Is Your Price Right? A Guide to Pricing Services for Increased Profitability
Liz Mckeon, salon business expert and founder of the International Salon Business School, shares her top tips for pricing in the salon industry.
Definition of Pricing: “Pricing is the process of determining what a company will receive in exchange for its product or service. Pricing factors include manufacturing costs, marketplace conditions, competition, market conditions, brand, and quality of the product.”
A well-chosen price list should do the following three things:
- Achieve the financial goals of the salon business (profitability)
- Fit the realities of your market (will clients buy at that price?)
- Support the product’s market position
Pricing your services correctly involves asking many questions, such as:
- How much should you charge for a service?
- How do clients value the services and other surrounding intangibles?
- What are the pricing objectives?
- How should you set the pricing – what are your total operational costs?
- What prices are competitors charging?
- What image do you want the price to convey?
- Do price points already exist for your services?
- How flexible can you be on pricing?
- What are the chances of getting involved in a price war?
Price/Quality relationship: The price/quality relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. This is especially true when it comes to hair and barbering services.
Premium pricing: This is the strategy of consistently pricing at, or near, the high end of the possible price range to attract status-conscious clients. This high pricing of premium services and products is used to enhance and reinforce a luxury image. Clients will buy a premium-priced service or product because:
- They believe the high price indicates good quality.
- They regard it as a sign of self-worth.
- They require a flawless service – the cost of the service going wrong is too high to buy anything but the best.
Setting the right price is one of the most difficult decisions to make when starting a business or introducing a new service. If you hit on the right price, your clients will be happy, your profits will be higher, and your bottom line will be healthy. Many salon owners make the mistake of establishing a flawed pricing structure. As a result, they find themselves working too hard for too little. It requires a basic understanding of both your financial and business goals.
Common pricing mistakes in salon businesses
- Weak controls on discounting and special offers
- Failing to track competitor selling prices
- Poorly executed price increases
- Not factoring in all running expenses
- Selling services below cost price
Establishing the right price for your services can feel intimidating, especially when starting off. Retaining clients while still earning profits is crucial, as making pricing decisions can easily go awry. Pricing your services too low may lead to being short-changed, while overpricing can scare away potential clients.
The challenge is to strike a balance between affordability and profitability. With research, analysis, and execution, salon owners can set their prices confidently, without fear. Proper pricing allows businesses to remain competitive, profitable, and sustainably grow over time.
Top tips for setting your prices
- Keep your prices realistic: A realistic price is one set after considering various factors, such as the direction of your business, your cost structure, resources, and financial goals.
- Cover all costs: The price of each service should cover the associated costs, its contribution to overheads, and profit. A successful strategy is one that results in the most profit after all costs have been met.
- Check your prices against inflation: Your prices must keep pace with inflation. Inflation increases your cost of doing business, with the prices of your materials, overheads, and other costs rising. If you maintain your prices despite rising inflation, you risk eroding your profit margin.
- Include the value of your time in pricing: Avoid the mistake of not accounting for a salary for yourself. Your time is very valuable and should be included when calculating your prices.
- Remember, clients are not always looking for the lowest price: Price is not always the main concern for clients. Many clients are willing to pay premium prices for quality services, speedy delivery, professional customer service, and excellent product knowledge and advice.
- Use discounts with care: Offering discounts can be a good strategy for encouraging repeat sales, bundling services, and securing early payment from clients. Discounts can stimulate demand for your products and services during downtimes; just ensure you do not give the wrong impression or suggest that your business is in difficulty.
Pricing is important for several reasons, not least because it will determine the profit margins for your salon, and ultimately… your own salary!