The hair salon industry is on the rise.
We hear how more and more people are spending more and more money on beauty salon services. It must be the best time ever to run a hair salon business.
But are hair salons profitable? And what is the beauty salon margins today?
I decided to find out.
Is owning a hair salon profitable? The average salon makes $19,100 in profit every year. The average salon profit margin is 8.2% which is above the general business average of 7.7% and is improving year on year. Salon profit margin ranges from 2% to 17% depending on how well the salon is managed.
In this article, I’ll explain the concepts of salon revenue and profit and how you can influence it.
However, if you’re looking for ideas to salon business growth, I’d recommend you go through my list of salon marketing ideas you can implement today as well as my list of recommended tools to grow your salon business.
What is the Average Hair Salon Revenue?
The average hair salon revenue is $245,000. The total annual salon revenue in the US is $63 billion which is spread out across the 257,000 salon and barbershops.
Salon revenue is the total amount of sales made by the salon. This includes both sales incurred from salon services as well as retail products.
You cannot run a profitable salon without good top line revenue (i.e. sales). Improving sales in your salon should always be your first objective when trying to improve your profit as this is how you build a long term, healthy, and sustainable business.
This does not mean you should only focus on selling more services and products, there are other ways that you can improve your salon profitability. Let’s look at what those are.
What is the Profit Margin in a Salon Business?
The average profit margin of a salon is 8.2% which enables the average salon to generate about $19,100 in annual profit.
The profit margin is the amount of money you have left after you deduct all the costs you have on your business. Let’s say your salon is generating $100’000 in sales every year and you have a profit margin of 10%. This would mean you are spending $90’000 (i.e. 90% of your revenue) every year on paying salaries, rent, cost for products, insurances, marketing, education etc.
How Can You Improve Your Salon’s Profit Margin?
You can improve your salon’s profit margin in more ways than just selling more products and services. You can increase your prices, sell more of your expensive products/services or reduce your costs. Let’s go into detail on these three levers to growing your salon profit.
Do You Have The Right Salon Service Pricing?
You can improve your salon profit by by increasing the prices of your service. Assuming your have your costs covered already within your service price, every $ you increase your service price will then go straight to your profit. Thus, it is important you spend sufficient time to really understanding what you can charge for your services without starting to lose clients.
In my experience, many stylists are a bit too shy when it comes to increasing prices. It’s often not rational thoughts that are keeping salon’s from increasing their prices but often irrational ideas that they do not think they can justify a higher price or that they worry about telling their loyal clients that the price is now higher. So many salon managers are unfortunately leaving money on the table by simply not believing in them self.
This does not mean you should go crazy here and take your prices up through the roof but you should certainly investigate if your prices are providing you sufficient margin for a healthy business (often referred to us cost based pricing). You should also look at what your prices are vs. similar competing salons in your area or by testing new prices to see if clients are ready to pay the higher price (this is referred to as market based pricing).
Ultimately your market based pricing should be what guides the final price you set but you want to include a cost based assessment as well. As a salon manager, in the end what you are charging for is your time. So a good way of assessing cost is to take take the price you charge for each service and divide it by the time it takes to complete the service. This will give you a ratio that you can use to benchmark your services against each other to understand if you indeed have a too low (or maybe too high) price for a service.
Let’s say you charge $40 for a haircut and that a hair cut service takes 30 minutes.
If you charge $100 for a color service, with a color tube cost of $10, that takes 60 minutes, your cost ratio would be:
(100-10)/60 = 90/60 = 1.5
This example would tell you that you earn more profit from your color services than hair cutting service.
How Many Expensive Products/Services do You Sell vs. Low Cost Product/Services?
When you have visibility on the profitability of all your services, you can improve your overall profitability by simply promoting and focusing more on driving the higher profit offering.
As you do this, you should also consider your salon retail. Selling salon retail is a very good way of driving high profit purchase fast and that comes on top of the money you incur with your salon services.
What is the Average Margin for Salon Retail?
The average margin for professional salon products is 50%. If you sell a high amount of retail, you can also negotiate even better terms with your supplier.
This is high compared to salon services as that the time it takes you to sell retail is only a couple of minutes (compared to a salon service which take 30-90 minutes).
However, the margin % on retail is not what’s most important. You should also consider the absolute cash you make on each product. Some products might have a lower % profit margin but if it is an expensive product, you’ll earn more absolute profit per product sold. It’s therefor a good idea to also have a mix of more expensive items in your assortment. For example, if you run a hair salon, you could retail high value styling equipment (like the salon equipment I recommend here) and make much more profit than on your care and styling.
What Should be your Salon Retail Sales Percentage?
The average percent of salon retail is 12% but high profit salons typically have 15%-20% of their sales coming from retail. There are also salons who have up to 30%-40% of their sales coming from retail who then enjoy a very high overall salon profit margin.
Clearly, if you’re not yet sure about your retail strategy, this can be a big opportunity for you.
Do You Have Your Salon Costs Under Control?
Running your salon business comes with high fixed and variable costs. Fixed costs are those that will be the same every month independent on how many clients your have (e.g. location rent). Variable costs are costs that go up when your sales go up and down when your salons go down (e.g. product costs).
As a general principle, you want to keep your fixed costs low and rather have higher variable costs. The benefit of this is that you are exposed to less risk if you have a bad month in the salon as cost also go down when sales go down.
A big part of your cost is staff salary. On average, salon staff is about 48-55% of salon sales. On top of that, you have your rent, products, equipment, insurances, education, and marketing. These are all important expenses for a successful salon but you need to make sure you have good visibility on how much they are and you should regularly review your costs to understand if they are changing or if you have lower cost options available to you now.
Get Your Salon Revenue Model Under Control
To get you salon revenue model under control I strongly suggest you invest in a good salon software. A good salon software solution should help you with tracking the measures we’ve looked at above. If you don’t have a good salon software today, I suggest you try out the salon software I recommend.
You can also learn more about the salon revenue model in my article: 7 Ultimate Ways to Grow Your Salon Business.
How Much do Hair Salon Owners Make?
Hair Salon Owners make $75,000 per year on average. Reported Hair Salon Owner salary ranges from $14,500 to $385,00 per year but most hair salon owners fall into the $70,000 to $175,000 annual salary range. The Salon Owner’s salary depends on location and how well managed the salon is.
How Much Does it Cost to Start a Hair Salon?
The average cost for starting your own salon is $62,000 but it can vary from $2,000-$500,000 depending on the model you chose for your salon business.
For more details on how you can calculate the cost for starting your ideal salon, read my article on salon start-up costs.
I hope you found this article helpful. I would love to learn from you. What are you doing to improve your salon profit? Add your comment below.