Surging Salon Profits: The simple strategy to inspire your growth game

Today is all about the money, honey. Whether you're making a loss, or whether you want to boost your salon profits, this episode is for you. 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 lovelies. How on earth are you? Achingly well, I hope. Your Uncle Phil here, your queen of salons, here with a bit of wise old owl wisdom as far as profit margin in your salons concerned. How is September treating you? I really like September. September for me always feels a bit like New Year's. It always feels like we can finally knuckle down and get some proper work done after fudging around for the whole of the summer. And I'm seeing some really good results as far as people's salons are concerned as well, you little minxes out there making some money. So how about we have an episode on maximizing your profits? Now, of course, we have to start this because it's 2023 and everyone's an arsehole. We have to start by saying this is not financial advice and you should always go to a qualified, indemnified professional before you make changes in your business. Not take some old puffs advice free on YouTube or in a podcast. But assuming you are here to listen and take that on board with, you know, that little disclaimer ahead of it, then I'm here to help you. The second thing I want to talk about, though, before we jump into profits is utilisation, because if you're not fully utilised, we don't need to worry too much about maximising your profits at the moment. What we need to worry about more is actually getting you busier. And that's a marketing question. So use that and use another episode. Jump in, see what I've spoken about as far as marketing is concerned. So I'm assuming that your utilisation is OK, that you're running at, I would aim for about 85 to 90 per cent utilised, 95 per cent is getting towards the top end of utilisation. Yes, I know you're a salon owner and I know you want to be 100 per cent utilised all the time and all of your team absolutely running themselves ragged. But if you get to 100 per cent utilisation, there's no elasticity left. There's no give in the business. So all it takes is one or two people to turn up late or someone to go on maternity leave a week earlier than you were expecting or someone to have some unexpected sickness and the wheels fall off the business because there's no give.

There's no capacity left. So about 85 to 90 per cent, I find, is the sweet spot. So if we utilised, if you're busy but you want to grow your profit margin, what do we do? Well, the first thing I'm assuming, of course, is that you know what your profit margin is. And that's a big assumption, given my experience of dealing with hair salon and beauty salon and aesthetic salon owners over the years, is that sometimes we have our heads in the sand a little bit. Does that sound like you, darling? Sometimes we don't actually know what our profit margin is in order to maximise it. And I would say that there's probably five big numbers that you need to have a really strong grip on and your profit margin is definitely one of them. So where do we find it? Well, you could ask your accountant and that would probably be my suggestion. But make sure your accountant's working with up-to-date figures. Don't just take your profit margin from last year's accounts. This is the problem with accounts, is that they're always looking back. And sometimes they're looking back quite a long way because of the way that accounts are submitted, particularly here in the UK. You hit your financial year end, but you have a huge amount of time then to submit your accounts. And then the April after that or the January after that is when you pay your tax bill. So sometimes we're looking at stuff that's, you know, 8, 10, 12, 15 months out of date when we're looking at last year's accounts. So let's stop doing that. If you're going to ask your accountant for your profit margin, we need to make sure they're using up-to-date figures as far as your turnover is concerned and your expenses as well. And everybody always then says, well, what should my profit margin be? Go on, I can hear you asking. Uncle Phil, what should my profit margin be? Well, it depends. It depends a lot on the size of your business, the structure of your business. Hair salons and beauty salons tend to have a slightly different profit margin. But as a finger in the wind, a bit of free advice, and we all know what that's worth. But I would say if your profit margin is about 20%, you're doing okay. In fact, you're probably doing better than most, I would say. So around 15% to 20%, you're doing all right. Less than that, there's some work to do. When we get to 20%, it gets harder and harder to increase that percentage in our industry. And mainly that's because we're so labour intensive. Anyway, assuming you know what your profit margin is, assuming you know where to get that figure, assuming you're updating that figure, don't worry about doing it every month, darling. But I'd say probably once a quarter or definitely at least twice a year, you want to know what your profit margin is. Assuming that it's somewhere in the 15% to 20% mark, but you want more, what can we do?

How do we see improvements in our profit margin? Well, if your utilisation is where it ought to be, there's really only two places that we can increase our profit margin. One is by putting more money in the till. And the second is by reducing our costs. So there's only really two things that we can do. Now, we can't put more money in the till by putting more bums on seats, because you've already said that your utilisation is where it ought to be. So there's not much more capacity to get more bums in seats. How do we put more money in the till with the same number of customers? Duh, get your prices up. And I know I've talked lots and lots and lots about increasing prices, and I make zero apologies for it, my loves, because we're still undercharging. As an industry, in most salons that I go into, we could be charging a lot more. And my final piece of advice on pricing before I've absolutely beaten you to death on it is always that unless you are the cheapest in town, unless you're the cheapest in your region, they're not coming to you for your prices anyway. They're coming to you for the value that you add. And that means there's a bit more elasticity in your pricing model than maybe you think. They're not coming to you for your prices. You can definitely increase them a little bit. If they're willing to pay $100 for a service, I don't think $105 is going to be a big problem. If they're coming to you for a colour correction service at $300, they will probably pay $325. Yeah? So let's see about getting our prices up. Now, if we've got, let's say, our 20% profit margin, if we can increase our prices, I'm not even saying by 10%, 20%, 50%, just 5% on our turnover would make a huge difference, assuming we can keep our costs at the same or lower. Okay? So we can go from 20% profit margin to 25% profit margin. If we can keep our costs the same and just increase our prices by 5%, then we've added 5% to our profits. And then the other side of the coin is cost reduction. Now, for a lot of years, yeah, it's funny how things change over the years, isn't it? But for a lot of years, I was saying to people, don't worry too much about cost reduction. Just price it in. Just price it in. And there's a bit of me that still believes that. There's a bit of me that does not believe it is a great use of your time to spend four days shopping around,

trying to save yourself 0.1% on your credit card transactions. Okay? I don't think cost and benefit wise, I don't think it's worth spending days and days and days trying to squeeze every tiny little bit out of every cost that's on your balance sheet. That said, when things are up for renewal, spend a bit of time shopping around. So as you come to the end of your phone contract, as you come to the end of your credit card contract, as you come to the end of your lease, maybe there is a little bit of room for negotiation. And I don't think we should be aiming to cut our costs in half, though, if your business is that flabby, then perhaps you ought to. But let's say that we can get our costs down by just 5%. Can you see what we've done there? If we were operating at a 20% profit margin, we get our prices up by 5%, so increase our turnover by 5%, and reduce our costs by 5%, which I don't think feel like massive chores. I don't think they feel like extraordinary tasks that can't be managed. But what we've done is increased our profit margin to 30%. And I know this is a blunt instrument. I know I'm talking about very round figures for the sake of illustration. I know it's not as easy as that. Because if we, by definition, for a lot of us that are paying commission, if we increase our turnover, then our commission costs go up straight away. I get that. But if we went from 20% to 30% profit margin, basically you've added 50% profit to your profit margin. I mean, that's an extraordinary result for most businesses. So those very small tweaks as we're going through that business journey can actually make a huge difference. So raise your prices, and I think we should be doing that anyway. My personal advice at the moment is we should be reviewing prices at least a couple of times a year. And my God, don't we ever make a big deal out of raising prices in our industry. Honestly, it turns into this exercise that takes weeks and weeks and weeks and weeks, and it's completely unnecessary. We could be changing your prices like that. Literally, all I have to do is jump into your salon software system and change that one to a six. And I've put $5 or five pounds or five euros on the price of that service. It doesn't affect the bookings that you've got most of the time. And people will see those new prices as they're booking online. So we don't even have to worry about changing our price cards. And if you're still doing printed price cards, my darling, I would knock that idea on the head straight away. And as far as reducing those costs,

just as things come up, let's just see about getting a little bit more bang for our buck each time. So I hope that's been helpful to you. I hope that's inspired you. If you're getting any success with that, let me know. Let me know how your price increase went. Let me know what costs you've managed to drive down in your business. And I'm doing this in my business too. Don't think that just because I'm this salon guru, sat on a cloud atop a mountain, handing down wisdom, that these things don't apply. Of course, that's not me at all, darlings. But, you know, I'm doing the same. I'm going through my stack of software. This is my biggest problem is I keep signing up for bloody subscriptions on software and thinking, oh, it's only $20. It's only $50. It won't matter. And then before you know it, you're spending thousands a month on software. And half of the stuff, I can't even remember what it does. So I've been reducing my software stack this month and actually made some pretty decent gains as far as profitability is concerned. So if you've managed to cut some costs, let me know. Phil at buildyoursalon.com. I love hearing from my salon owner friends. While you're at it, don't forget to follow or subscribe depending on what platform you're on. While you're at it, do me a favour and give me a little review. It's a while since I've had some five-star reviews. I always think five stars look the most balanced on the screen. So please let the world know what a glorious, wonderful resource it is that I'm trying to put together. I'd be eternally grateful or at least grateful for a week or two. Just seven short days until I'm coming in your eyes and ears again. And until then, take 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.