How to calculate what to charge by the hour:

 

Step 1: Operating Cost -

1. Calculate what you spend on the following business expenses in a YEAR.

2. Recurring Expenses: These are the expenses you will need to pay either monthly or annually.

   1. Rent

   2. Licenses

   3. Permits

   4. Your Salary

   5. Employee Wages

   6. Taxes (self-employment, employee, tax collected from retail, etc.)

   7. Technology (booking software, accounting software, etc.)

   8. Subscriptions (trade groups, magazines, podcasts, music, (etc.)

   9. Memberships (trade groups, associations, Chamber of Commerce, etc.)

   10. Insurance (liability, health, half auto, etc.) MILEAGE

   11. Credit Card Processing Fees

   12. Marketing (Facebook ads, promotional materials, business cards, etc.)

3. Occasional Expenses: These are one-offs or unexpected expenses that happen sporadically.  Equipment (chair, stool, station, fatigue mat, trolly, etc.)

   1. Tools (shears, curling irons, clippers, trimmers, etc.)

   2. Supplies (towels, brushes, tint bowls, bobby pins, cleaning products, neck strips, capes, refreshments, back bar, color, developer, perms, relaxers, extensions, perm rods, wrapping papers, razor blades, etc.)

   3. Professional Services (shear sharpening, lawyer fees, accountant fees, website designer, etc.)

   4. Savings (it is a good idea to always have at least a couple hundred dollars saved back for unexpected expenses.)

   5. Education/Classes/Certifications

   6. Retail Stock

4. Divide your grand total by 12, this equals your monthly operating costs.

   1. (Recurring Expenses + Occasional Expenses) / 12 = Operating Costs​

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Step 2: Available Time

1. Add up all the hours you are available to work for the month.

   1. For this example, we are going to assume you schedule your availability for 40 hours per week.

      1. If you open your schedule up for 40 hours a week to take appointments, it will be:

         1. 40 * 4.33 = Available Time

      2. Exclude some time for redos

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Step 4: Break-Even Point

1. Divide your OPERATING COSTS by your AVAILABLE TIME, this is how much you have to generate in order to break-even.

   1. Operating Cost / Available Time = Break-Even Point​

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Step 5: Profit

1. Multiply the BREAK-EVEN POINT by 2, this is your HOURLY RATE.

   1. Break-Even Point * 2 = Hourly Rate​

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How to calculate the price per service:

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Step 1: Service Time

1. List all of the services you offer and estimate how long it takes you to complete each service. Multiply these times by your HOURLY RATE (from above). ​

   1. Service 1 * Hourly Rate = Service Time 1​

   2. Service 2 * Hourly Rate = Service Time 2

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Step 2: Cost of Service

1. List the supplies used to complete the service.

   1. Examples of things you will need to calculate:

      1. How much does one ounce of color with developer cost you? 

      2. How many ounces of color are included in an allover color?

      3. How much does one ounce of lightener cost you?

      4. How many ounces of lightener is included in a balayage?

      5. How much does it cost you to add Olaplex to color?

      6. How many foils do you use on average on an all-over foil? How much does each foil cost?

2. Take the cost it takes to perform each service & multiply it by the industry average markup on supplies which is around 35%.

   1. Supply Cost * Markup Percentage = Cost of Service​

      1. Example: $8 tube of Color * 1.35 = $10.80​

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Step 3: Service Price

1. Add SERVICE TIME to COST OF SERVICE.

   1. Service Time + Cost of Service = Service Price​

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How to raise prices:

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Step 1: Current Operating Cost

1. Recalculate your RECURRING & OCCASIONAL EXPENSES for the MONTH.

   1. (Recurring Expenses + Occasional Expenses) / 12 = Operating Costs​​

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Step 2: Available Time

1. Recalculate the hours you are available for appointments.

   1. 40 * 4.33 = Available Time​

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Step 3: Break-Even Point

1. Divide your OPERATING COSTS by your AVAILABLE TIME, this is how much you have to generate in order to break-even.

   1. Operating Cost / Available Time = Break-Even Point​

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Step 4: Profit

1. Multiply the BREAK EVEN POINT by 2, this is your HOURLY RATE.

   1. Break-Even Point * 2 = Hourly Rate​​

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Step 5: New Price

1. Multiply HOURLY RATE by 10-15%

   1. Hourly Rate * 10-15% = New Price​

      1. Example: $7.25 * 1.10 = $8.00​

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Tips for Salon Pricing:

 

1. Pulling numbers out of thin air for pricing makes it pretty much impossible to know if you are making money or not. There is a methodology to setting salon prices. Guessing will almost guarantee you will not make money.

2. Use a salon pricing template to stick with a pattern when setting prices. A realistic price means that you are aware of your salon’s direction, the expenses you face, the resources you have, and the financial goals you want to reach. Don’t set prices the same as your competition because that won’t encourage clients to choose yours over others. Come up with your realistic pricing structure. 

3. Do NOT run to Facebook and post “How much should I charge for this.” These people do not know your circumstances; you should not be trusting your finances to some random stranger scrolling through Facebook. Most stylist & salon owners don’t even have their prices right.

4. Do your research. You need to look into how the general market is performing for your geographic area. Every part of the nation faces inflation at some point, so try to keep up with the latest news in terms of the economy. During inflation, the costs of the products you need to run your services may rise, which means you need to adjust the prices, too. 

5. Sometimes, your services’ cost must focus on how much time and effort is involved in it. Your time is the most valuable resource you possess, and you don’t want to invest it all in your business. Your hair salon pricing list must include the effort you put in as well.

6. Pricing low is not a mistake, as long as you do it the smart way. When you are new in the beauty industry or just moved into a new geographic location, you can opt for this strategy to gain a reputation. Penetrating the market with a low pricing list is a common strategy used in other industries besides ours, but it might have repercussions in the long run. For example, once clients are accustomed to your salon’s low prices, when you are going to raise them to the point they are profitable, you will have lost part of your clients, but by this time, you should have established a reputation and now have room for new clients who won’t bat an eye at your prices.

7. Don’t listen to people who say, “never discount.” They don’t know your situation or where your heart is in this game. Discounts, used properly, can increase your clientele.  If you feel like offering a discount to those in the military, go for it, but you have to make sure you can afford to offer a discount. Are your prices covering your operational costs? If not, use discounts sparingly. Offer a discount to get someone in your door, but kill them on the service to keep them coming back. Always rebook before your client leaves!

8. Try to please your clients to create loyalty, and your salon’s profits will be maximized shortly.

9. Offering promotions is a great way to advertise your salon business. Promotions are special offers in your pricing scheme. For instance, if a client buys a shampoo/conditioner liter duo, they get a free haircut with their color. This way, you promote what you have to offer (service & retail) without an additional budget dedicated to it. 

10. Timing is key. Since your workload is not adequately distributed throughout the week due to being busier on weekends and evenings than in the middle of a weekday,  you might want to add promotions during the off-peak time, so customers are encouraged to come, even when you aren’t usually booked.

11. Besides prices for basic haircuts, you might want to think about complementary services as well. Add deluxe packages to the services that you already have on your list. Massages, deep conditioning, color-extending processes, and exfoliation are just some of the add-on services clients often choose. For a small effort and a little product usage, you can charge customers more.

12. Get into good bookkeeping habits, so you know the cost of keeping your salon business running. Is it profitable? What do numbers say? Do this as often as possible to know what decision to make next. Will your prices go down or up in the next few months? Your salon business’ worth will answer all these questions.

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