Are you being CHEAP with your salon marketing?

This is the Build Your Salon podcast with me, Phil Jackson, here to help salon owners master the skills you need to build bigger profits and a fuller life. Hello everyone, Phil Jackson here from Build Your Salon, here to help you master the skills you need to generate the profits you deserve so that you can lead a fuller life. I have a wonderful job. When I'm not writing or filming, I get to speak to salon owners most days and it's my job to identify trends in our industry so that I can make recommendations to salons so that they can either generate bigger profits or they can work a little bit less or reduce their stress levels. And one of the trends that I've been spotting just recently is that I'm afraid I think we're getting a little bit cheap. Not in terms of our products because I think we're, for the most part, using excellent, high-quality professional products in our salons. And not necessarily around our wages, which is a refreshing change this last couple of years. Given where we came from five or ten years ago, I think our industry is now becoming quite a well-paid industry, which is great to see. Finally, earning the money we deserve. But where I think we're getting a little bit cheap is in our marketing and I don't think we're prepared to spend enough on our marketing to get a new customer through the door. I'm also hearing lots of salons writing off whole marketing pillars, saying things like, there's no point in us doing newspaper advertising, we ran an advert once and we only got one customer. Or there's no point in us doing Facebook ads, they don't work for us. Or there's no point in us spending money on flyers, last time we did it, we didn't make enough to pay for the printing. That kind of thing. And I think it reveals some quite fundamental problems in our financial understanding of our businesses. What we're not appreciating is the lifetime value of our customers. And it's actually a lot simpler to figure out than you think. And that's what I'm here to help you with today. So let's take our flyers as an example. Let's say that we are a beauty salon, we want to promote our gel nails to potential new customers. And let's say that we get 500 flyers printed at a cost of $50. We get one new customer, which I think is quite low, by the way. Normally, when I'm looking at a flyer drop, I would expect a return of about 1%. So five new customers from 500 flyers. But for the sake of example, we're going to be pessimistic, and we're going to say that our nice cheap flyers, $50, is going to get us one customer who comes into the salon, she has her gel nails done, and she pays $45 for that service.

Now, most salons at this point would say, it's not worth it. It wasn't worth getting $50 worth of flyers printed to generate $45 worth of income. And you'll be wrong. You'll be wrong on two counts. On the first count, the $45 that she spent is not profit. OK? To get the printing done, we've taken money from our gross profit, and we're going to come to gross profit in just a second, but we're not generating $45 of gross profit. In fact, when you look at what you make after you've taken your deductions for labour, and you've taken your material cost away, it may be you're only making $8 or $9 profit on that $45 service. That wouldn't be unreasonable. But on the second count, and more importantly, what we're not recognising is the lifetime value of our customer. So I've got a little example that I've worked out for you. We'll dive into my computer, and I'll show you exactly what I mean. So let's look a bit closer at our imaginary beauty business. Let's say that over 12 months, our beauty business is going to generate $50,000 in revenue. So total revenue, $50,000. What we're going to do is take away our total costs, so our material costs and our labour costs. So the cost of producing that $50,000 in turnover. And let's say that our total costs were $38,000. What that leaves us is a gross profit of $12,000. Now we're interested in gross profits, because what we're trying to calculate is how much an extra customer is worth to us. So we're not too worried about our fixed costs and overheads at the moment. What we're looking for is how much extra contribution will one customer make. Now let's say we have 200 customers. We have our 200 customers that are generating that $50,000 in revenue. What that means is that each customer is worth $60 in extra gross profit. So what we've done is taken $50 of gross profit, spent it on printing, and turned that into $60 on lifetime value of our customer.

So it was a worthwhile exercise after all. And now that we know it was a worthwhile exercise, we can optimise so we get better results, maybe aiming for that 1% return. So we're getting five new customers for our $50. So it was absolutely worthwhile doing that exercise in our salon. Now, what that means is, I bet you if you identify your niche in your industry, in your geographic area, there will not be another salon that is willing to spend $60 to get a new customer through their door. It means that you can afford to advertise in places that no one else will touch. It means that you can spend more on your marketing materials than all of your competitors. Can you imagine the impression you can leave in your potential customers mind if you're willing to spend twice as much, four times as much, 10 times as much as your competitors to get her through the door? The generosity that you can build into new client packages, the ways you can reward your customers on their first visit, will be so much higher than anything anyone else is doing in your area. Now, I'm not suggesting for one second that you immediately go out there and spend a fortune on Facebook ads and a fortune on print advertising and getting loads and loads of adverts placed in your local papers. If you haven't seen my blog already on tracking the success of your marketing efforts, you need to go back and I'll link to that below. But what I am suggesting is that you figure out your lifetime value of your customer so that you can figure out exactly what you can afford to spend on getting an extra customer through the door. I think you'll be pleasantly surprised and I think it will give you the confidence to spend more on decent quality marketing for your business. I hope that's been useful to you. I'll see you next week. Hey everyone, it's Phil. Did you like the episode? Be sure to subscribe and tell your friends. For more help in getting more from your salon and your life, head over to buildyoursalon.uk. Enter your name and email for our newsletter list. In the meantime, keep on building!