In the ever-evolving world of the salon industry, staying ahead of the curve is vital to ensuring profitability. With rising costs and changing customer expectations, owners need to rely on data-driven insights to make informed decisions. One key area where data plays a pivotal role is in understanding and optimizing your hair color profit margin. Let’s explore three ways how harnessing your color data can help you map a more profitable future for your salon.
1. Cost of Goods and Pricing Strategy:
In the hair industry, the cost of color products typically go up year over year. It’s essential to assess whether you’re incorporating the cost of color into the service price or charging customers separately for color used during service, like in a parts and labor model. To adapt to changing costs effectively, consider the example of Celebrity Salons, who amended its pricing strategy four times in response to price increases in 2023. They also transitioned to a “parts and labor” pricing model, where labor is billed separately from the cost of color products which felt more natural for them after experiencing multiple price increases as a result of inflation. This approach ensures that price increases are accurately passed on to customers, protecting your salon’s profitability.
Laura, owner of Celebrity Salons, explains the shift, saying, “If you’re charging the same price across the board, by the end of the year, you’re making less money on that service because you’re not responding to product charge increases. But if you separate it by switching to a products and service model, you are covered.”
2. Gross Profit Margins Defined:
Gross profit margins are a key metric for any business and represent the percentage of revenue that remains after accounting for the direct costs of providing a service. Price of service, minus cost of products used to deliver the service. This can vary tremendously based on the service, and also based on who is performing the service. One stylist can use $2.38 to complete a half head, while another stylist would dispense over $13 for the same service. Preserving your margin is about both maximizing revenue and minimizing costs at the same time. Setting acceptable levels of product included in each service is a vital step in both protecting your bottom line as well as coaching your team. Over application is not only wasteful, it is bad for the hair and scalp.
3. Maximizing Revenue through Targeted Pricing:
To boost profitability, look beyond cost control and actively seek ways to increase revenue per service. This can be achieved by automating charges for additional color used, setting rules for what is included in certain services, and managing your markup for charges on color. The key aspect is automating the rules that make sense for you, so there is no room for error. When the front desk knows you allow a certain amount of product for a half head, you can set triggers for when that half head becomes more of full head. While this may only amount to a few extra dollars per service, cumulatively, it can translate into thousands of dollars in increased revenue for your salon. Additionally, this approach can provide a well-deserved pay increase for your stylists without bringing up commission levels.
Take Luke Huffstutter, owner of Annastasia Salons in Portland, Oregon, as an example. In 2023, he saw remarkable improvements in his salon’s performance. The average cost per application decreased, the average color ticket grew significantly, staff income increased, and the salon collected $50k in net new revenue by capturing extra product charges. These numbers are a clear indication of the profit potential in every business when armed with accurate data and a strategic approach.
“Vish reports make it easy to look at each of our services and see exactly what they are costing, down to the amount of product used by each brand. From there we can work towards strategies to rectify any pricing or profit margin missteps.”
Ready to take control of your salon’s profitability? Start by harnessing the power of your color data with Vish and map out a brighter future for your business.
