you have a problem with business planning or effectively budgeting, seek professional help. A good CPA can both determine the health of your salon business and help you budget your expenses.
#20. Read Your Numbers
A report card for your business, financial statements tell you how you’re doing and reveal areas of concern. Having the means to take the temperature of your business is the best way to ensure its health.
According to Kopsa Otte CPAs, a firm specializing in financial analysis, consulting, and tax planning for salons and spas, successful salons make good use of financial statements and have learned how to read them.
Besides comparing your actual results to industry averages or against cash flow projections, these CPAs say to look at these factors on your financial statements:
- Retail cost percent
- Back bar cost percent
- Production labor to sales percent
- Advertising percent
- Payroll tax cost percent
- Credit card fee percent
Based on your actual numbers, calculate your break-even point, which is how much sales you need to make just to keep your doors open. From there, you can look for ways to cut costs.
At some point, you’ll have cut as many expenses as possible, and you still may not have a profitable business. You will want to look at your pricing for your salon or spa services in such a case. Without proper pricing, there is little hope of a business surviving, at least not for long.
Come to terms with the fact that everything in your business is about increments of time. And since time is money, you need to charge enough for all services to keep the business alive, let alone allow it to grow. If, for example, a short haircut typically takes a half-hour of time, there needs to be a value attached to that service. But how do you calculate if what you’re charging allows your business to sustain and grow?
Whether you are a larger salon or spa owner or a solo artist, and regardless of your type of salon or spa, take a little time to re-evaluate your current pricing.
#22. Keep Current & In Demand
Make sure your staff keeps up on the latest techniques and trends through continuing education. After all, efficient, well-trained staff is both in demand but is also profitable!
So, is your salon profitable? Have you raised your prices recently? And, what will you do to help cut back on your salon expenses?