At my last workshop for salon owners, “Attract More Clients and Make More Profit“, it really brought home to those who came along, the importance of actually planning for PROFIT generation in their salons, rather than driving up the turnover by keeping “busy” through doing more services.
Being busy is actually not that hard to achieve.
I have seen countless salon owners and their staff, run off their feet with customers pouring in through their front door and yet there was still no money in the bank to pay the bills at the end of the week.
But when there is confusion around turnover vs profit, bad things can happen!
Profit vs Turnover
Let’s clear up that confusion…
Turnover is all that fabulous money that your salon takes in from the sales of your services and products.
It’s the money you have before you pay a single expense but sadly, you generally don’t get to keep a great deal of it.
Increasing turnover seems like the top solution to increase your profit, but this can only happen when the expenses incurred in producing it, are less than the actual turnover amount.
For instance, if you run a promotion that costs you $400 for advertising, $275 in wages and $150 in product but you only turn over $750 from your promotion, then you have made a loss of $75.
Turnover = $750
Expenses = $825
Loss = $75
It can happen so easily and often does when services and promotions are not planned out with some care and a little maths.
Cheap services and increased staffing requirements can easily turn your increased turnover into an unwanted loss.
Profit is what will keep you in business, not just turnover!
Profit, on the other hand, is what is left after you take away all the money it costs for you to run your business.
A poor pricing policy, ill-conceived promotions and lack of control over your expenses can cause your business to run at a loss even when turnover is great.
This is when the cost of doing business (your expenses) can become greater than your turnover.
It is possible for some businesses to actually reduce their turnover and increase their profit by focusing on:
- more profitable services, packages, and product sales
- more profitable promotions
- reduction in expenses
One of the most common mistakes that many salon owners make is not taking the time to understand what their services are costing them to provide.
Guessing or relying on other people’s estimates just won’t cut it!
You need to know the real cost of the services you are providing so that you can determine how much you must sell your services for to actually cover your expenses and still make a profit.
Taking the time to carefully evaluate the pricing of your services, packages and promotions can save you from falling into the trap of being run off your feet but not be making any money.
Is it time for you to look at your pricing and see if you are in the business of turnover or profit in your salon?