Forget revenue, focus on your operation costs to survive!
Photo by: yankrukov
Many salons in the last decade have been revenue focused and much less operationally focused, which is essentially the gas and break systems in your business. Where this matters in the Salon industry is often a salon owner doesn’t have a person managing the flow of the money. Instead the owner is a one person driver, who needs to be versed in both revenue activities (gas) and operations (break). This requires understanding the fixed costs and expenses of the business to understand how to run the business most effectively. It also means knowing how you want to grow your business. Taking the time to learn more about how the economy, inflation and other financial factors may impact the salon.
This enables owners to know when it’s time to focus on growth versus when profit matters most, because having money (fuel) in the bank to survive is more critical than new customers in the chair. It’s also important to ensure the current customers you serve turn a profit because if you don’t, then the new customers will just cover the lost incomes from the others.
You’re never going to grow your profit.
Taking Control
Through organizing operations and understanding the business betters, salons owners can both guard themselves from a recession as well as become competent to drive their business in a chosen direction. Finances are the building blocks of what it means to really take control and run a business. In my book ‘The Scale’, I focus on this in the final chapter because if you as a salon owner who is not operationally minded (like I was) and don't know your business numbers, then your business will drive you into a wall. Simply because if you don't understand what it costs you to do business, you will end up in the red over and over again. You will be jumping from a tough situation to the next.
Product costs also continue to rise, so without your eye on the ball matching those rises, this will cause the hole in your businesses finances to grow even bigger. This is one of the biggest parts of the problem right now. Variables prices means variables expenses, which cannot be covered by fixed prices. Owners must lean to match these trends to stay afloat.
Sorting Out the Financial Closet
So how do we manage these costs? The first step is always to unpack it and sort it through
Like organising a closet, take everything out to assess the situation.
Itemize everything to identify which ones are fixed expenses i.e. always stay the same.
Look at any variable expenses e.g. educational expenses or culture building expenses
Variable costs may change every quarter, but what organizing them does is it allows you to see what you've spent and enables you to establish an average cost for future quarters budget, which allows you to forecast more accurately the coming months. When you can start forecasting out for say 2025, you can then use it as your baseline as you track each month, going over your expenses and identifying where you did what. The best part of doing this tracking, it gives you permission to do what’s been planned for.
So instead of taking your team out for lunch and panicking because you feel you’re overspending, instead you can spend with confidence knowing it’s been budgeted for because it’s part of your bigger business plan or strategy to be able to do these things with ease of mind.
Once you have those expenses taken care of and you have a budget in place, it's like having a organized map set you up for the entire year. Guiding you from month to month, still allowing for extra expenses where needed but none of those car crash ones. Then all it takes is to follow it, and hopefully it works out well. Course correcting where needed, and using that information in the following years forecast. We learn all the time, but if we don’t capture those learnings as they appear in the finances, we can run out of fuel when we need it most.
Controlling Your Finances
A big one is also how salon owners don't realize the power of negotiation in cutting costs. Things like interest on credit cards or processing costs can be negotiated down. If you’re leaving money on credit cards and paying high amount of interest, is that an area you could renegotiate a lower interest rate for? If yes, that’s instant savings.
There are truly the little tasks on the side which are the most annoying, mundane, and small things to do for a business, yet they can unlock anywhere from a $1K to $3K that you were just giving away. Traditionally this is where a CFO would eventually come in look after expense management retention, because many creatives struggle to do this long term. However it’s important to start now, because the variable expenses are often the silent killers of salons.
Additionally, if you only focus on bringing in more money (revenue) you will likely fail, because in this economy of cost-aware consumers. it’s unlikely they will come in at that higher rate or they jsut won’t go for major transformations (higher cost services). You'll cap out quickly with that strategy, because less clients will come in as often, or they're going to find someone cheaper. The prices has to reflect what the market can hold for what you’re offering.
In the Coming Years
In the next two years (25’-26’) consumers will be all about spending less, being smart and having more consistency, as they deal with the recent drops in the economy and the impact of the pandemic on the world’s finances. This will be across the board in every sector, so now is not the time to want to double your income. Instead it’s about focusing on saving where you can to find that extra income. It’s learning your operations and ensuring it’s a profit first process. It’s negotiating those interest rates, stabilizing those monthly costs, balance those salaries, and finally using technologies like SalonScale to lower wastage and over-stocking, so that when the tide turns you’re ready to grow, grow, grow those profits!
Alicia Soulier is the Founder and CEO of SalonScale, as well as an Award-Winning Stylist, Tech Innovator and Female Entrepreneur Advocate. She is dedicated to revolutionizing the salon industry and supporting female entrepreneurs to do the same in theirs. Her new memoir 'The Scale' is available now.
