Larry Kopsa, CPA is a partner in Kopsa Otte CPA's, a PBA Benefit Provider that specializes in salons and spas.If you want to have a successful business, you need a policy that determines when to increase prices. Most of the time when I ask salon clients about their pricing strategy I hear words like, "whenever I get around to it," or "when my stylists think it's time," or worse yet, "I haven't increased prices in four or five years."
Like it or not, it is a fact of life the price for everything is going up. I bet you cannot name many items that have stayed the same price over the last few years. What I want to know is, "why should it be any different with your salon?"
It just makes sense to increase prices on an annual basis. I will let you in on a little secret of profitable salons: Successful salons increase prices every year, and some every six months.
Here are my Three Rules of Thumb for Price Increases:
One: Increase annually. The best time is the first of November before we get into the busy holiday season, allowing you to harvest the rewards. Get those price increases in and take advantage of the increase now, when you are busy.
Two: Raise prices when a stylist increases his or her level, or is 60% to 70% booked. This is when the Law of Supply and Demand kicks in. Successful businesses understand to balance out demand, they need to increase prices.
Three: Raise prices when a stylist advances due to training and time. If a stylist or technician advances themselves, it is time to celebrate their achievement and also increase their prices.
I just met with a client of mine that sees about 16,000 clients in his salon per year. If he increases prices just $5.00 per client, after paying all the costs he will have close to $40,000 in his pocket at the end of the year. That's not all, his producers will have about the same amount in their pockets as well. His question to me was, "but will I lose clients?" Sure, you may lose a few, but if someone leaves you for $5.00 they were just looking for a reason to leave. You will make up for the lost clients from the small increase you are taking.
I was recently working with a new client and I asked how she determined her prices. She said she called around to other salons to see what they were charging. Given that and according to some industry numbers, 60-70% of the salons in the US are not profitable. She was most likely setting a price point for failure. She went on to tell me most of the salons she talked to were not making money! Duh. Why then would you charge the same prices?
I have never heard of a salon that did a 3-10% increase in prices and in the end felt it was a mistake. Never!
I am often asked, "Should I tell my clients in advance?" There are two schools of thought regarding letting clients know about price increases. One school says to post them in advance so people will not be surprised when they come in. The other school says to just raise prices and let it be.
It is time for you to get paid what you are worth.
I am an advocate of the second school of thought. I am not aware of too many businesses that tell you in advance the price is going up. Have you ever walked into a grocery store or Walmart and saw a sign that prices are going up next time you come in? An exception might be if a company is trying to create sales by telling you the price is going up soon, but that is normally on big-ticket items you do not purchase on a regular basis.
I have found a majority of people do not even realize the price has gone up unless the increase is substantial. Sure, there are some people that are going to complain, but then again, they were going to complain even if you gave them notice.
As you can see, the choice is yours. Whatever you do, make sure you make a good business decision and set up a system for periodic price increases. Sure, you may lose a few clients, but think about it. If you increased prices by 5% and lost 5% of your clients, you would still be making the same money but working less. What is wrong with that?
Larry Kopsa, CPA is a partner in Kopsa Otte CPA's, a PBA Benefit Provider that specializes in salons and spas.