Running a Salon: Calculate Your Costs
Salon owners often don’t take all costs into account when running their business. If you feel like your business is constantly on the edge, and you are living from hand to mouth, you may need to revise your business model as your current pricing is not covering all your costs, to allow for your own salary and hopefully a small profit!
Numbers can be boring and they are not everyone’s strength, so if you are not a “numbers person” it really is worth hiring an accountant to help you in this regard – the money that they will save you, and help you to make, will be more than worth what you pay them.
Firstly: Determine Your Break-Even Figure
In order to calculate this, you must include:
• rates and taxes
• electricity and water
• product costs
• staff salary costs and PAYE
• the salary you need to live on
• loan repayments
• accountancy fees
• bank charges
• cleaning, etc
Then, divide the resulting figure by your average service cost (work out the totals of your service revenue over a month and divide by the number of clients, to obtain your average service cost).
For example, if you work out that your salon expenses are R50,000 per month and your average service is charged at R250, then R50,000 divided by R250 = 200 services per month. If you service 200 clients per month, you will cover your basic costs. So that is your client target for sustainability.
If you are very busy, but you are still not reaching your target, the best solution will be to raise your prices – you might lose a few price sensitive clients but the ones who stay, and pay a little more, will cover this cost.
If you are quiet and not reaching your target you need to look at ways to bring more feet into your salon – offering a special deal on quieter days can be a good solution, and so can introducing referrals, holding client days, and other business building activities which we will discuss in future newsletters.