If you’ve been hanging with me for a while you’ve probably heard me say that there are a ton of benefits to owning your own salon and big, fat profit margins aren’t generally one of them.
That’s not to say that there aren’t plenty of salon owners out there doing really well for themselves, but there are easily 10x as many who are barely getting by and wondering why the heck 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 8 strategies that successful salon owners are following today to keep their head above water and turn profits:
CREATE A BUSINESS PLAN
I remember when I was about to open my salon I spent hours on Pintrest picking out cute coffee mugs for our beverage station and researching salon stations. What a waste of time that was in the end.
Trust me, I know that when you decide to open a salon the most fun part is looking at paint colors and choosing cute accent pillows, but I challenge you to set that all aside and create a real business plan.
I used the SBA Business Plan Builder Tool (click here to access it) to create my business plan and it was the best thing I could have ever done. I realized my break even point was way further down the line than I had anticipated, that I would have had to secure $200K in financing just to keep the doors open and take home a modest paycheck myself and that all of my cute furnishing ideas were the least of my concerns because paying the bills was going to be tight.
If you’re thinking about opening even a small salon, take the time to work out your business plan so that you know what you’re getting yourself in to.
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? I know, it's a ton of money. Want to know what's awesome, there is actually a better way.
When you buy the salon equipment outright, you'll be 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 a bit more simple to understand). In our industry the lifespan is almost always considered to be 7 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 throughout each year as equipment rental which could be a pretty sweet annual deduction for you instead of a fairly small depreciation deduction depending on what your payments look like. (Here is an article from the IRS on that).
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 3 year lease with interest and you paid $686 in payments through the year, the entire $686 could be the deduction instead**.
This is a popular company offering salon equipment leases, however I've never worked for them nor am I affiliated with them. I can't vouch for their services personally, but they do know our industry and I know they are a common choice for leasing.
It takes an average of 1,000 days for a new small business to turn a profit*. That means that for 3 years you’ll either just be earning the income you produce behind the chair or even less than that because you’ll likely be needing to put more of your hard earned money back in to the business.
Remember, you’re in this for the long haul so while the first few years might be tough, you did this for a long term gain. Like any investment, results will take time.
Don’t be tempted to just throw in the towel. Success is reserved for those who are 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 really important that you’re well aware of the money coming in and money going out every month.
It is still shocking to me when I hear how many small business owners are just depositing money in the bank through the week, paying their bills (hopefully on time) and praying that there is enough money in the account each month for everything to clear.
I know every month EXACTLY how much money I’ll be paying out, projections of how much I’ll be bringing in and what my budget will be. You should know this too and it hardly takes any extra effort on your part.
Using my favorite tool (click here to check it out) 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 screen shot receipts in to the app so that 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
What you’ll find once you start watching your finances is that you’re likely spending way more than you should be, or even than you really need to be.
Most salons run on a stock to fill system meaning if I use one tube of 5N color today, I buy one tube of 5N tomorrow or if I sell one bottle of shampoo, I buy one bottle of shampoo to restock my shelf. Yeah, that actually isn’t an effective model and 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 for that you take that profit and use it to buy another $15 bottle of shampoo, so there goes your profit and now you’re back at zero.
Same with the color, if you’re doing a stock to fill system but you’re already over stocked, 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 my Thrivers Society system, but I challenge you to start thinking about ordering based on budget vs stock to fill.
HIRE A TRIBE THAT GOES WITH YOUR VIBE
I often hear salon owners complaining that finding good people is hard, but I just can't agree. I mean, even just looking at Instagram, there are thousands of insanely talented stylists in small towns and big cities across the world who would make amazing team members.
So then the real issue is that you aren't attracting these awesome stylists doing big things to your business, right?
Stylists today want to be a part of something and if you create a true salon culture (beyond we are happy people who do good hair. That worked ten years ago, not anymore) great stylists will be lining 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 OVER PAY YOUR EMPLOYEES & BE SURE YOU'RE CHARGING ENOUGH RENT
This is the big one and it’s generally where most salons go broke.
Having commission or hourly stylists really freaking expensive. You’ve got to pay half of their taxes, stock their color, support them with an hourly wage whether they seeing a single guest or not (click here to read the FLSA guidelines on this), bonuses to keep them motivated, some salons like to offer benefits like vacation pay and insurance. This adds up quick!
I see most salons today starting their new stylists off at 35% commission and most commissions topping out at 45%-50% maximum for top performers where a bit more margin exists due to higher price points.
I remember one of the first salons I ever coached was paying 60% commission to “motivate their staff” yet their staff was MISERABLE, demanding and the salon owner was losing about $5,000 a month.
I could share dozens of studies about how employees today aren’t motivated by money, but for now I just want you to know that it’s crucial you watch your bottom line and only payout what you can afford. Back to the business plan, spend some time looking at what your breakeven is for each employee and be sure you aren’t overpaying.
I was coaching a salon owner before the holidays who knew it was time to raise the rent she charged to her team, but she was nervous. She's in Thrivers and knew that her salon was unique for her area, she offered top amenities and that working in her salon was basically like hitting the lottery, yet by raising the rent she'd be charging more than all other salon owners in her city. I told her that for all of us the cost of business increases and if she knew it was time, she had to pull the trigger. Guess what, she explained to her team that the rent was going up January 1, they all knew that she was an exceptional salon owner to work for, 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 salons in California running their business legally are paying stylists an hourly wage or salary with bonuses instead of traditional commission. Stay tuned to my podcast for an upcoming episode about this.
INVEST IN MARKETING & 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 lot. A solid budget of $500 a year if you’re willing to put in the time to learn to leverage online marketing is all you’ll need.
Marketing is your lifeline. It makes me crazy when I see advice like “don’t worry, word of mouth will start to kick in”. No, it won’t, 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 be networking locally, using social media correctly and not discounting 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 I know 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 then the money comes as a result of the way they do things differently than the rest.
The best part of being is a salon owner is that you get to shape a new direction of the future of the industry. 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. Click here to read my article on 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.
**note: I am not a CPA nor am I offering any legal or financial advice. I suggest you 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.