Money Matters

The Price Is Right—Or Is It?

Would you willingly take a 25% pay cut? Well, we’ve got news for you: If you haven’t raised your prices, you’ve already taken one.

When NAILS first began tracking salon service prices in 191, a full set averaged $42.02 and a manicure $10.43. In 1999, full sets had dropped to $37.33, while the average manicure was up to $14.11—an overall average decrease in these staple services of about 2%. In the meantime, the American Institute of Economic Research says the cost of living during that same time period has increased 24%. So if you’re like the salon owner in Michigan who told us she hasn’t raised her prices in seven years, you’re making significantly less today in real dollars than you were almost 10 years ago. Make sense to you?

It’s easy to blame the surge in discount salons for the price decreases, but the fact is that the majority of our survey responses are from salons that do not classify themselves as discount. Nor do most industry experts agree that discount salons are the only culprits.

“I think years ago we got it in our heads that if we raised our prices we’d lose clients,” says Akron, Ohio-based Betty Romesberg, who, in 33 years in the industry, has worn the hats of salon owner, school instructor, educator, and consultant. “But I don’t think clients have a problem with price increases because they get them everywhere else.”

This is not to say that price pressures don’t exist, but salon prices overall have remained stagnant for the wrong reasons for too long.

“What happens is that nail technicians spend an hour or more every few weeks with a client, which is sometimes more than we spend with our best friend,” adds Marlene Bridge, owner of Elegant Distributing in Pittsburgh. “They build an emotional bond with the person and treat her as a friend. So then, we don’t want to raise prices on our friends. But that’s not a good business decision. I think nail techs loss sight of the education and customer service they offer, they don’t know when to raise prices, and they think clients won’t come back if they do.”

“We undervalue what we offer as an industry overall,” asserts Carol Shanks, a salon consultant based in Denver. “Nail salons do have room to raise their prices. As an industry we offer price-sensitive services in price-sensitive environments, but then we don’t charge enough in those environments to provide high levels of service and quality and technical expertise.”

Another contributing factor to depressed service prices is that salon owners spend too much time keeping up with the Joneses. Nine out of the 10 salon owners we asked said they review their competitors’ prices about once a year, with most of them saying they chose not to raise their prices because they were already at or above the average for their area. Big mistake, says Phil Fennell, who’s spent the past 25 years managing, owning, or advising salons, currently as owner of Programs in Salon Excellence (Milton, Ha.).

“Salons try to set their prices to compete with others but never consider whether there are any commonalties in the cost of operations and overhead and the desired profit margin,” he explains. “If you look at the standard business philosophy, businesses determine their markup based on their total cost of operations, total cost of sales, and profit margin. We don’t seem to do that in this industry and unfortunately, it leaves a lot of people in the hole.”

Another problem with setting your prices based on your competitors’ is that you end up with a bunch of followers without a leader. “Setting your prices based on someone else’s business isn’t good business,” Shanks says. “When you call around and see what everyone else is charging for a fill in your area, that tells you what’s out there but it doesn’t tell you what you should be charging. You have to look at your own business and your supply and demand, your training, your marketing, your service delivery.”

“You Get What You Pay For”

Many salons don’t give themselves enough credit for all that they offer, instead viewing the service as a commodity, rather than something unique. But a manicure can be so much more, or less, than a commodity, depending on the “intangible” aspects of the service. According to Shanks, too many nail salons have tried to hold the middle ground with low prices and high service. Ifs time, she says, to either step up or step down.

“I think nail salons are going through what full-service salons went through 10 years ago when hairstylists started to see the separation of the two ends of the spectrum. The high and low ends grew and those in the middle had to jump one way or another or risk being pushed out. The same is happening in nails because the middle can’t afford to provide high-end service and everything else and remain profitable (or even in business). They have to choose to either be fast and low-cost, or offer a high-end service backed by lots of advanced training and customer service extras that let them charge a lot of money. It’s the difference between a 99¢ and $5.99 hamburger—we’ve all chosen both at one time or another but our expectations of each are different”

The key to differentiating your salon, thus allowing you to charge more, is the differentiation in your service menu, customer service levels, environment, ambiance, and technical quality. It’s all about value-added vs. commodity services: Salons that clearly communicate the value can name their own price.

“If you’re going to compete with the discount market on price, you have to be as quick and efficient technically as they are to succeed,” Fennell adds. “Otherwise, you have to establish your point of difference in some other way besides price. You have to get people to say, ‘I would only pay $10 down the street, but this place is so much nicer and the service is so much better I’ll pay more here.’

“Statistics show that for 100% of the clients who come to you and then don’t come back, only 14% of them don’t return because of the quality of the technical work,” he continues. “More than two- thirds come back because of perceived attitudes and indifference. I tell salon owners to get the quality up to a certain level and then make their point of difference outside the technical realm.” In other words, service really matters most.

Golden Shears Salon took just that approach last June when co-owner Linda Champion decided to revisit the nail department’s service menu and price structure. With the salon’s prices already on par with local day spas, Champion converted the nail department to a “nail spa,” and the change was more than in name. She completely overhauled the service menu, adding eight new manicures and eight new pedicures that incorporate products she had spent five months researching.

“In setting our prices we took into consideration the products being used and we also went to several other salons and collected their menus to compare,” she says. “We are higher priced but that’s OK because our service is higher end.”

Clients perceive a greater value from the services, but Champion says she designed the new manicures, each customized with a selection of add-on treatments such as salt glow and mud, to still remain within the 30-minute timeframe of a regular manicure. Clients can also choose to add treatments to a fill for an added cost.

By offering clients value-added service and emphasizing its points of difference at every turn, Golden Shears lost not one client due to its price increase, Champion says. Yes, researching the product and getting everyone trained took a lot of work, but it all paid off in higher prices and even higher customer satisfaction.

“The underlying statement is, ‘You get what you pay for,’” agrees Marty Cooke, owner of Jungle Red Salon in Salt Lake City. “In all of our advertising we emphasize our experienced technicians and stylists and our quality. We don’t have problems with charging what we’re worth.”

Running the Numbers

Your first step in deciding if you’re due for a price raise is to pick up a calculator rather than a phone. “You need to do a cash flow or a profit and loss [P&L] statement and determine what you’re spending per month,” Fennell says. Expenses include everything from rent to utilities to supplies to insurances to payroll.

“Once you have that number you can decide what percentage of profit you want to make,” Fennel continues. Deciding your profit margin can be something of an art, but it should be based on what you want to make as a salon owner. In deciding this figure, you’ll want to consider how much time you spend working on the business ordering supplies, keeping the books, managing the staff, etc. This “profit” should be over and above what you earn as a service provider.

Your next step is to figure out how many hours a month the salon has available to sell. To calculate this number, take a typical month, total up the number of hours each staff member was in the salon available to work, and then add those totals for a grand total of the salon’s available hours to sell. (A rougher calculation is to multiply the number of techs [5] by weekly work hours [40] by weeks per month [4.3] to get total available hours [860].) Now, set this number aside for a few minutes.

Then calculate the number of hours your salon actually sells in a typical month. Do this by going back to the same month you used to calculate your available hours and then adding up how many hours each individual actually sold for the month. Again, add those in­dividual totals for a grand total of the salon’s actual hours sold.

Then divide the number of hours you actually sell into your expenses (which should include your desired profit) and you’ll come up with how much you need to be billing per hour for the number of hours you currently sell. For example, if your expenses are $5,000 a month and you typically sell 100 hours a month, your hourly billing rate is $50. To meet your expenses, then, you’d need to charge $25 for a 30-minute manicure, $37.50 for a 45-minute fill, and $50 for a full set.

“Most people freak when they see that number,” Fennell cautions. The idea, though, is to determine what your service prices should be to cover your expenses and your desired profit margin. Once you know what your billing rate is for the hours you currently sell, you can then decide if your next move is to increase your prices to equal the necessary billing rate, increase the number of available hours that you sell, or both. “With most salons it takes a combination of both to get on track,” he says. (Happily, if you emphasize your points of difference and focus on adding value, an increase in hours sold should be a natural result.)

For those salons already on track, Fennell recommends a price increase when the salon is booked 85%-90% of the time. “When you’re selling that percentage of your hours consistently for at least six weeks, it’s time to raise your prices,” he says. From Fennell’s perspective, a waiting list is the worst thing a salon can have because it means that your supply has outstripped demand A price increase is in order to bring the two back in balance and to enhance your customer service levels.

“At that point, you need to raise prices somewhere from 10%-20%,” he notes. “The idea in this case is that you’re supposed to lose customers.” Often when salons get this busy their instinct is to expand and add more technicians, but Fennell says this leads too many salons to fail because they overextended “The idea is to stay small and efficient and to get your prices up. The more in-control your overhead is, the lower your billing rate is as well — so it’s easier to make a profit.”

Doing the Deed

Laura Quackenbush, owner of Off Broadway in Brookfield, Wis., follows a similar philosophy, reviewing her prices twice a year, considering both increases in expenses but also her staff’s production. “If the staff is booked three weeks out during prime times, we feel justified in a price increase,” she says. “We usually review prices twice a year so that they creep up. And we usually increase in one or two areas each time so that clients who get multiple services don’t feel a huge impact.”

Other salon owners prefer to make price increases during a certain time of year to simplify matters. And if your supply and demand are in balance, it certainly makes sense. If you choose this route, the month is really a matter of personal preference, but many recommend against increases in the first quarter of the year because many clients are reviewing their holiday expenditures while others are anticipating tax time. Some salon owners recommend the summer season as an ideal time because many clients are out of town during this time and are less likely to notice, while others recommend late fall because even those clients who complain aren’t likely to start looking for a new salon at this hectic time. And as Louis Mattassi, owner of California Nails in Miami, notes, once clients get past that initial shock (which he eases with a free polish), they usually don’t give it a second thought.

Probably the hardest part for some is notifying clients of the increase. The trick is to make it as quick and painless as possible for both of you, consultants say. Regardless of how you do it, the complainers will complain and everyone else will accept it and go on.

Fennell remembers a time some friends of his, a husband-and-wife team, disagreed on how to notify clients of a price increase so they decided to do it her way in her department and his way in his department. “He wanted to just raise the prices and she wanted to give clients six weeks’ notice,” Fennell explains. “They did this experiment to see which was best, but all they learned is that the people who were going to complain complained either way. What I have found works best is to raise your prices after you close on, say, Saturday, February 5. Then have a sign posted on Monday, February 7, saying that effective Saturday, February 5, prices increased. Half of your clients will just pay it. To the other half that say something, tell them you’ll honor the old price and that next time it will be the new price.”

Most of the salon owners we asked prefer to keep it simple, telling clients that it was due to an increase in business expenses, rising product costs, etc. Most salon owners recommend against tying price increases to events such as a remodel or advanced education. “Otherwise clients are going to complain about having to pay for your new couch in the waiting area,” Romesberg says.

Finally, whatever you do, don’t consider this price review a one-time process: You should review your prices at least once a year in the framework of your expenses and demand for services. And while there may be some years you decide to focus on selling more hours rather than raising your prices, Bridge cautions not to go more than two years without a price increase.

“Don’t Make My Mistake

When Dawn Momot, owner of Nail Creations (Darien, N.Y), first got out of school almost four years ago, her technical skills were on par with many more experienced technicians in her area, but she still wasn’t satisfied with her own work. “That’s why I was only charging $ 15 for a full set and $13 for fills!” she exclaims.

“I thought I would get lots of clients and build my book quickly, but it didn’t quite work that way,” she says with a laugh. ‘The few clients it did bring were awful. They wanted everything for nothing, they complained no matter what I did, and a lot of times they just didn’t even show up.”

After six months, Momot realized she had nothing to lose — certainly not a living wage. So when she and her husband built a new home in a different area, she increased her prices to the average for her area, $25 for a full set and $ 16 for fills, and over the past two years has built a solid clientele. Now she’s preparing to increase her prices again, this time to $40 for a full set and $ 18 for fills. “I want a professional clientele that isn’t just shopping around on price,” Momot observes, “I have a beautiful salon in my home with a custom-made station and a whirlpool pedicure spa along with an inviting waiting area, a refrigerator for drinks, and a private bathroom. I do the same quality work as the upscale salons in my area, and I deserve to earn the same for my work I don’t think I’ll lose any clients when I do the price increase.”

“A Premium Price for a Premium Service”

When Karen Hughes entered the industry 18 months ago, she had no intention of accepting any less than what she felt she deserved. “I’m an old broad when it comes to sales and marketing, and I feel you need to price your services in accordance with the clientele you want to attract,” says Hughes, who works at The Nail Salon in Key West Fla.

Hughes spent her first six months in the industry filling in for a friend who owned a day spa and had experienced a walkout just as she came out of school. When he rebuilt his staff, she moved on to a booth rental salon, noting that 15 clients followed her. Adamant about not running specials to build that base, Hughes instead cultivated those 15 clients by providing them with small thank-you gifts in the form of nail treatments, bottles of polish, nail glue, and other retail items that she felt confident they’d buy themselves after her freebie ran out. And she just talked to them. “After every hand massage I would say to every person that if they liked my services it would really help me if they would refer anyone who commented on their nails,” she says. “People are happy to help when it’s easy and doesn’t cost them anything.”

Just a year later; Hughes says her book is now 95% full: even though she priced her services l0%-20% higher than the rest of the salon. And she recently conducted a year-end sales analysis to determine if she was ready for another price increase. “I can tell you the average sale price, how many tickets I averaged in a week, my weekly and monthly sales averages, and the percentage of retail vs. the percentage of service,” she asserts.

“I’m passionate about what I do but it’s also my living, so I try to figure out what services I do that make the most money per hour worked,” she explains. “Then I emphasize those services in pricing and suggestive sales. I use the products I want to retail in my service, explaining what it is and what the benefits are as I put it on their hands. I think you do your clients a disservice if you don’t provide them with good, quality products to maintain your service.”

Hughes chose not to raise her prices this year instead opting to start charging for giveaways such as nail art and repairs, “Basically I am increasing my prices, but not for the base service,” she notes. “I simply told clients that with product costs being what they are, I have to start charging for repairs. It had no negative impact” She does foresee raising her prices 10%-12%, and she anticipates losing anywhere from 10-20% of her client base, “but that’s OK,” she says. She knows new clients will soon take their place.

“I’m not marketing toward people for whom price is an issue,” she adds. “If you market yourself as a premium, educated nail care specialist, price yourself accordingly. People will not value your services if you don’t.”

How to Charge for Your Time:

1. Figure out your monthly expenses including desired profit margin ($5,000)
2. Determine how many hours you actually sell per month (100)
3. Divide expenses ($5,000) by hours sold (100) to determine your necessary hourly billing rate ($50).
4. If this number is less than what you are currently charging, then you need to increase your prices, increase the number of hours you sell, or both.

Expenses Hours - Billing Rate

Is It Time to Raise Prices?

First determine how many hours you have available for sale monthly in order to determine if you should raise prices because you’re at maximum capacity.

Take the number of nail techs...................................................................... 5

Multiply by hours per week they are available to work............................. 40

Multiply by weeks/month......................................................................... 4.3

Equals your total hours available for sale................................................. 860

Next take the number of hours you actually sell services per month: 500

Multiply the total hours available (860) by .85 to get optimum selling hours (731)

If this number (731) is greater than the number of hours you actually sell (500), focus on building clientele. If the number is less than the number of hours you actually sell, then it’s time to raise prices.

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