Nail technicians receive little training in business strategy, despite business acumen not always being an inherent skill. Attempting to absorb on the job the knowledge needed to remain in business isn't always a safe bet.
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Nail technicians receive little training in business strategy, despite business acumen not always being an inherent skill. Attempting to absorb on the job the knowledge needed to remain in business isn't always a safe bet.
One of the most important factors in determining your business' success is pricing. For a new business, everything pivots from pricing. New salon owners agonize over their pricing, and usually just align their prices to what the salon down the street charges; however, this pricing strategy might put you straight of business.
Setting Prices
In business, setting consumer prices for services correctly enables a business entity to pay its bills. The correct price of a service allows it to pay its part of the overhead plus it supports profit. The process for setting these well is cost accounting, the listing and estimating of costs for the business prior to setting prices and then setting the prices accordingly. Computer software is available for this task, but the person inputting the information must take care—considering the old adage—garbage in equals garbage out.
Cost accounting is most important at the start of the business, but it can be integrated later with due diligence. The numbers per category (rent, utilities, supplies, ancillary services and more) are broken down to their cost per service for them to be correctly analyzed. For example, do you know how much of the rent each service must pay? Each station per service?
After the initial agonizing set up of cost accounting, the chore becomes easier. The first time can be painful without a cost accounting software to get through it, but it must be done, even if without software. In cost accounting software, basic questions are asked, filled in, added up and then voila! The price is revealed. In the cost per service, the owner also includes the desired profit and other factors.
Costing Supplies
Supplies include everything that is utilized in a service, from products to sundries, such as disposables, and the cost per service of them must be found per service accurately through cost accounting. Supplies can be the highest cost in a service if the facility does not cost account closely and monitor them regularly. Luckily, the product companies are cooperating in determining the use of their products in a service by defining the cost per product per service. For that reason, it is best to choose a line who does this and utilize it throughout the service—it is the wise thing to do, cost wise and performance wise.
An example of per service costs provided by a company are those from Footlogix, Toronto, Ontario, Canada. They provide per service information for their salon purchasers to support correct pricing choices. “It is imperative that salon owners know all the costs to running their business as well as their cost per service, then they can calculate the price they should be charging,” says Katharin von Gavel, founder/CEO of Footlogix. They can also use this information in choosing product lines wisely, she says. “A Footlogix pedicure is less than $1.50 per service in product costs. They can compare our product with other product lines and brands, using this information, as well as comparing our efficacy and transformative qualities, in making their choices.”
CND, Vista, California, also provides this information to their salon purchasers. Every product is costed per service, so a technician can design their service and then cost out the product supplies easily. “We understand the importance of cost accounting and provide this information for our purchasers so they can accurately set their prices,” says Barbara Fogleman, director of education, North America. “Every service is different in each salon, and our Cost Per Service list (CPS) supports accurate price setting by allowing them to closely cost out their service.”
Salons must monitor overuse, meaning the technicians take more than is needed when using products. The technicians must be educated in how much product to use in each service, or the cost per service is inaccurate, losing the advantages of having the CPS for setting prices.
Disposables cost money and should be cost itemized initially to support decisions. For example, does the list of supplies for a service include the four to 10 two by twos used to remove polish in the service? More for removing enhancements. It should, and it is defined down to the single two by two. The cost per item in the service stays the same for future use unless the cost goes up per item or the service is changed. This figure for each item helps with future purchase decisions also. In the two-by-two purchase considerations, two by twos should be bought at a medical supply by the case instead of by the sleeve from a beauty supply. This can take the cost down, sometimes as far as 50% per sleeve of two by twos.
After prices are set in place, business goes on, but one must continue to be diligent on checking costing to maintain profitability. Perform cost per service exercises quarterly, at best, but at least semiannually, and understand that each time, the shock of a popular service becoming unprofitable may mean the business of cost management is not being performed properly, or other factors must be sought out.
So, What Happened?
A service becoming unprofitable happens for many reasons, but in most businesses, it is due to inflation and poor decision making in choosing the product. The cost of supplies and other factors of the business have gone up due to “the times,” or inefficient purchasing has taken over that aspect of the business. Three actions can solve this dilemma—first, taking the service off the menu; second, resourcing with better efficiency; or third, raising prices. Sadly, nail professionals avoid raising their prices. Many take the hit on profitability (or sufficient profitability) rather than raising them, and then take the consequences. The reason? They are fearful their clients will leave them. But, this fear can be alleviated through the second analysis towards raising prices, the clientele analysis.
Clientele Analysis
The decision to raise prices uses two types of analyses. The cost analysis, as described before, and clientele analysis, a mathematical analysis of clientele capacity, which is simply defining in percentages how filled an appointment book is. If a salon business has a good computer system, this is just a few clicks away, described by the software as “production.” It tells the researching person—after he or she enters the parameters, such as the last 30 days (there are many), the percentage of hours the salon or person designated is booked.
Example
This salon’s appointment book is open 160 hours during the period of the measurement—we will use a week, four technicians for 40 hours. This number is divided INTO the number of hours booked. Let us say 120 hours. On a calculator, 120 is divided by 160, and this results in a .75 reading, meaning this salon was booked 75% of the time.
The significance of this percentage is that one out of four one-hour units was open. Is that a poor book? No, it is not. This salon is profitable if the services are priced correctly. 75% is significant, at 80% the book is getting tight and a few clients cannot get in, and at 90%, too many of the clientele are not getting in, and some will be lost to other salons. (This is countered by efficient booking at the front desk.)
If capacity is 75%, a figure easily retrieved from the salon software under “Production,” the salon or individual nail professional in a lease situation must do their cost accounting to ensure the pricing is correct. It is unusual for costs to not have gone up and profits gone down, so here, the amount for the needed bills and profit is defined and the future amount decided. The prices must be raised prior to reaching 80–90% book capacity, or clients can be lost due to appointment availability, many more than by raising prices.
Loss of Clients Is Not All Bad
Owners who understand their business realize that raising prices can actually “refine” their clientele. The few who are chronic complainers threaten to leave, and as their nail technician or the owner, they look them in the eye, touch their arm lovingly and say, “I understand. I will really miss you,” and say a sad goodbye. But, over years of salon ownership, this author kept records of client losses when raising prices and never was it over 1–3% of the total clientele. Look at it as an opportunity to gain new clients who are more willing to pay what is needed in service prices and to say goodbye to bad actors.
Appease the loss of these few clients by doing the math. Take the new price of services, and put them on the services of last month and record the increase. If this is done, the loss of those few clients will not be painful—they were made up by the raise, usually plus some, and supplies may go down some.
Those nail professionals who have not raised prices in years will have more problems with this than others. Do not give explanations further than “My costs have gone up dramatically, and I must raise them or go out of business.” Say no more. If the clients are aware of what is happening in the world, they will say, “I know.” If they continue to complain or threaten to leave, use the “I will miss you” answer on them, and move on. Most will be back and never mention it again. Display compassion but not weakness—do not allow old clients to pay the old price, upping only the new ones. It costs too much in revenue that is needed to stay in business, and it is unfair (clients hear soon of the discrepancies in pricing). The sad thing is that through cost analysis, these owners who delay raising prices will have to raise their prices more than those who kept up with costs through raises, and their spoiled clients will complain more.
Salons and lease nail professionals who raise their prices regularly through cost accounting and clientele analysis find that complaints no longer are heard—the clients begin to understand this is a business, not a hobby.
Just Do It
Until technicians understand it is legitimate and important to raise prices, they always dread it. Then after a few cost accountings and clientele analysis exercises, showing them the importance of this strategy, they relax and see this as business as usual. But, many owners feel there must be a strategy to raising prices, such as telling each client they will be raised next month, putting up a sign at the checkout counter or sending out notices. Like they are apologizing for the rise in prices.
Question: Do your suppliers warn you? Your grocer? Physician? They do not. Nor should you. Usually, after the first raise, as they walk away from the salon with beautiful nails and toes, they will say to themselves, “Oh, well. I deserve this. Another $5 is not much.” And many begin to believe the owners deserve it. They begin to see the salon as a business, not a hobby.
About the Author:
Janet McCormick has been a nail technician for 40 years, author, co-founder of Nailcare Academy and a Nailpro 2022 advisory board member. She is a CIDESCO Diplomat, holds a master’s degree in allied health management, has written over 400 articles on nail and skin care topics since 1978 and is co-author of the Nailcare Academy Programs.
