Navigating the Effects of Discounting on Your Salon Business

Sit down and see what's going on with the queen of salons. Hair, beauty, and more successful tips for business owners. All on Build Your Salon. Hello, hello, hello, my salon gorgeous friend. How on earth are you, darling? I love what you're wearing. So good to see you since last week. Seven days feels like such a long time, doesn't it? And here we are, middle of March, storming towards daylight saving time here in the UK, at least. It's a funny old thing, isn't it? And some people saying we should be getting rid and some people saying we should be hanging on to it for environmental reasons of all things. Anyway, I hope that you are fit and well and healthy and that March is treating your business well. Today I'm going to be talking about discounting. And I know I mentioned discounting in a previous episode and had a couple of bits of interaction, a couple of comments, which is always very nice. And I don't want you to think that I am completely anti-discounting, because that would not be accurate at all, my darling. I am against discounting when it's not part of a strategy. And generally, very generally, the only time I like a discount is if I am swapping that discount for a change in client behaviour. So if we're asking people to come in more frequently, which is something that we tried in the last financial crisis, yes, darling, I'm that old, then I don't mind having a discount in place because that did shift client behaviour, got them in a bit sooner. I don't mind a discount, for example, for lost client marketing. So what we're trying to do there is shift that client behaviour from not coming into the salon into coming in. And I don't mind discounting, let's say, when we've got a brand new service in, which people may not have heard of. What we're trying to do is shift the pattern of spend, shift the behaviour of the client as far as the services they're having are concerned. But there's lots and lots of people that are throwing discounts out willy-nilly all over the place, and they're causing themselves, and in fact the industry, some real problems. So let's start by unpacking exactly what discounting is doing to our businesses. Well, my first point, of course, relies on a little basic understanding of the money that comes into the business. So every pound or dollar or euro that comes into your business is split into three main categories. And I'd mention all those currencies, by the way, darling, because I was looking at the stats this week of where people are listening to my gorgeous little podcast from. And I'd like to say a big hello to our friends down under in Australia, who are in my top three of locations where people listen from,

and also across in America and across in the USA, because I've always thought that it was mainly British people that listen. But actually, if I add up my Australians and my American audience, there are more of you than there are of us. So if I can serve your businesses better, please reach out, phil at buildyoursalon.com. I'd love to hear from you. Tell me a little bit about your business. I'm fascinated by how similar businesses are as we travel around the world. Anyway, let's assume that we have a dollar coming into our business. Some of that dollar is going to go on our fixed costs. This is our rent, our rates, the fixed part of our wages, and so on. So those costs that we have to incur month after month, whether we even open the doors or not a lot of times. Then we have our variable costs. In our business, that's mainly made up of the products that we're using and the commission element of our wages. And then on top of that, if we've done a good job and we've priced things properly, and my goodness, why wouldn't you? Then we should also be making a profit too. Now the thing is, if we discount our service, not all three of those elements are going to suffer, because our fixed costs have to be paid no matter what. Our variable costs don't vary with the amount of money we're making. The variable costs varies with the number of services that we're doing, so they still have to be covered on each service too. The only place that can come from, that discount, the only place that money can come from is our profit margin. So what we're doing is reducing the profit that's generated from each sale. And ultimately, that's going to hit your bottom line. So for example, a 10 or 20% discount will have a disproportionate effect on the profits that that service is generating. And over time, what we're doing is creating cash flow issues. Because if you don't have enough reserves, if you're not having enough full price services to sustain the profits that you need to keep the doors open, well, you're going to hit problems. So we're creating future cash flow problems with discounted sales. And then there's something a bit softer that's going on on top of that as well. It's the effect this is having on the perception of the business. So by lots and lots of discounts, what we're doing is we're creating an expectation in your clients that your products and services are never going to be full priced. They're not valuable. You're not positioning them at that full price level. And I fell into this trap myself way back in the, oh gosh, it would be the early 2000s. I started really analysing the money that was coming into the business. Who was spending what? We had so many discounts and offers and promos going on.

Nobody was paying the same as the next person. Virtually nobody was paying full price. And it makes it really hard to get back to where you're supposed to be. You calculated those prices to cover your fixed costs, cover your variable costs, and deliver the profit that the business needs. If you're continually discounting, again, what's the target that you're going to miss? It's only ever going to be your profit target. But you tell me in your goal setting that that profit target is vital for the future of your business and vital for the kind of lifestyle that you want to lead. So that reduced value, that reduced perception of value over time is seriously harming your business. It also makes it really hard to put your prices up. It's hard enough anyway. And I'm not pretending that price increases are ever going to be fun or easy. And some businesses really struggle and they get a lot of earache from their customers. But once you start offering discounts, it can be really difficult to get those prices back up to their original level, let alone an increased level. So if I'm used to paying, let's say, a third less than your ticket price, and then all of a sudden the ticket price is going to be charged, but also another 15% because we've got increased running costs this year. Well, that's going to be really, really tough for a lot of your clients. So I think it makes it a lot harder when it comes to price increase time as well. Also, if we're offering discounts and expecting people to come in because of what we're charging, what we're doing is we're attracting the wrong kind. We're attracting customers who are only interested in shopping on price, and they may even be looking for the cheapest option. That means that their loyalty tends to be easily bought. And I saw this in my town. So in Newbury, in Berkshire, which is where my salon was, it's a very nice town, but it has a shopping centre, which, to be honest with you, it's past its due. It's ready for demolition and redevelopment, actually, but it still keeps hanging on by its fingernails. And in that shopping centre was a hairdresser's, and they charged £10 for a haircut. Now, compare that to where I think even at the time we were charging sort of £65, £70 a haircut. So it's a very, very low price, and much lower than everybody else in town, in fact, and they were pretty busy. And along came another hairdresser in the same shopping centre, and they charged £9.99, one penny less. And it had a massive impact on that £10 a haircut business because people were shopping on price. They were only interested in going to the cheapest option.

So their loyalty was very easily bought. In fact, their loyalty was bought by one penny. And those customers are much less likely to take upsells, they're much less likely to take extra services. They're certainly going to be tough to retail to if they're shopping on price. And that devaluing of your brand over time, making it appear less exclusive, less high-end, it means your customers are going to start associating your brand with low prices and discounts. Suddenly, we're not going to be a Louis Vuitton anymore. Suddenly, we're going to be an Asda or a Walmart. The other people in the equation, of course, are our wonderful suppliers. And you know I have a love-hate relationship, darling, with our hairdressing and beauty therapy suppliers. On the one hand, they can be the best of our friends. On the other hand, they can be money-grabbing monsters. And actually, if there's any suppliers out there listening, I'd love a chat. I'd love a little interview. Just to try and get to know that side of the business a little bit better. I think it'd be interesting for all of us. Because I think sometimes you do get painted as the monster, don't you? My poor poppet. But suppliers generally don't like you putting lots and lots of discounts in there. They see that as a bit of a lack of respect, I think, for their particular products and the perception of their value and quality. So it can put a bit of a strain on relationships with suppliers. Now, many, of course, won't be aware of what you're doing. And some will think that your business is so small in the greater scheme of things. But as our businesses grow, and particularly if those discounts become longer term, then suppliers do get a little bit miffed too. And I understand where you're coming from. I understand the fear that if we suddenly stop offering these discounts, then the supply of customers is going to dry up. We're not going to be getting new customers through the door. We're not going to be managing to sell to our existing customers. And the business is really going to suffer. And I'm not saying that if you've got a deeply entrenched culture of discounting in your business, I'm not saying that we suddenly stop that overnight. But there are things that we can do to reduce the impact of discounts. So taking a breather in between promotions and making that breather slightly longer and longer, reducing the amount of the discount slowly over time as well. And let's also stop hiding discounts under a different name. And if you're offering some kind of loyalty card, actually what you're offering is a discount club. Don't kid yourself, my dear, that you're doing anything around loyalty at all. All you're doing is offering a discount over time. So we could start to get rid of some of those things without really causing any seismic shifts in the business, I suspect. And you might be questioning whether there's an alternative at all. If everybody's offering discounts all over the place, perhaps you feel that you have to in order to compete. And perhaps you feel that all businesses offer discounts in some way or shape or form.

What would getting paid properly mean to you? A better lifestyle? Less financial worry? Being able to be present and improve your relationships with your loved ones? Maybe even a better night's sleep? I know these are scary times, but if you're continually living paycheck to paycheck, if you can't seem to get ahead financially, I feel your frustration. I have seen your pain. It's time to stop winging it. You know your salon business could be doing more. It's time to finally fix your fear of the figures, take control and charge what you're worth. To step into the shoes of the well-paid, professional, salonpreneur you were always meant to be. And that's what my Get Paid Properly program is all about. I'll help you improve your relationship with money, understand the finances in your business, and I'll show you what you should be charging to the penny. All of that, without overwhelm and without guesswork. For all of the details of Get Paid Properly and to sign up now, head to getpaidproperly.com. And with the exclusive discount code PODCAST, you can get an enormous £200 off your investment in the program as well. Let's work together to make this the year you finally take control of the money in your salon business. Don't all businesses offer discounts? Isn't that just par for the course? Well, no, of course not. And there are some, particularly as we get to the higher end, there are lots of businesses that don't offer discounts at all. Rolex, for example, is known for not offering discounts even on new models. Louis Vuitton, known for never discounting products even in sales events. And even Apple, very, very rarely offering discounts on their products. Occasionally you get a small discount, but certainly no big shakes. The only discounts you see on Apple products tend to be from resellers, from independent resellers. So a discount is not necessarily part of the business. It doesn't have to be part of the business. The other place that I see lots of people offering discounts is to new clients. And actually you can kind of justify that because I said way back at the beginning of this episode, my darling, that you could offer a discount in order for a change in customer behavior.

And if we're trying to coax somebody from one salon into a different salon, you could say that that is a change in customer behavior. Quite a big change in customer behavior, in fact, and that a discount could be in order. And I would accept that point. It's not the way that it has to be, though. And I've always said that there are lots of salons not making any money at all. So looking and seeing that everybody else is offering new client discounts means that you could do exactly the opposite, which is what we do. So in my salon, if you want to come in for a haircut, you come in on the new client package. And the new client package is basically, in fact, we could do a whole episode on the new client package if you want to. But basically it's around training customers to become brilliant customers as quickly as possible. But that new client package is more expensive than your regular haircut. Because I don't want people coming to the salon expecting to pay a reduced amount time after time after time. I want them to feel okay about coming in and spending more than the standard cut and blow dry price. So I would strongly encourage you to have a look at a new client package and bring in customers in on a slightly higher price point. And if that sounds like a useful episode, please feel free, reach out. I'm literally talking into a microphone in a locked room on my own. I need to know what you need help with. So if the new client discount or the new client package rather will be something you could benefit from, reach out, email me, phil at buildyoursalon.com. I would love to hear from you and how I can serve you better. So my final point really is where discounts position us as an industry. Could it be that you offering a discount is actually harming our industry overall? Well, that sounds a bit dramatic, a tad dramatic, and probably you offering a discount on your own is not going to be part of the problem. But of course, lots and lots of people offering discounts is going to affect us as an industry. And really it feeds in, and I've got a future episode coming up about this actually, it feeds in to whether we see hair and beauty as a profession, or do we see it as a trade, or do we perhaps see it as a craft? And if it's a trade, well, generally tradespeople don't offer discounts. If you try and get, I'm only going to say this because I've been dealing with tradespeople recently, and I had a plasterer who came in, it's a very masculine role, isn't it darling? I had a plasterer came in, and basically they have a pricing model where they charge per square metre. And they might offer a bit of a discount if you're doing a second room, so if they're doing a second job on the same site. But it's not really expected that a tradesperson will offer discounts. Generally they don't. If we see, particularly, hairdressing, we love the idea of it being a craft, and we have guilds of craft people.

And the very nature of crafts is that it's something created bespoke, and generally that's not discounted. In fact, we expect to pay a premium for a true craftsperson. Or if we want to see, and particularly beauty therapists love this idea, of seeing our industry more as a profession, because of the years and years of training that we have to put in, and the continual professional development that lots of beauty therapists and hairdressers carry out every year. Well, to be honest with you, how many discounts does your GP offer? Or your dentist? Or your lawyer? There might be an occasional promotion to bring attention to a particular area of their services. So let's say your dentist has a new way of aligning your teeth, then they might, well, offer some kind of promotion way back at the beginning. But I think the only discount I've ever seen in my lawyer's office was when we were writing our wills, and if we had a mirrored will, so basically my will being the same as my husband's, apart from the name, then there was a bit of a discount on that. But you wouldn't haggle with your lawyer, would you? You wouldn't expect a discount on those services. You might well shop on price, you might well ask the prices ahead, but you're not expecting them to discount their prices on a regular basis. Even your taxi driver doesn't offer a discount. So as soon as we discount, we start to erode our professionalism, and we put ourselves on a level with high street retailers and the lower end restaurants. And I don't think that's particularly useful to our industry over time. I think we need to be positioning, in fact, in the opposite direction, at the higher end of everyone's perceptions as far as price and value and quality are concerned. So I hope that's helped you a little bit to understand the true impact of discounting, the true cost of discounting, way beyond the financial. And I hope it's inspired you to be charging as the true, magnificent, glorious salon professional that you were always meant to be, my darling. And I hope you feel that I'm here to support you in that journey. Just seven short days until I'm coming in your ears again. Do enjoy this month. As the clocks change, things really start to wake up for me, and I feel so full of joy and inspiration and growth. Unless, of course, you are listening from Australia, in which case you're heading towards winter. And I don't know quite how a winter feels in Australia. I'm sure one day somebody will invite me over so I can experience for myself. Until we speak again, my darling, please take great care. Sit down and see what's going on with the Queen of Salons.

Hair, beauty and more successful tips for business owners. All on Build Your Salon.