The recent rise in VAT has added pressure on many beauty salons to raise the prices of their treatments. We’ve had to do it in both our salons and it wasn’t just to cover the 2.5% rise either. The salon we bought last year already had a treatment and price list in place and we didn’t want to change anything too quickly. But, as soon as we had the data, we realised that we were actually losing out on a lot of money, especially as the prices hadn’t been raised in nearly four years.
So, how do you decide how much to charge for beauty treatments?
For me, there are three key factors for pricing beauty treatments.
Firstly, your competition is a benchmark.
By collecting price lists from competing beauty salons, you can see what other people are charing for similar services. But, only chose the salons that are similar to yours. For instance, our salon is not competing with mobile beauty therapists or spas, we are competing against similar high street salons. Don’t sell yourself short though – you don’t have to be the cheapest.
This brings into play your customers.
How much would your clients pay for your beauty treatments? I’m not suggesting you charge the most you possibly can, but the value of what you offer versus how much you charge is a fine balance. For instance, if your salon is based in a less affluent area, you need to take this into consideration, compared [say]to a similar salon less than five miles away that may be based in an area where there is more money. You also need to balance your decisions against WHY people come to your salon. It may not be price sensitive. If your customer experience is awesome, people will pay a premium.
Finally, there is profit.
Profit is an essential part of running a business and your customers shouldn’t begrudge you this necessity. Without it, you don’t have a business. During 2010, I analysed some key aspects of treatment costs at the salon to understand how much a room costs per hour and how much a therapist costs. Ultimately, it averaged out at around £12 per hour – and that would be at 100% capacity. At 75% capacity, which is the minimum I would expect from a therapist, this goes up to £16 per hour (£12 * 75%). So, with my costs alone (adding on 20% VAT) I need to be charging at least £19.20 per hour, just to cover my costs at 75% bookings.
Using our computer booking system, I also analysed every treatment to see how much money we took per hour for each one.
What we ended up discovering was that some treatments – the lowest being charged at £20 per hour – actually lost us money when we took into consideration the high cost of the products involved.
Ultimately, I ended up with an target hourly charge that we wanted to charge in the salon (adding in the VAT) of around £32 per hour. That was the aim when updating the salon price list.
Putting these three parts of the puzzle together, it became a lot clearer not only as to what to charge, but also how to charge. What is the point of competing at a low price for a treatment if you lose money? You’ll end up being a busy fool.
Softening The Blow To Clients
Although most clients can appreciate why prices go up, some can become quite animated and take it personally. It is essential to brief your staff on why prices have gone up and give them some suggested reasons why, so they can explain to clients with an appropriate response. Management of this transition is essential for the business.
Our therapists were briefed to explain that costs have risen, VAT has risen, and that we are still competitively priced. For loyal customers, we also pointed them to the savings they make with the salon loyalty scheme that was recently introduced, so we are rewarding the regular customers.
Getting your prices right is an essential part of running your beauty salon efficiently and profitably – you deserve it. Some people suggest that retailers in general try to get away with charging as much as they can. To some respect that view is right, but it’s called market forces.
That’s why you get premium brands and value brands. You aren’t just paying for the product, you are paying for the stuff that goes with it. So, if anything – as a beauty salon – you can justify higher prices with your customer experience. For most people that is much more of a reason as to why they keep coming back.