As a salon owner, you probably get excited when your salon gets busy. Watching clients walk through your door, retail disappearing off the shelf and people commenting on your social left and right can contribute to this happiness.
In your head, you probably think there is a lot of money coming into the business. Well, think again!
One check into your bank account and you wonder “Where did all the money go”?
There is a common misconception that getting more clients is directly proportional to revenue growth. While it is true to a certain extent, you’re probably unaware that hidden profit leaks are quietly eating into your earnings. These cost leaks are probably draining your profits more than you can think.
The good news?
By using expense management software like Salon360App, you can spot and fix these leaks immediately and run thorough profit audits.
Before we delve deep into how you can spot these leaks, let’s look at the culprits that could be draining your salon revenue.
Key Takeaways
- Identifying and eliminating cost leaks starts by auditing product usage and waste.
- No matter how small an expense is, it’s important to track it. These small costs usually count as recurring costs and tend to add up quickly over time.
- Utility and subscription costs are also hidden costs which a lot of salon owners are unaware of.
- Train your salon team and cultivate a cost-conscious mindset. When employees implement cost-saving practices, reward them accordingly.
Where is your Salon Losing Money?
- Untracked Service Discounts
It’s normal for a salon owner to think that discounts attract clients.
While they do, without tracking these discounts, you might end up over-discounting certain services.
As a salon owner, you should know which services are being discounted the most and how much revenue is lost per discount.
- No-shows
You shouldn’t be taking no-shows lightly. It’s literally revenue walking through the door. Every client who misses an appointment without cancelling it prior is lost revenue.
The result? Your stylists remain idle and there is loss of productivity. Instead, you should be tracking the frequency of no-shows per client and the total lost revenue per week/month.
- Low Retail Sales & Inventory Shrinkage
Believe it or not, low retail sales can also hamper your profit margins. That is because the retail to service ratio is much lower than what it should be. Besides this, inventory shrinkage can also put money down the drain.
Unused or expired products contribute to revenue loss.
Even if one staff member is overmixing colour, it can lead to lost revenue. Pilferage and employee theft are also potential culprits.
- Overstaffing during Slow Season
Busy salons usually hire freelancers during peak season. While it’s a good thing, overstaffing during slow hours or slow seasons can slowly eat into your profit margins.
It’s best to understand client frequency trends and then adjust staff schedules accordingly.
- Poor Client Retention
Client retention is the life and blood of your salon. Not tracking client retention or percentage of repeat clients can hurt your business revenue.
You need to constantly analyse client history, percentage of repeat clients and programs that are increasing revenue.
Thus, these are a few financial leaks that are sinking your salon. It’s important to take cost management seriously before it erodes all your salon profits. Also, you must analyse how much these leaks are costing before it becomes a serious issue for your business.
Simple Steps to Plug the Leaks and Increase Profits
To eliminate hidden cost leaks in your salon, you need to get an expense management system or salon software that has this feature built-in. This will give you a clear idea of where money is being lost and will also eliminate inefficient processes.
- Track Inventory & Product Usage
All said and done, product waste is a silent profit killer. Start by looking at discrepancies between actual and recorded stock.
A few common reasons inventory shrinkage occurs is because of employee theft or overuse of backbar products. Inventory parameters you should be tracking are:
- Measure the amount of colour used per service
- Store backbar products properly and under appropriate conditions
- Monitor retail shrinkage from time to time
- Throw expired retail products
With salon inventory management software, you can get a clear idea of product usage and trends.
- Track Expenses Regularly
When we’re talking about hidden expenses or cost leaks, it goes without saying that getting expense management software is a must.
Manually tracking expenses is an error-prone process. Also, with software, auditing expenses becomes easier. Review every expense, no matter how small it is. You should be tracking:
- Product costs
- Utility costs
- Payroll
- Subscriptions
When you start a salon itself, it’s important to divide costs into two categories – fixed and variable costs. The latter is where hidden leaks usually hide.
- Assign Staff Schedules Wisely
As mentioned earlier, idle staff can result in wasted payroll. If you’re a newbie in the salon and beauty space, it’s important to understand the flow of clients.
Use salon scheduling software to understand the peak and non-peak hours.
You can also assign staff accordingly as per the season. During Diwali, Christmas and New Year, it may be a good idea to tie-up with freelancers and makeup artists as the demand during this time usually tends to be high.
When you optimise staff schedules, you will be saved from the ills of overstaffing. Also, during off-season, get your stylists to play a dual role. For instance, they can be stylists and front-desk managers at the same time. In case you do set them up for a dual role, adequate training is important.
This will help you save costs and increase your overall bottom line.
- Send Automated Reminders to Reduce No-shows
No-shows can significantly hurt your salon revenue. When a client doesn’t show-up uninformed, revenue is lost from an available time slot and employee productivity is affected.
In order to fix this, it’s important to use salon software that sends automated text and email reminders to the client before and on the day of the appointment.
A deposit or advance payment can also be levied from them to secure the appointment. This way, a client will feel accountable and no-shows will considerably be reduced.
- Revisit Supplier Contracts
Just because you’ve been with a particular supplier since a while, it doesn’t mean you need to continue with them.
Instead, you need to get into the practice of comparing prices of multiple vendors annually.
For instance, after the GST slabs have fallen, if your vendors are still charging you the old rates, you need to pull them up. This is a grave hidden cost leak you might experience with your supplier.
It’s best to negotiate bulk discounts. It also may be a good idea to find out where your competitors are buying their products from. You will find several beauty salon communities online. Be a part of them and save your revenue.
- Eliminate Energy & Utility Waste
Besides inventory, pricing and promotions, another potential culprit that may be contributing to leaks in your salon are energy and utility waste.
A few small changes can save you thousands. It’s no surprise that the beauty and salon industry generates a lot of waste and uses tremendous amounts of energy.
As a salon owner, you can control this by:
- Using LED lighting on your salon floor and energy-efficient hair tools
- Turning off equipment and unplugging it when not in use
- Install water-saving shower heads for basins
- Optimise laundry loads to twice a week
Conclusion
When you’re starting out, hidden cost leaks might not seem like a big deal. However, think again because over time, it can quietly eat into your salon’s profits.
To safeguard what you’re earning and to eliminate these leaks for good, invest in Salon360App, salon software with a built-in expense management system.
It helps you audit your expenses, manage inventory, optimise staff schedules and monitor product usage.
Remember, when every resource in your beauty business is used efficiently, your business runs smoother and you will become more profitable over time.
Ready to enter the next generation of salon management? Discover a free demo of our beauty salon software.
