Are you pitching the correct price for your services and retail products in the current market? Find out if you need to rethink your salon pricing strategy by following Liz McKeon's advice...
Setting the right price for your salon services and retail products can be a challenge and it is something that many businesses struggle with. If you set the price too high clients will stop coming to you, but if you set it too low you won’t have a profit margin, or clients could assume your services are poor quality. An 'optimum price' considers all of your costs and maximises your margins while remaining an attractive option to your clients. To reach your optimum price you need to consider manufacturing costs, the market place, your competition, the condition of the current market, the brands you stock and the quality of your products. A well-chosen price list should achieve the financial goals of your business (profitability), fit the realities of the market (will your clients buy at that price?) and support your salon brand's position in the market. To set your prices there are few things to consider...
Step 1: Know the Market
Find out how much clients will pay as well as how much your competitors are charging. Consider matching or beating their pricing. However, never just price match as you need to be sure all of your running costs and overheads (both indirect and direct) are covered. Invest time and energy into adequate market research to know and understand your market.
Step 2: Know Your Costs
List every single expenditure it takes to open your doors and keep your business running. Add all of these costs together and divide by the volume of services required to produce a daily and weekly breakeven figure. If necessary, ask your accountant to assist you as it is critical to know your numbers.
Step 3: Consider Cost Plus Pricing
Add a margin or mark-up to your breakeven point. This is usually expressed as a percentage of breakeven. If the price looks too high, trim your costs and reduce your pricing accordingly. You should include the value of your time in your pricing structure – your time is valuable, so you need to include it when calculating your prices.
Step 4: Consider Your Salon’s Market Position
Service positioning is the unique identity of a service in a competitive market. A valuable position serves client needs and stands out from the crowd in a way that has meaning to clients, which means you can charge more. Clients are not always looking for the lowest prices, particularly if they know they are purchasing exclusivity, or if your salon is located in a high-end or convenient location. Consider all of the factors that are involved in pricing. For example, how will charging VAT impact on your pricing? Can you keep margins modest on some services to achieve higher margins on other services? Finally, prices seldom stay fixed for long. Running costs, clients and competitors can change so don’t forget that you will have to change your pricing regularly to keep up with market trends.
Essential Tips for Getting the Price Right
- Increase your prices gradually – have a strategic price increase plan for the next two to five years and implement this slowly.
- Train your team to communicate price increases so they are comfortable answering a client’s queries or objections.
- Consider tiered pricing as this will mean your salon will meet the needs of different types of client.
- Maintain strong controls on discounting and special offers.
Liz McKeon is a business coach who specialises in the hair industry. For details about business seminars and industry workshops go to her website.