Why It Might Be Time to Update Your Salon’s Pricing Strategy In Tough Times

Why It Might Be Time to Update Your Salon’s Pricing Strategy In Tough Times
Do you need to update your salon’s pricing strategy? Explore cost-plus, market-based, value-based pricing, loyalty programs, promotions, upselling, and more in this article.
by Square Aug 02, 2023 — 7 min read
Why It Might Be Time to Update Your Salon’s Pricing Strategy In Tough Times

For many businesses, times are tough right now. With inflation, rising interest rates and energy bills, it’s no wonder some business owners are nervous. For those in the beauty and personal care industry, there are many factors contributing to the increased pressures business owners are facing. Rising rental costs, insurance premiums, labour costs, tightening supply chains and customers less willing to part with their hard-earned cash – it all adds up.

For new or soon-to-be business owners, the Australian Government has a useful guide that gets into the nuts and bolts of small business pricing strategies. But current economic conditions should serve as a nudge for those already in the beauty and personal care industry, in particular, to take a good look at their pricing strategy to ensure it’s still competitive and aligned with their business goals.

Keep in mind that pricing is the amount your charge for your services and products, but it’s far more than that. Think of it as one of your most important signals to your customers about how you value your brand and where you believe it sits within your market. Choosing your prices is a critical tool for pushing or pulling different customers towards your salon – so it’s worth putting thought into.

Ultimately, the features of your pricing strategy will depend on the services and products your salon or business provides, your marketing strategy, your eCommerce landscape and even your physical location. But there are several tried and tested pricing strategies that you might consider to help attract new customers and ensure your existing customers keep coming through your door.

Cost-plus pricing

One of the simplest strategies, cost-plus pricing means working out the cost of a product or service and adding a profit margin. Salons’ costs are heavily weighted to services, so a good starting place might be to work out the base hourly rate each team member, based on their level of experience, needs to be charged out at to allow for a healthy margin, one that makes all your effort worthwhile and allows for the growth of your salon.

While you’re looking at wages, don’t forget all the other hidden costs that go into running your salon. These include rent, utilities, the cost of the product, the salon’s fit-out, and marketing – you’ll likely be surprised what your real costs come to each month.

Market-based pricing

This model only looks at what competitors are doing. It’s locality based and decides, for example, that the price of a gel manicure in your area is typically $60. This relies on two assumptions: your competitors have created price lists that cover their costs (not always a given!) and allow for a sustainable profit margin, and their services and yours are interchangeable commodities – that, in other words, you’re comparing apples with apples.

It’s a pricing strategy based on the idea that customers in your area are accustomed to paying a certain price for a particular service. The implication is that everything else being equal, a salon that cuts its rates below the going rate will take more market share. Which sounds like a race to the bottom, right?

That said, you’re the best judge of the right strategy for your business. If you believe there’s room to undercut your competitors, and that there are a lot of people out there shopping on price, then this could be the best strategy for you.


Value-based pricing

Much of the value of health and beauty services is subjective. Value-based pricing sets the price of a good or service based on its perceived value. As such, it can be a useful tool for those in the beauty and personal care industries. It allows you to account for the perceived value of your services versus those of your competitors and can break you free from the apples-to-apples “In this town a gel manicure costs $60” mentality. Because you can place a value on looking and feeling amazing, and if you’re helping your clients achieve that – and they’re willing to pay for it – then it doesn’t necessarily matter if the same service is $5 cheaper down the road.

Of course, it will help to understand your clientele and their willingness to pay. Value-based pricing might work better in affluent areas, or for wealthy demographics, where customers have plenty of disposable income. If your market segment is young, thrifty students, then keen pricing – perhaps with discounts offered on some of your quieter days – could be a better play.

Area demand

In the earlier example of market-based pricing, we assumed that there was uniform supply and demand in your local market. Plenty of manicurists, and plenty of customers – all competing on price. But if you know for a fact that there’s a particularly high demand for manicures in your area, and not enough salons providing the service, then it stands to reason that you have more freedom to set a fair asking price.

If you want to stimulate demand you could consider running an introductory discount offer. Keep in mind though that this will shape the perceived value of your services. It also eats into your profit margin in a way that means you’ll have to sell more appointments just to make the same gross profit. For example, with a $100 service that has a $20 profit margin, a 10% discount means you’ll make $10. You now need to sell twice as many to make the same $20.

Tiered pricing

Many salons create different pricing tiers based on factors such as the level of experience of stylists or other staff, the complexity of the service, or the use of premium products. This variation in service pricing allows customers to choose the level of service that best suits their needs and budget, and greatly expands your potential customer base.

Bundle pricing

Bundled packages that combine multiple services at a discounted price are a great way to expose customers to more of your products and services while also delivering them cost savings. For example, you could create a package that includes a haircut, blow dry and colour services, or combine a haircut with a hair product.

Loyalty programs

A membership or loyalty program might involve customers paying a monthly or annual fee to receive discounted services or special perks, such as priority bookings or invitations to special events. Or, a points-based loyalty program might reward repeat customers with discounts or free services. This approach is a great way to build customer loyalty, so clients return to you – and not the salon down the road!

Promotions and discounts

Seasonal promotions or limited-time discounts can attract new customers and generate excitement among your existing clientele. For example, you could offer discounted rates during slower business periods or run holiday- and event-specific promotions. You might even offer a discount to customers on their birthday!

Upselling and add-on services

If you and your colleagues suggest complementary services or additional treatments during a customer’s visit, you may increase the overall value of each transaction.

All of these pricing strategies hold water, and you will no doubt find that some work better for you than others. It all comes down to your business and the context in which you’re operating. There are other factors to keep in mind, too. For example, the regularity of your price increases will depend on your circumstances and market conditions. An annual approach works for many businesses, with increases being implemented at the start of the new financial or calendar year. How long has it been since you raised your prices? It might be time to consider a small increase.

But even with sharp and considered pricing strategies in place, economic headwinds can eat into profits. Simply raising your prices is only one way to attempt to mitigate the effects of a tight economy. There are several other steps you could consider as part of your pricing strategy review.

To help remain profitable, you might consider these factors:

Cost efficiency

Review your salon’s expenses to identify areas where costs can be reduced or eliminated, without compromising the quality of service. You might look to optimise inventory management, or negotiate better deals with your existing suppliers, or explore doing business with new suppliers.

High margins, greater focus

Your highest-margin services and products should be your focus. Promote these to your customers and you may just increase your overall profitability. You might even choose to increase your prices on these services to really drive impact. And while no customer likes to pay more for products and services, most will understand when you explain the need for your business to remain profitable – just make sure you communicate the increases with them clearly!

Keep your friends close!

Sure, you can invest time, effort and money into acquiring new customers. But in tough economic circumstances, it’s more cost-effective to retain existing ones. You might consider implementing a loyalty program or other incentives to encourage repeat business. With exceptional customer service and strong relationships, your loyal customers are more likely to remain engaged and satisfied.

Build on what you do best

You might consider expanding your service offerings to cater to a broader range of customers. You could introduce additional treatments, or new products. A nail salon might introduce spa services, or a hair salon might introduce makeup application. Diversifying your offerings can attract new customers, satisfy existing ones, and increase revenue streams.

Don’t forget the niche markets

You’d be wise to identify and target niche markets that may be less affected financially. Could your salon become mobile, offering services for weddings and hens parties, school formals and other events?

Double down on low-cost marketing

Cost-effective marketing strategies are a great way to promote your salon without spending a fortune. Your free social media platforms, low-cost email marketing and online advertising all help sell your brand to your target market (and those niches markets as well!) Square Marketplace is a great way to explore the apps that can be integrated with Square to help implement these marketing strategies.

Training & learning

By continuously upskilling and training your staff, you’ll improve their skills and efficiency, and no doubt their work satisfaction! That, in turn, will lead to higher-quality services (and boost customer satisfaction, too!) Efficiently scheduling appointments with Square Appointments will also allow you to simplify scheduling and optimise employee productivity so you can get on with running your business.

Business partnerships

If your salon or personal care business is facing financial challenges, there’s a good chance other businesses are too. Why not establish a partnership with different-but-related businesses? You might choose to partner with bridal boutiques or other retailers, event planners and photographers, florists and cafes. Joint promotions or cross-marketing opportunities will leverage your business profile (and theirs!).

Stay updated, adaptable (and positive!)

It’ll pay dividends to stay informed about industry news, consumer trends and economic conditions. And with your toolkit of pricing strategies, you’ll be able to remain adaptable so you can meet changing demands and market dynamics. With flexibility, proactivity and positivity, your business will be better placed to ride out whatever the economy throws at it.

Revisiting and rethinking your business’s pricing strategy should be done regularly. But if your profits have taken a hit, there’s no time to waste. Re-assessing your pricing strategy now may well yield results that see your services expanding, your customer base growing, and may ultimately drive more profitability for your business.

The Bottom Line is brought to you by a global team of collaborators who believe that anyone should be able to participate and thrive in the economy.


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