One of the most common questions asked by anyone running a salon business is “When is the right time to raise prices?”
Jill Higginbotham, Eufora Business Trainer and Co-Owner of J Michael's Salon and Spa in Louisville, Kentucky, will tell you that the short answer is yesterday! The challenge is that often in the beauty industry personal relationships are formed with guests, so price increases are scary for a number of reasons. Not only could a valued guest be lost, but the fear of damaging a caring relationship is very real to most stylists. Higginbothan looks beyond the fear and advises, “Really digging into the business sense used to determine when and how to raise prices makes it easy to debunk the negative thoughts that often keep us from doing so.”
Just consider a typical annual inflation rate of 1-3%, which all on its own tells us the cost of goods and services are increasing. This year, however, the US is experiencing an inflation rate approaching 10%, and it is hard not to notice the price of day-to-day products and services increasing exponentially as a result. Why should salon prices be the exception? Salon supplies are certainly not immune to price increases, and you don’t need to be a financial expert to figure out that supply price increases impact profit in a negative way!
Higginbotham points out what may seem obvious, “If a salon has not raised prices this year, there is money being lost every day, and potentially a lot of i.,"
She offers three straightforward steps for a routine price analysis:
- Evaluate prices versus costs annually or semi-annually to avoid getting “upside down” in profitability. It is a fact that the cost of goods increases year after year which automatically decreases profits in the salon. Set a regular time each year to evaluate your costs. (Higginbotham recommends doing this in the fall because December is a good time to increase prices.) Always remember that salons are not unique. In fact, many companies give a “cost of living'' raise each year, and price increase is one way a salon owner can do the same for a salon team.
- Look at price increases in percentages, not dollars. It may seem like a lot of math, but the formula approach is worth it. For example, if you believe inflation to be approximately 10%, then a starting formula would be to increase your prices by that same 10%. (ex: A $100 service would then become $110.
- Don’t be afraid to announce a price increase to guests. Salons have a more personal relationship with guests than corporate giants like Starbucks and McDonalds, who often raise prices without a whisper, so giving salon guests some advance notice is often an expected courtesy. It can be as simple as posting a nicely designed sign, and then discussing with the team how to address any questions regarding the price increase. This ensures all guests receive one consistent, courteous and well-rehearsed message!
When the formula tells you that it’s time to raise prices, but you are still afraid, Higginbotham says to remember that guest relationships are first and foremost a business relationship. Some things to think about:
- You are not in charge of your guest’s bank account, so don’t think you are spending their money. Their money is theirs to spend, and only they should worry about what they can and cannot afford.
- Yes, you may lose a guest or two, but by increasing your prices you make room for other guests willing to pay more, and ultimately you could be doing fewer guests, but making more money!
- Don’t feel like price increases are only for the greedy! Although most beauty professionals love what they do, and often attach a deep intrinsic value to their profession, it is important to remember that business comes first…. Salon revenue is how bills get paid and lives are lived to the fullest!
- Don’t try to absorb costs by cutting commissions instead of raising prices. This can create an undercurrent of distrust among team members, and can ultimately contribute to employee turnover.
Lastly, when implementing a price increase remember to engage your entire salon team if you want to ensure success. This is a great opportunity to coach team members in both professional and personal growth. Help them understand the value of their skills and the importance of smart business strategies. Your savvy leadership and open communication style will help create a win-win situation for all.
About Eufora: In a category that’s crowded with rampant brand over-promising, the Eufora voice stands out as honest, real and personal. It takes its cues from the vision of company founders, Don and Beth Bewley, who, in 1997, started a hair care company built on a foundation of passion, integrity and caring for the professional salon world. Today Eufora is recognized globally for a vision that extends beyond the innovation of people and planet friendly products, delivering on a promise to provide incomparable leadership programs and technical training to nurture and grow the next generation of salon professionals. For more information visit http://www.eufora.net/.
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