Close button
How much money could your business be saving?
Create your Fundera account to find out.
Continue

The Economics of Starting a Salon

Eric Goldschein

Eric Goldschein

Eric Goldschein is a freelance journalist who covers entrepreneurship, small business trends, emerging technologies, culture and sports. He was previously the managing editor of SportsGrid.com, and has written for Business Insider, Trep Life, the Huffington Post and more.

You can contact him at ericgoldschein.com, or on Twitter at @ericgoldschein.
Eric Goldschein

If you’re interested in starting a salon, you’re not alone: the beauty industry is worth over $56 billion dollars annually, and hair care the largest segment with 86,000 locations nationwide. Luckily, there’s rarely a shortage of people wanting to look more beautiful—even in economic recessions—and there’s often a waiting market if one is ready to open their own salon.

While salon life might seem glamorous to clients, a salon is like any other small business. It takes long hours, hard work, savvy, research and even luck. The best way to reduce the variables that can lead to failure is to better understand the economics of starting a salon, from the start-up costs to the standards for pricing.

The most common starting point is to have experience as a hairdresser or to otherwise work in the salon industry, which often goes hand-in-hand with a passion for the business. Both Shana Dyer, who co-owns Harlow Salon in Nashville, Tennessee, and Tiffanie Barackman, who owns Aria Salon in Canton, Michigan, worked in the industry for years before striking out on their own.

Form a business plan

Most good small business owners start by outlining their business plan, and the beauty business is no exception. In fact, Dyer cites this as the most important piece of advice she gives to new business owners.

“You want to have a business plan and a budget,” Dyer says. “If you don’t know what that is, you don’t need to own a business. Take a class. Hire a financial planner. Definitely hire an attorney!”

The basics of a business plan: how much money you need to run your business—keeping in mind that between the upfront costs and the operating costs, it might be at least a few months, sometimes more than a year, before you turn a profit. This could involve visiting a loan officer at a local bank or credit union for a small business loan, as well as meeting with an accountant who can help you plan for and file taxes related to your new endeavor.

The major tenets of a business plan are operating costs, including rent, training, insurance, inventory, and what you’ll charge for your services—which you’ll balance against one another in order to turn a profit. The operating costs are mostly up to you and will depend on the size and scope of your vision, but what you charge is to some extent out of your hands:

“Product pricing is universal—it’s a 50% markup of the wholesale price,” says Dyer. “You can come into my salon or the salon down the street and the same bottle of shampoo will be the same price. That’s just standard in the industry of cosmetology.”

“Pricing for services is also fairly universal,” she adds. “It depends on the part of town you are in, your city in general, and the surrounding salons that are about the same level as yours. There’s a salon a couple of miles from us that is about the size of ours and they offer similar services, so we pretty much base our prices off of what they and the surrounding salons charge. About every 6 months we call around to the different businesses and ask for their basic prices. We also make sure and raise our prices about once a year. Usually about 5% seems to cover all of the inflation that we suffer as a business.”

Insure yourself and Apply the red tape

Insurance is legally required for most businesses—though you’ll often be glad you had it anyway. Dyer cited insurance as one of the unexpected costs of starting up, if only because of the myriad forms it takes—your employees, your clients, your space, yourself, and so on. Dyer and her partner ended up treasuring her insurance plan when she found out her accountant was embezzling funds from the salon.

We thought we were going to lose our business,” she said of the experience. “Luckily we had a portion of our insurance that was called “dishonorable employee insurance” and it covered things like theft from your employees. I had no idea we had it but I was so thankful we did!

There are other bureaucratic hoops to jump through, including:

  • Getting a business license (the Small Business Administration can help with that)
  • Securing licenses for all personal appearance workers (though exact regulations vary by state—check with the Division of Occupational and Professional Licensing)
  • Planning for a health and fire marshal inspection
  • Paying Common Area Maintenance (CAM) charges, which is an additional rent paid by tenants to commercial property landlords on top of the base rent.

New business owners should ask fellow business owners or members of local government in their city or county what’s expected when starting a new business.

Choose the perfect location and staff for starting a salon

Many salons start as offshoots of other salons, as former employees move on to their own endeavors and take their clients with them—if they can. A major part of choosing the salon location is to make sure it’s centrally located, where lots of foot traffic will pass by or where there’s sufficient parking. Another aspect is remaining close to where old customers will want to get their hair cut or colored.

“A large portion of salon owners are hairdressers, and when they go out on their own they want to maintain all of their clients,” says Barackman, who worked in the salon business for over 20 years before moving on to renting her own suite and then opening Aria Salon this year.

Dyer agrees: “We made sure that, once we decided Music Row was going to be our “spot,” any time we upgraded or moved into larger locations we stayed within one mile of where we were. One mile seems to be the standard for how far people will follow you if you are near your old location.”

Just as it’s important to hold out for the right space, the right staff can make or break your business—so don’t make a rash decision about who to hire just to fill seats when starting out.

“The people you bring on are going to set the tone for what the salon’s reputation will be,” says Barackman. “I put ads on craigslist and LinkedIn, but you rely a lot on word-of-mouth and friends of friends because hairdressers all know each other—so I wasn’t afraid to tap into that network to find people who fit my vision.”

“When I first opened, I worried that I wouldn’t find people to fit my 6 stations, and now I’m thinking, ‘How am I going to add 2 more stations?’ Because I’ve got more people who want to come. So you have to operate in that gap a little bit between getting people to see your vision and knowing they might not get it until they come aboard—so don’t panic and know that, long-term, you have to make the right choices.”

Don’t overdo it

If you want to start a salon, you probably have a grand vision for how it will look, operate, and feel to customers. Chances are, though, that your vision will have a big price tag—one that you won’t necessarily be able to afford in your first days.

Major start-up costs include rent, equipment like seats, hair dryers, and stations, and rent—and those first two costs tend to grow when opening a salon.

“Equipment is super expensive,” advises Dyer. “You don’t have to have the best of everything when you first start. We bought our equipment off of Craigslist from other salons that were closing and got it for over half price. We upgraded as we needed to, but in the beginning it’s not worth it to spend $10,000 on equipment when you really need to put a sign on the outside of your building.”

That process—start small, become big—works for salon space and products as well.

“We went from a 400 square foot salon to a 5,000 square foot space in a repurposed church with 10 employees in a decade. We used to have one or two of each color in stock and order when necessary, now we have 10 of each color we use because we’re busy and need all of those colors rotating in and out,” says Dyer.

There are ways to make your salon inviting and homey without breaking the bank. Try keeping the place tidy, offering hand and scalp massages, and playing music throughout the space—most streaming services have low-cost options that will keep your place humming ad-free. A complimentary glass of wine or cup of coffee might not cost you much, but it can make a big difference to the customer.

Even if you find yourself coming in under budget and are tempted to spend on high-end equipment, don’t forget about some of the hidden costs of a salon.

“A lot of little things that you don’t think about add up,” says Barackman “You have to have service menus printed up because people want to know how much your services cost. And then you have business cards—and when you hire new people, you need to buy them business cards. And then there’s upping your inventory for when new clients come in—although one thing I’ve noticed is that since I’ve opened a salon, distributors have made an effort to help get me products or equipment at low cost, or at no cost, now that I place big orders. So once you’re in, you’re in.”  

Don’t forget to be social

While your hairdressers might bring their old clients over, it’s important to always find ways to bring in new customers and retain them. In this era, that means creating a website and communicating through social media for marketing.

“Social media is huge—we’ve done a lot with Facebook, a lot with Instagram, a lot with Twitter,” says Barackman. “That’s where people go now. We’re absolutely pulling in new business from Facebook alone, overwhelmingly so. People I know loved seeing the process of what I was doing—I posted photos of building the business online—and they shared that with their friends.”

Local advertising is another cost, but one Barackman considers well spent.

“I have the business in a brochure for an upcoming baseball tournament. I’ve put out advertisements in the months leading up to high school prom that we have specials,” says Barackman. “I’m no marketing genius, and if I had the money I’d hire a marketing specialist, but I’m tapping into things like that.”

***

Starting and owning a salon isn’t like starting and owning other small businesses.  

“Making money is not my primary focus—my focus is to create a community, to create a family, and to put together something I can be proud of,” says Barackman.

Anyone who’s become a return customer at a salon can likely attest to appreciating the sense of community that the salon cultivates—as well as the quality of the haircut they receive. In order to ensure that both of these important aspects of the business are kept up, be sure to create and follow your business plan, make sure you’re properly licensed and insured, well outfitted and located (without overspending your budget), and marketing yourself to the fullest. The rest—mainly, the quality salon services—is up to you.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Eric Goldschein

Eric Goldschein

Eric Goldschein is a freelance journalist who covers entrepreneurship, small business trends, emerging technologies, culture and sports. He was previously the managing editor of SportsGrid.com, and has written for Business Insider, Trep Life, the Huffington Post and more.

You can contact him at ericgoldschein.com, or on Twitter at @ericgoldschein.
Eric Goldschein

Our Picks