An important element of how to manage a salon business is creating the right pricing strategy. Setting the right pricing list is essential to target the right customer base and to ensure you reach your goals.
Determining prices of services in your salon or spa must be based on a broad thoughtful basis. It requires a basic understanding of both your financial and business goals, set out in your salon business plan . The right price should meet the requirement of the buyer and seller. It is important to develop a salon pricing strategy. If you hit the right price, your clients will be happy, your profits will be higher and your bottom line will be healthy.
However, setting the right price is one of the most difficult decisions to make when starting a business or introducing a new service. Many salon owners make the mistake of setting up a flawed pricing structure. As a result they find themselves working very hard for so little…
“Get the confidence of the public and you will have no difficulty getting their patronage… Remember always that the recollection of quality remains long after the price is forgotten” – H. George Selfridge
7 Tips in Setting Your Prices
1. Keep your prices realistic
A realistic price is the price you set after taking into consideration various factors:
• The direction of your business
• Your cost structure and expenses
• Your resources and financial goals
Avoid setting your salon prices on ‘what every other salon is charging’… What is right for your competitors may not be right for your salon. After all, their goals and strategies may be different from yours. Research your competition and see what they are charging, but do not copy their pricing structure. Set your prices based on your own situation.
2. Cover all costs
The price of each service should cover the cost associated with it, its contribution to overheads and profit. A successful strategy is one that results in the most pounds after all the costs have been met. Be careful of setting your prices too low, while it may attract a large sales volume, you may not be making enough revenue to cover the costs of selling the service. If you set your prices too high, your sales volume may be so low you can’t cover operating costs. It’s important to take into account the competitive advantage of your salon and your target customer base.
3. Check your prices against inflation
Your prices must keep up with inflation. Inflation increases your cost of doing business, with the prices of your materials, overheads and other costs increasing. If you maintain your prices despite rising inflation, you will erode your profit margin. Allow your business to increase your prices at least once a year, but give your clients sufficient warning about the price increase. Once you’ve established your prices, remember to constantly monitor operating costs to insure profit.
4. Include the value of your time in your pricing
Avoid committing the mistake of not including a salary for yourself – your time is valuable and you need to include it when calculating your prices.
5. Clients are not always looking for the lowest price
Price is not always the topmost concern of clients. There are many clients who do not mind paying higher prices, particularly if they know they are purchasing exclusivity or your salon is located in a high-end or convenient location. Many clients are willing to pay premium prices for quality service, speedy delivery, helpful and friendly customer service, excellent product knowledge and advice, this is why it is important to know the competitive advantage of a salon and meet your own customer demands.
6. Price low, but smart
A common salon pricing strategy for small salon owners, particularly new entrants into the sector is to price low just to get the work. By pricing low, the aim is to penetrate the market and get as much repeat business.
However, be aware that pricing low can have adverse repercussions on your business. First, a low price may signal a low quality service. Second, it may be difficult to raise prices later on once clients are accustomed to your low prices. Third, your start-up business is yet to develop economies of scale that makes it hard to compete on price.
7. Use discounts with care
Offering discounts is a good strategy for encouraging repeat sales, bundling sales and early payment from clients. You can use discounts to stimulate demand for your products and services during the down times. Discounts are great to clear out stock that has become outdated. Just make sure you don’t give out the wrong signal or give the impression that your business is in difficulty. You can plan for discounts or sale times in your salon pricing strategy ahead of time.
Pricing is important for several reasons – it will determine the profit margins for your salon, and in the end, your own salary!