I have a bit of a confession to make . . .
When I started SalonBusinessSecrets.com just over 2 years ago now, I wanted to bring my experience of the key, fundamental, business processes that I belived were at the core of the most successful spa and salon companies I had worked with to the smaller, independent business owner.
My plan was to weave these items – which I called the Essential Secrets – in between other articles to help new, recent and aspiring beauty business owners to create a solid foundation for their business.
I wanted to do this to take the stress out of being a business owner in the beauty industry and to help stop the 9 out of 10 salon business failures each and every year.
However, as always, life got in the way and while I absolutely belive that each and every article I have published and podcast episode I have released is stuffed with valuable advice . . . I have taken my eye off that Essential Secrets concept a little.
So it’s time to bring that back . . . if you want to check out the Essential Secrets so far just go to the START PAGE and you will find a page introducing the secrets so far and links to each one . . .
For todays essential secret we are looking at the question of “How to Grow Your Beauty Business?”.
Such a simple sounding question . . . . just six little words . . . but not such a simple answer.
Well actually the answer (or answers) are a lot more simple than you might think!
Just as an aside here . . .
I have had this article in mind now for about the last 8 months . . . but it has taken quite some time to research and find all the information souces and data I needed to bring you real live up to date examples and information . . . but finally it is ready!
. . . . so I hope that gives you an idea of the value in this episode!
How to Grow?
If you were to ask a typical business person or anyone who has ever studied economics the question “How do you grow your business?” you wil more than likely get one of the following answers:-
- Decrease Your Costs
- Increase Your Turnover (or Sales)
and if you’re lucky you might get the odd response of . . .
- Improve Productivity
Ask a salon owner the same question (and I actually did this) and you will get similar answers only worded in a more specific way:
- Get more customers (which is a function of increasing turnover)
- Sell more products (also a function of increasing turnover)
- Sell more treatments [to existing clients] (a function of both increasing turnover AND improving productivity)
- Reduce your costs (clearly the same as decrease costs)
The problem with these answers is that they are all very vague, don’t actually give you ideas of what to do and also are slightly conflicting.
For example . . .
In order to increase turnover you might decide to increase advertising to bring in more clients. This would in turn increase your costs. Raising your costs might mean you simply break even rather than improve anything and at worse could see you spending more money (on advertising) than you are making from any new clients?
In a similar fashion you might decide to reduce costs which could in turn have a negative impact on the level of service you are able to offer in your salon. This could mean you lose clients or you don’t gain any new ones, resulting in lower turnover and sales.
Growing your business means growing your profits . . . this is NOT a bad thing!
I just wanted to address this point for a second. I know that as salon and beauty business owners you didn’t start your business simply to make money. For this reason I often find salon owners shy away from actively seeking to ‘make more profit’ because it’s not about the money.
But . . .
Profit doesn’t have to be just for the sake of making more money in a ” . . look how much money I have!” way. Growing your beauty business by growing your profits enables you to have more options.
You could use it to replace or improve your equipment. I am sure your clients wouldn’t mind at all if you upgraded your treatment table to the latest extra wide, extra comfy, fully adjustable model. This would simply mean a better experience for them.
Growing your business could mean redecorating your salon, taking on a new product range, refurbishing a treatment room or your manicure area. It might mean expanding the salon, training you and your team in new treatments and techniques, opening a new branch or taking on new staff members.
It could even simply mean that you are able to spend more time with your preferred clients to give them an even better level of service than you currently offer.
So wanting to grow your business (by growing your profit) is NOT a thing to be remotely ashamed of in any way. It isn’t greedy, it simply gives you more options.
Now let’s get down to some specifics . . .
You are probably thinking then that there are hundreds of ways to grow your business, but would it surprise you to know that there are actually just 5 straightforward ways to grow your beauty business, indeed any business!
Sure, there are many variations on strategies. But there are just 5 basic ways that you can grow your salon profits – and the best bit is that one of them is so simple, so powerful that you won’t believe it unless I show you!
Just before we dive in to the detail, I have created a workbook for this article. We are about to look at a number of examples of how each of the 5 ways to grow affects a salon. To help apply these figures to your salon you can download the workbook and see how each one might affect your profits?
The Five Ways to Grow Your Beauty Business
The five ways to grow your salon or beauty business are:
#1 – Increase the Number of Customers (incl. win more and lose less)
#2 – Increase the Frequency of Transactions (i.e. get your customers in more often)
#3 – Increase the Average Spend/Value of each customer
#4 Increase prices
#5 Improve efficiency (people productivity levels / strategic overhead reductions)
OK, these still seem a little bit general, so let’s look at each on in a bit more detail:-
Increase the Number of Customers – It stands to reason that if you are able to increase the number of clients you have without spending any money to do so (this includes keeping all the ones you currently have or minimising the number you lose). Then you will undoubtably make more money and the result is your business will grow.
Increase the Frequency of Transactions – On a recent podcast episode Rich McCabe from iSalon Coaching talked about the benefit of getting your clients in to see your just one week earlier than their normal visit pattern (i.e. every 5 weeks rather than every 6 weeks) and the dramatic effect this could have on your business turnover. If you can successfully do this then you don’t need more clients . . . you just get the ones you already have to come to you more often thus visiting you slightly more in a year (even just one or two more visits) and your business turnover will indeed grow.
Increase the Average Spend/Value of Each Customer – the previous option is one example of this strategy – the key here being you don’t need any more customers to grow you business. Another way to do this is to increase the amount of money each client spends with you during each visit. This could be an up-sell on treatments, an upgraded treatment, an additional treatment or possibly retail purchases to complement their treatments.
Increase Prices – This one is fairly straightforward. If every time a client comes to see you they pay a little more for their treatments than they do now, it means that you are earning a little more money for each treatment you perform. Same number of customers, same number of treatments, same costs . . . more profit!
Improve Efficiency – This is the trickiest one to achieve as efficiency deals with squeezing more out of what you already have. In general it is a function of reducing costs (without reducing your offering) or getting more for what you are already spending which could be in terms of purchases, premises or people.
If you have team members who are not fully booked, but you are paying them anyway . . . then driving more customers to them will increase the money they are generating and would be an increase in productivity.
The only problem is that you would need to find these new customers in the first place and to do this will likely require some form of marketing which might increase your costs. The increase in cost must be more than recovered by the increased business to make it worthwhile.
An example I am often quoted here by salon and spa owners is that of putting pressure on suppliers to give a discount or reduce their prices on retail and professional products.
While this technically doesn’t affect your service level (presuming you are getting exactly the same products supplied at a lower price) it doesn’t exactly endear you to your suppliers and should a situation ever arise where there is a stock shortage and you need re-supplying . . . who are your suppliers likely to help first? You, who drove them down on price or your competition who happily pays the standard price?
Which Way Wins?
So those are the 5 ways to grow, but which option delivers the best results or are they all pretty much equal?
Well the answer is that they are NOT all equal and one option delivers consistently and substantially better results than the others!
In fact while I was researching this article and combing through case studies and examples I was amazed by the results in that one option delivers nearly the same results as all the other four put together!
To find which option works best I needed to find clear examples of each method being used by a spa, salon or other beauty business. I also required some pretty specific information including reliable before and after measurements to be able to compare each strategy like for like . . . this is why it has taken me so long to put this episode together!
Welcome To My Salon . . .
First of all some basic details about the beauty business we are going to be looking at . . .
This is a beauty salon in a high footfall area – it’s just outside of a large health and fitness club with around 2500 members. There are 4 members of staff, 2 full time and two part time (although the part time workers pick up additional shifts when their is high demand). The salon open 6 days a week and is run fairly well and the staff columns are generally quite busy all the time.
Note: All the figures below are in £’s . . . this is simply because being in the UK they are more familiar to me to work with, but the examples hold true no matter what currency. Don’t worry if this doesn’t match your beauty business exactly . . . this is for illustration purposes only and from the research I did I can assure you that the numbers hold up similarly no matter what the size of the business from solo therapist to a 14 treatment room spa.
If we look at the simplified financial figures for the last year we see that:-
The Turnover for the salon was £180,000 – and just to be clear Turnover is ALL Sales less any discounts and taxes!
The Wage Costs (including commissions) for the salon is £83,000 – this is around 45% of turnover which is actually fairly high)
The Product Costs for the salon (retail and professional) for the year were £18,000
Fixed Costs (rent, water, electric, lighting, insurance etc) were £48,000 for the year – again a little on the high side, but the high footfall area reflects this.
This leaves a Profit for the salon of £31,000 around 17% of Turnover which is respectable . . . but could certainly be better.
In the year we are looking at the salon had 2100 separate customers and over the course of the year gained an additional 250 customers.
If we look at the customer acquisition rate (250 divided by 2100) the acquisition rate is 12% which is a little on the low side.
Over the year they identified that they lost 130 customers which gives a defection rate (or loss rate) of 6% which is actually pretty good.
The average number of times a client visits the salon in the year is 2.2 time which is poor. Some clients visit as much as 14 times in the year and some only come once . . . but the average is 2 and a bit times
The total number of transactions within the year was therefore 2220 (existing customers plus new customers less lost customers) multiplied by 2.2 visits give us 4,884 transactions.
And the average value of each transaction (which you can get by dividing the turnover figure of £180,000 by the number of transactions 4884) is £36.86 which is fairly typical. Again . . . some transactions were for significantly more, some for quite a bit less . . . but the average over all came out to £36.86.
How do these figures stand up against your own?
What Happened Next . . .
So now we know a little bit more about the business we are dealing with, let’s move on to the changes that were made.
As I have said . . . . the following information is based on real world examples, but adjusted (using my long unused maths ‘A’ Level) to fit this particular business size.
Scenario One – Targeting the Acquisition Rate . . .
The first of our five ways to grow was to increase the number of customers and in the first example we will look at an attempt by the salon to bring in more new clients and increase the acquisition rate of new customers.
The salon achieved this by performing more marketing locally in the form of a direct mail drop, leaflets, posters and an advert in the local press.
This resulted in an additional 63 clients and moved the acquisition rate from 12% to 15% so it was successful. However, the cost of all this marketing was considerable so after all the additional marketing costs were considered the additional 63 clients only added £2,603 to the profit meaning an overall increase in profits of just 8% . . . not too bad though.
Scenario Two – Targeting the Defection Rate . . . .
The flip side of increasing the number of customers is to do more to ensure you lose fewer clients.
In scenario two rather than tackle the acquisition rate to bring in new clients, the salon implemented an improved customer care program. The staff spent time calling clients to make sure they were happy with their treatments and answer any skincare or at home beauty questions. They also implemented a bigger and better loyalty program for all existing clients.
The additional time taken to make the clients care calls and the reduction in income due to the changes to the loyalty scheme pushed up the business costs . This meant that when these were taken in to account even though the work reduced the defection rate from 6% to 4% and meant the salon retained 42 clients they might have lost it only added £2,281 to the profit for the salon.
Overall this only changed final profits by 7% . . . still better than before, but not as good as Scenario One.
Scenario Three – Getting Clients in More Often
The second of our 5 ways to grow deals with increasing the frequency of transactions and in the beauty business this means getting your existing clients to visit you more often.
In this scenario the salon implemented a more pro-active scheduling regimen – mainly involving staff suggesting the next booking date to a client before leaving the salon, rather than simply relying on the client to call and book their next treatment. This was also supported by some additional marketing and advertising to existing customers, via email and text message, to let them know about different treatments and special offers.
This worked surprisingly well and improved the average number of visits per client (annually) from 2.2 to 2.6 which seems like a small shift, but with the number of clients the salon already had and the fact that all staff were pretty busy already, this actually meant they needed to take on additional staff to cope with the new demand for treatments.
This scenario added well over £30,000 to turnover which was fantastic . . . but the cost of staff training, marketing and taking on the additional staff meant that it added just £4,260 to the profit which is a very respectable 14% increase . . . not bad at all and certainly the best option so far.
Scenario Four – Increasing the Average Transaction Value
In the next scenario the salon attempted to increase the amount of money each client spends whenever they visit the salon. They already knew that their retail sales figures could have been much better, so they decided to focus largely on this are and they also packaged some popular treatments together as an incentive for clients to have more than just one treatment when they came in.
This was again successful and shifted the average transaction value by around 5% from 36.86 to £38.70.
This added around £9,000 to the turnover of the salon, but this primarily came from improvements to retail spend and with this came increased product purchase costs. Also the staff all went through some specialised retail sales training which cost over £1,800 in total. The affect on profit was reduced to just £2,496 . . . . an 8% increase.
Scenario Five – Raising Treatment Prices
In this scenario the salon opted to increase their treatment prices by an average of 5%. This had the same effect as Scenario Four of increasing the average transaction value from £36.86 to £38.70.
However, in this case there wasn’t the need to increase product purchase costs, in fact the only additional costs involved was to reprint the price lists and update the prices on the website.
After the costs were taken care of this added £8,611 to the final profits of the salon . . . a whopping 28% increase in profits . . . .
. . . . and all just from a 5% price increase!
[Tweet “Did you know a 5% Price Rise could increase your salon profits by 28%! via @salonbizsecrets”]
As you can clearly see from the results . . . a small change to the price of treatments delivers a result far greater than any of the other potential ways to grow your business.
In fact simply increasing your prices can deliver the same results as any three the other scenarios put together.
The other things to notice in this final scenario is that a price change is:-
- the most simple option to implement (just a sit down with the team to run through the prices and a new set of price lists)
- the quickest option to put in place and delivers the fastest results (all the other scenarios required training and/or new systems and procedures plus took time to deliver their results)
. . . so not only does a price increase deliver the biggest result, but is also is the easiest to implement (all things being equal) and the fastest to produce results! And this was just a 5% increase. I often work with clients to establish just how much they are able to raise their prices by and more often the amount is closer to 10%!
I hope you can see that a simple price change is by far the best way to grow your business – and this is why it is always my go to option and the first thing I look at when working with my clients.
But . . . it isn’t always the right thing to do! (More about this later)
The Price is Right! (or is it?)
Throughout April we are going to get deep in to the subject of pricing. It is the next in the series of my Essential Secrets for beauty business owners, one I have wanted to bring to you for some time now and finally I can.
It may not sound as exciting as learning the latest tactics to get more facebook followers, designing the ultimate referral scheme for your clients, designing your treatment room refurbishment layout or how to automate your entire email marketing system . . . all of which might be important for your business.
I am very aware that to a lot of you the idea of reading another article about pricing – wasn’t reading this one enough – and maybe listening to a podcast or two on the subject might sound dangerously like I am inviting you along to an economics lecture . . . but hold on a second.
What if I can add 15 . . . 20 or, as in the example, 28% profit to your business this year?
What if by following along with the articles and podcasts throughout April you could start to see up to 30% more profits in your business every single day by as early as May of this year? (or the end of next month if you are reading this at a later date)
Would that be worth it?
If from reading this article you are anxious to go and raise your prices now or after looking at the worksheet . . . send me an email to email@example.com and the first 50 emails I receive will get something a little special that I will be talking about in the next article and podcast, but if you can’t wait until then, email me and I will personally send it to you as soon as I receive and read your email!
But whatever you do . . . DON’T raise your prices without emailing me first or reading the next article in this series
In the next article in this series we will take a look at just why we – and I include myself here – are all so afraid of prices and particularly raising them!