Our world is changing. And are you ready to adapt your salon business model to this new world?
Traditional businesses get obsolete faster than ever before. Taxis are being replaced by Uber. Cinemas are being replaced by Netflix. Retail stores are being replaced by Amazon.
Thank god the salon revenue model will stay the same. Or will it?
What all new industry disruptions have in common is that they come with a new revenue model that replaces the traditional one. And I’m sure you’ve already started to see new revenue models arise also in the salon industry.
To build your salon for the future, it’s more important than ever that you understand your salon’ revenue model. Only then can you start to innovate and identify ways of changing how you operate to improve your salon business.
This is why I in this article want to take you through the details of the hair salon revenue model today. What it looks like for the average hair salon today and what might change in the future.
I’ll use the average hair salon revenue model as example but the same applies to the nail salon revenue model or SPA.
Before we dive into the details, I’ve created a simple infographic for you that captures the essence of the hair salon revenue model looks like today for the average U.S. hair salon.
But we’ll come back to that. Let’s start with some basics.
Based on data extrapolated from the IBISWorld Industry Report
What is a Salon Revenue Model?
A salon revenue model is a framework for how a salon generates revenue. It includes the different sources of revenue that a salon has (e.g. services and retail sales), what value the salon deliver (e.g. hair coloring service), how they price that value (e.g. your color service price), and who in the end pays for it (e.g. the intended salon client target group). It’s a key part of the hair salon’s business model.
Understanding your salon’s revenue model is vital for you to be successful with your salon business and ultimately prepare your salon business for the future.
How do Hair Salons Make Money?
Hair salons primary income stream is service revenue. For the average US hair salon this accounts for about 92% of the income generated. On top of that, a small portion of income is generated from retail sales (8%).
This is the average picture. When you look at the most successful salons they typically have a higher share of retail sales 14-18% as they’ve figured out that this is a profitable addition to the core service salon offer.
However, the salon revenue model remains similar to most hair & nail salon.
The More Salon Income Streams, The Better
Locking yourself into the traditional salon revenue model outlined above will limit the potential of your salon. If done right, you can earn good money from the transactional income from services and selling retail, but why stop there?
In general, the more income streams you can add to your business, the better. Having different types of income, generated by creating value in different ways, for different consumers will not only improve your salon income. It will also limit your salon business risk. If one source of revenue is slow, another can compensate. And so on..
In the future we can expect that salons will move from having 8% of revenue outside services to 30-40%.
But what can be new income streams for your salon business. Let’s learn how this is done in other industries.
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6 Salon Revenue Models Your Salon Should Explore
There are many different types of revenue models and income streams that are commonly adopted in other industries. Not all are relevant for salon businesses but I have summarized the ones most applicable below.
1. The Fee-For-Service Salon Revenue Model
The first model is a model that you as salon owner should be most familiar with as this is the one where the business charges for the service they provide. Which, as we have learnt, is what the traditional salon revenue model is based on.
However, you also know by now that a revenue model consist of more than just the value you create but also to whom you provide the value. You should therefore not discount this as not way for you to innovate with your revenue model. You should ask your self: Can I provide a service to someone else but your traditional salon client? This might open up new options of income stream for you.
For example, let’s say you run a hairdressing business. Can you provide a service to other hairdressers by for example providing hairdresser education? Or could you offer styling services to other businesses that need that service? Like a film production studio or at a beauty retailer.
2. The Salon Subscription Model
This is when you charge a pre-determined fee for a contracted period rather than per transaction. This is a model that is used by newspapers and for cellular service. But it can also be done for salons.
Take the Rouge Make Up Salon for example. They offer their client’s a $250/month subscription service which entitles their clients to drop in at any time for a make up or waxing service.
Models that provide recurring income like this are good as they ensure you have a stable income even in periods which are typically slower in the traditional, transaction based, salon.
3. The Salon Advertising Revenue Model
The advertising model is often used by media companies who charge other business for advertising space in their media channels.
Brands and manufacturers are increasingly looking for experts who can endorse their brands. They also look for the right physical locations to promote rich brand experiences. As a salon owner you can offer both. If you also have a good online presence you can also “sell” advertising space in these channels. In particular if you or your salon has a strong social media following.
4. The Production Revenue Model
The production model is an old model that has been around for centuries. This is when a business creates value by manufacturing and selling finished goods.
The model is already commonly adopted by salons who’ve managed to build a know brand with their salon to later launch their own line of product. This has been considered a higher risk revenue model in the past as you’ve had to invest in R&D to develop your own line of products. Today this is much easier with many 3rd party manufacturers available to offer white label, ready made products, and hence more salons are entering into this space.
Going with a production model doesn’t necessarily have to mean launching physical products. You can also launch digital products – like online trainings or eBooks. The possibilities are endless.
5. The Salon Markup Revenue Model
The markup model is when you buy products from a manufacturer, add your markup to them, and sell them on to the consumer. Also this is a model you’re probably familiar with and most likely something you’re already doing in a salon.
I’m still sure there’s room for you to create more value for your salon here. You can choose to retail additional brand that are complementary to what you already have or you can start selling the brands in a new channel.
6. The Salon E-Commerce Revenue Model
Talking about new channels.. The fastest growing channel right now is e-commerce. You can either see this as a threat taking away retail sales from you. Or you see it as an opportunity for you to grow your salon.
The e-commerce revenue model encompass all of the other revenue models. You’re probably first thinking of using e-commerce with the mark-up model and sell brands online. But there’s much more you can do. With the right salon software you can for example also sell your services online.
Moving from Salon Commodities to Full Salon Service to Salon Experience
We’ve now covered a long list of additional revenue models that are relevant for your salon. But on top of this you can also revisit what you offer in the salon.
As we look to the future, it’s no longer enough to “just” offer a hair cut or a pedicure. These services are increasingly being seen as a commodity and if you go down this path you’ll just enter into a place where all that matters is price.
You need to move from selling a commodity to offer a complete service that deliver on the end value your clients wants. Further, you should look to the complete client experience your salon deliver. All the way from their first experience with you when booking online (see best salon appointment softwares here) to the experience during their appointment.
This goes beyond the service you deliver to the ambience of the salon as well as complementary offerings that increase the value of their appointment. Could your salon be combined with a wine bar? Or could you offer snacks, meditation experience, or other services as part of the salon visit.
When you start looking at what you offer your clients as a complete experience vs. just shorter hair you’re opening up yet another avenue of new potential salon income streams.
How Can I Practically Use This to Grow My Salon Business?
I am glad to see you’ve invested the time to read through this full article. I hope you now feel equipped with the theory behind salon revenue models and that the examples from other industries have already sparked some ideas for how you can find new revenue stream to grow your salon business.
I believe it’s clear that the traditional salon revenue model is about to change. They question is just if you’re ready to take advantage of the new opportunities that comes with it.
Let’s turn this theory into practice.
The best way to get started is to join my free course where I share practical salon marketing and business ideas to help you find a leverage new income streams to your salon.
Talking about income, as you’ve noticed, this (and all) articles here are available for free. I write to help salon owners like you grow your business. Thus, if you found the article helpful, it would mean the world to me if you wanted to share it with your like minded friends using the social buttons available on the page.
When you’ve done that, you can also check out another free resource with concrete examples of how you can find passive income streams in my article 5 Salon Business Ideas That Earn You Income While You Sleep.
If you have any questions or further ideas, drop a comment in the box below.