Why Salons Struggle To Turn A Profit

From high operational costs to intense competition, we want to shed light on the reasons why salons often struggle to turn a profit. Let’s dive into these 5 hot topics: 

1. The high operating costs that salons need to factor in
2. How to navigate through inconsistent times in the salon industry
3. What competition looks like and how to combat it
4. Retaining your staff
5. Evolving client preferences and trends

High Operating Costs:

One of the primary factors contributing to the financial challenges faced by salons is the high operating costs. Renting a suitable location averages a monthly cost of anywhere between $700-$2,500. If you choose to own a location, on top of the building price,  you then need to purchase quality salon equipment such as hydraulic chairs, sinks, mirrors, cabinets, etc.. as well as maintaining a skilled and well-compensated staff. Let’s take a look at a few other things that make it difficult for salons to turn a profit: 

• Utilities. This is a tricky one as it’s based on overall use. Salon owners who have booth renters should be incorporating a portion of this cost into their rent. The average business in 2022 spent $2.10 per square foot on utilities. 
• Insurance. It is extremely important to have insurance not only on your space, but also everything inside of it. Business’ spend, on average, $500-$700 per year on insurance.
• Payment fees. This is one of the most common monthly expenses. Typically, credit card processing fees range from 1.5%-2% per transaction. You may notice some salons only accept debit cards or cash- this is why. 
• Backbar Products: It’s no surprise that the cost of materials have risen dramatically over the past couple of years.. From hair color, to foils and gloves, products have risen a whopping 50% with inflation. Stylists that used to pay $13-$18 for a box of foils are now paying $24-$29!

Inconsistent Cash Flow:

Salons often experience fluctuations in customer demand based on seasonal trends. During peak seasons, such as holiday periods, business may thrive, but it can be challenging to maintain a steady flow of customers throughout the year. This inconsistency in cash flow makes it difficult for salon owners to predict revenue and plan finances effectively.  Here are a few spending tips to keep your cash flow in line during unpredictable times or, Chat with a SalonScale expert!

• Staying up to date with your inventory. If you know exactly what is on your shelves, you won’t accidentally purchase a product you thought you were out of. 
• Cutting down on expenses. Contact your phone or internet provider to look at your discount options. Trust us - these small changes make a BIG difference! 
• Record wasted product. Once you’re done a service, head over to the backbar and reweigh your product. This way, when this client visits you again, you will know exactly how much to measure out, eliminating any waste. Discover 3 ways to reduce waste in your salon
• Spend money on things that will bring a noticeable ROI to your business. For example, furthering education for you as a salon owner with SalonScales free courses.

Intense Competition:

The salon industry is highly competitive, with numerous establishments vying for customers' attention. With new salons emerging and existing ones constantly upgrading their services, attracting and retaining clients can become quite the task.

Clients are seeking personalized experiences and high-quality services. Many salons do this by creating long-lasting relationships with clients by being transparent about what they can expect during their visit to the salon. This begins the moment they walk through the door, to the time they process their final transaction. As a service provider, this is your chance to not only get to know who is in your chair, but also allow them to become familiar with you, your salon, and your services. Be straightforward, have uncomfortable conversations, and ensure you’re on the same page from client expectations to the cost of said service.

After all, transparency is the newest currency to building trust.

Being confident with these tasks requires constant innovation and investment back into your business.

Employee Retention:

Salons heavily rely on skilled stylists to provide exceptional services to clients. However, finding and retaining talented staff members can be a challenge. Many experienced professionals may opt to work as independent contractors or even open their own salons, reducing the available pool of skilled stylists. A high turnover rate affects the quality of services and customer satisfaction, ultimately impacting the salon's profitability.

Evolving Consumer Preferences:

The beauty industry is constantly evolving, and consumer preferences change rapidly. Keeping up with the latest trends, techniques, and product offerings can be financially demanding for salon owners. 

The latest trend we are seeing is:

• Micro menus. What the heck is that?! A micro menu offers smaller services such as a refresh toner, haircut, face-framing or partial highlights. These services require less time in the chair while still leaving the salon feeling satisfied. 

 Failure to adapt and provide innovative services may lead to declining customer interest and loyalty, affecting the salon's revenue stream.

Conclusion:

Running a profitable salon requires strategic planning, careful financial management, and a great understanding of the industry's challenges. From managing high operating costs to dealing with seasonal fluctuations and intense competition, salon owners face an uphill battle in achieving sustainable profitability.

By acknowledging these challenges and implementing effective strategies and technologies, salon owners can navigate these obstacles and pave the way for long-term success in such a demanding industry. Looking for more? Head to our FREE Transparent Backbar Course now!