23 data to include in the business plan of your hair salon business

This article was written by our expert who is surveying the industry and constantly updating the business plan for a hair salon business.

Our business plan for a hair salon business will help you build a profitable project

Ever pondered what the ideal product-to-service ratio should be to ensure your hair salon remains profitable?

Or how many clients need to be scheduled during a bustling Saturday to meet your revenue goals?

And do you know the optimal stylist-to-client ratio for a full-service salon?

These aren’t just interesting figures; they’re the metrics that can determine the success or failure of your business.

If you’re crafting a business plan, investors and lenders will scrutinize these numbers to gauge your strategy and potential for success.

In this article, we’ll explore 23 crucial data points every hair salon business plan needs to demonstrate you're prepared and poised for success.

Stylists' commission should range between 40-60% of service revenue to attract and retain talent

Stylists' commission should range between 40-60% of service revenue to attract and retain talent because it provides a competitive and fair compensation structure that aligns with industry standards.

Offering a commission within this range ensures that stylists feel adequately rewarded for their skills and efforts, which is crucial for maintaining high job satisfaction. This compensation model also helps salons to attract top talent who are looking for opportunities where their hard work is recognized and financially compensated.

However, the exact percentage can vary depending on factors such as the salon's location, clientele, and the level of experience of the stylists.

For instance, salons in high-cost areas might offer a higher commission to account for the increased living expenses, while those with a steady flow of clients might offer a lower percentage but with more frequent opportunities for work. Additionally, more experienced stylists might negotiate a higher commission due to their ability to bring in loyal clients and generate more revenue for the salon.

Salon product sales should account for 15-25% of total revenue to maximize profitability

Salon product sales should ideally make up 15-25% of total revenue because this range helps balance service income with retail profits, enhancing overall profitability.

When a salon sells products, it not only boosts revenue but also strengthens customer loyalty by offering a complete beauty experience. This range ensures that salons are not overly reliant on service income, which can be more variable due to factors like seasonality and client availability.

By maintaining a healthy mix of service and product sales, salons can better manage cash flow and reduce financial risk.

However, this percentage can vary depending on the salon's location, target market, and business model. For instance, a high-end salon in a metropolitan area might see a higher percentage of revenue from product sales due to a clientele that values premium products, while a smaller, local salon might focus more on services to meet the needs of its community.

An average salon turnover rate is around 30-50%, so plan for ongoing recruitment and training costs

The high turnover rate in hair salons, averaging between 30-50%, is a significant factor to consider for business owners.

This turnover can be attributed to several factors, including the competitive nature of the industry and the desire for stylists to seek better opportunities or work environments. Additionally, many stylists are independent contractors, which means they might leave for more flexible or lucrative arrangements.

As a result, salon owners must be prepared for ongoing recruitment and training expenses to maintain a skilled workforce.

However, the turnover rate can vary depending on specific circumstances, such as the salon's location, reputation, and management style. For instance, salons that offer competitive compensation and a positive work culture may experience lower turnover rates, while those in high-demand areas might face more frequent staff changes.

60% of salons fail within the first three years, often due to poor location choice and cash flow issues

Many hair salons struggle to survive beyond the first three years, with a significant 60% failing, primarily due to poor location choice and cash flow issues.

Choosing the right location is crucial because it affects customer accessibility and visibility, which are essential for attracting clients. A salon situated in a low-traffic area or one with limited parking can deter potential customers, leading to insufficient revenue.

Cash flow problems often arise from underestimating expenses and overestimating income, which can quickly deplete a salon's financial resources.

However, the success rate can vary depending on factors like target market and business model. For instance, salons that cater to a niche clientele or offer unique services may find it easier to thrive despite a challenging location or initial cash flow hurdles.

Salons should aim to reach a break-even point within 12 months to be considered viable

Salons should aim to reach a break-even point within 12 months to be considered viable because it indicates that the business can cover its costs and start generating profit in a reasonable timeframe.

In the hair salon industry, operational costs such as rent, utilities, and staff wages can be significant, so reaching break-even quickly helps ensure these expenses are sustainably managed. Additionally, achieving this milestone within a year demonstrates that the salon has successfully attracted a steady clientele and established a reliable revenue stream.

However, the timeline to break-even can vary depending on factors like location, competition, and the salon's initial investment.

For instance, a salon in a high-traffic urban area might reach break-even faster due to higher customer volume, while a salon in a less populated area might take longer. Moreover, salons that offer unique services or have a strong brand presence might also achieve break-even sooner, as they can attract customers more effectively.

Service profit margins are generally 50-70%, making upselling treatments crucial for profitability

In a hair salon business, service profit margins are typically high, ranging from 50-70%, which makes upselling treatments a key strategy for enhancing profitability.

These margins are largely due to the fact that the cost of labor and products used in services like haircuts and coloring are relatively low compared to the prices charged to clients. By upselling additional treatments, such as deep conditioning or specialized styling, salons can significantly increase their revenue per customer.

However, the actual profit margin can vary depending on factors like the salon's location, the experience level of the stylists, and the types of services offered.

For instance, a high-end salon in a metropolitan area might have higher operating costs, which could lower its profit margins, making upselling even more crucial. On the other hand, a smaller salon in a rural area might have lower overhead costs, allowing for more flexibility in pricing and potentially higher margins without aggressive upselling.

Prime cost (labor and product) should stay below 55% of revenue for financial health

In a hair salon business, keeping the prime cost—which includes labor and product expenses—below 55% of revenue is crucial for maintaining financial health.

Prime costs are a significant part of a salon's expenses, and if they exceed 55%, it can lead to profitability issues. This threshold allows for a healthy balance between covering costs and ensuring there is enough revenue left for other expenses like rent, utilities, and marketing.

When prime costs are kept in check, it provides the salon with the flexibility to invest in growth opportunities and improve service quality.

However, this percentage can vary depending on factors such as the salon's location, the target market, and the level of service provided. For instance, a high-end salon might have higher labor costs due to skilled stylists, but it can offset this with higher pricing, while a budget salon might need to keep costs even lower to remain competitive.

Salons should ideally reserve 1-2% of revenue for equipment maintenance and replacement annually

Hair salons should ideally allocate 1-2% of their revenue for equipment maintenance and replacement annually to ensure smooth operations and avoid unexpected breakdowns.

Regular maintenance helps in extending the lifespan of salon tools, which can be quite expensive to replace, and ensures that the equipment is always in top working condition, providing the best service to clients. By setting aside a small percentage of revenue, salons can plan for these expenses without disrupting their cash flow.

However, this percentage can vary depending on the size and type of the salon, as well as the frequency of equipment use.

For instance, a high-end salon with premium equipment might need to allocate a bit more due to the higher cost of parts and repairs. On the other hand, a smaller salon with less frequent usage might find that 1% is sufficient to cover their needs.

A successful salon should aim for a client retention rate of at least 70%

A successful salon should aim for a client retention rate of at least 70% because it indicates a strong level of customer satisfaction and loyalty.

When clients return regularly, it not only ensures a steady stream of revenue but also reduces the costs associated with acquiring new customers. Retaining clients is generally more cost-effective than constantly seeking new ones, as it involves less marketing and promotional expenses.

Moreover, loyal clients are more likely to refer others, further enhancing the salon's reputation and client base.

However, the ideal retention rate can vary depending on the salon's location, target market, and services offered. For instance, a high-end salon in a competitive urban area might need a higher retention rate to maintain profitability, while a smaller, niche salon in a less competitive area might thrive with a slightly lower rate.

Inventory turnover for retail products should happen every 30-45 days to avoid overstock and ensure freshness

In a hair salon business, maintaining an inventory turnover every 30-45 days is crucial to avoid overstock and ensure product freshness.

Hair care products, such as shampoos and conditioners, can lose their effectiveness over time, so it's important to keep them fresh for optimal results. Additionally, having a high turnover rate helps in minimizing the risk of products becoming outdated or less appealing to customers.

However, the ideal turnover rate can vary depending on the specific products and customer demand.

For instance, specialty products like hair treatments or color-specific shampoos might have a slower turnover due to their niche market. On the other hand, high-demand items like basic shampoos and conditioners should be restocked more frequently to meet customer needs and maintain consistent sales.

It's common for salons to lose 2-4% of revenue due to product shrinkage or theft

It's common for salons to lose 2-4% of revenue due to product shrinkage or theft because of the nature of the business and the products involved.

Hair salons often stock a variety of high-value products like shampoos, conditioners, and styling tools, which can be tempting targets for theft. Additionally, the busy and sometimes chaotic environment of a salon can make it difficult to monitor every product, leading to unintentional shrinkage through misplacement or accidental damage.

Moreover, the frequent handling of products by multiple staff members increases the risk of internal theft, as it can be challenging to track who is using or taking what.

However, the extent of revenue loss can vary depending on factors such as the size of the salon and the effectiveness of its inventory management systems. Smaller salons might experience less shrinkage due to a more controlled environment, while larger salons with more staff and clients might face greater challenges in preventing theft and managing inventory.

A salon's rent should not exceed 10-15% of total revenue to avoid financial strain

A salon's rent should ideally be kept between 10-15% of total revenue to maintain financial health.

When rent exceeds this percentage, it can lead to financial strain as it reduces the funds available for other essential expenses like staff salaries, supplies, and marketing. Keeping rent within this range ensures that the salon can invest in growth and maintain a buffer for unexpected costs.

However, this percentage can vary depending on the salon's location and target market.

For instance, a salon in a high-traffic area might justify a higher rent percentage due to increased customer flow and higher service prices. Conversely, a salon in a less competitive area might need to keep rent lower to remain profitable, as it may not have the same pricing power or customer volume.

Upselling during peak hours can increase average ticket size by 15-25%

Upselling during peak hours in a hair salon can significantly boost the average ticket size by 15-25% because clients are already in a spending mindset and more open to additional services.

During these busy times, clients often have to wait, which provides an opportunity for stylists to suggest additional treatments like deep conditioning or hair glossing. Moreover, the salon atmosphere is usually more vibrant and engaging, making clients more receptive to trying new products or services.

However, the effectiveness of upselling can vary depending on the client's preferences and the stylist's ability to communicate the benefits of the additional services.

For instance, a regular client who trusts their stylist might be more inclined to try a new service, while a first-time visitor might be more cautious. Additionally, the success of upselling can also depend on the time constraints of the client, as those in a hurry may decline any extra services regardless of the benefits.

The average profit margin for a salon is 8-10%, with higher margins for express services and lower for luxury services

The average profit margin for a salon is typically between 8-10% because of the balance between service costs and pricing strategies.

Express services, like quick haircuts or blowouts, often have higher profit margins because they require less time and fewer resources to perform. On the other hand, luxury services, such as elaborate coloring or treatments, tend to have lower profit margins due to the higher cost of materials and the time-intensive nature of these services.

In specific cases, a salon's location and clientele can significantly influence these margins.

For instance, a salon in a high-end area might charge more for luxury services, potentially increasing their profit margin despite higher costs. Conversely, a salon in a more budget-conscious area might focus on express services to maintain profitability, leveraging volume over individual service profit.

Average ticket size should grow by at least 3-5% year-over-year to offset rising costs

In a hair salon business, the average ticket size should grow by at least 3-5% year-over-year to offset rising costs because expenses such as rent, utilities, and product supplies tend to increase annually.

Without this growth, the salon might struggle to maintain its profit margins, which could lead to financial instability. Additionally, increasing the average ticket size helps to cover the costs of staff wages and potential investments in new equipment or services.

However, the rate at which the average ticket size needs to grow can vary depending on the salon's location and target market.

For instance, a salon in a high-demand urban area might need to increase prices more aggressively due to higher operational costs. Conversely, a salon in a smaller town might have more flexibility, as their cost structure could be lower, allowing for a more modest increase in ticket size.

Ideally, a salon should maintain a current ratio (assets to liabilities) of 1.5:1

In the hair salon business, maintaining a current ratio of 1.5:1 is considered ideal because it indicates a healthy balance between assets and liabilities, ensuring the salon can meet its short-term obligations.

This ratio means that for every dollar of liabilities, the salon has $1.50 in assets, providing a cushion to cover unexpected expenses or downturns in business. A ratio lower than 1.5 might suggest that the salon could struggle to pay its bills, while a much higher ratio could indicate that the salon is not effectively using its assets to grow the business.

However, this ideal ratio can vary depending on specific circumstances, such as the salon's size, location, and business model.

For instance, a small salon in a competitive area might need a higher ratio to ensure it can weather periods of low customer turnout. Conversely, a well-established salon with a steady client base might comfortably operate with a slightly lower ratio, as it has more predictable cash flow.

Effective service menu engineering can boost revenue by 10-20% by highlighting high-margin services

Effective service menu engineering can significantly boost a hair salon's revenue by 10-20% by strategically highlighting high-margin services.

By carefully designing the menu, salons can draw attention to services that offer the best profit margins, such as premium hair treatments or specialized styling. This not only encourages clients to choose these options but also helps in maximizing the salon's overall profitability.

Additionally, a well-structured menu can simplify decision-making for clients, making them more likely to opt for higher-value services.

However, the impact of menu engineering can vary depending on factors like the salon's target clientele and location. For instance, a salon in a high-end area might see a greater increase in revenue by promoting luxury services, while a salon in a more budget-conscious area might benefit from highlighting affordable yet profitable options.

A salon should have 1-1.5 square meters of workspace per stylist to ensure efficiency

A salon should allocate 1-1.5 square meters of workspace per stylist to ensure they can work efficiently and comfortably.

This space allows stylists to have enough room for their tools and equipment, which is crucial for maintaining a smooth workflow. Additionally, it helps in minimizing the risk of accidents or disruptions, as stylists won't be bumping into each other or their clients.

However, the exact space requirement can vary depending on the specific services offered by the salon.

For instance, salons that provide more extensive services like hair coloring or treatments may need more space per stylist to accommodate additional equipment and supplies. On the other hand, a salon focusing on quick haircuts might manage with slightly less space, as the service demands are different.

Client satisfaction scores can directly impact repeat business and should stay above 85%

Client satisfaction scores are crucial for a hair salon because they directly influence the likelihood of customers returning for future services.

When satisfaction scores are above 85%, it indicates that the majority of clients are happy with their experience, which fosters customer loyalty and encourages them to come back. Repeat business is essential for a salon's financial stability and growth, as acquiring new clients often costs more than retaining existing ones.

However, satisfaction scores can vary based on factors like the quality of service provided, the skill level of the stylists, and the overall salon environment.

For instance, a client who receives a haircut that exceeds their expectations is more likely to rate their experience highly and return. On the other hand, if a client feels their stylist didn't listen to their preferences, their satisfaction score might drop, impacting their decision to revisit the salon.

Salons in high-density areas often allocate 2-4% of revenue for online booking and marketing platforms

Salons in high-density areas often allocate 2-4% of revenue for online booking and marketing platforms because these tools are crucial for attracting and managing a large customer base.

In bustling urban environments, the competition among salons is fierce, and having a strong online presence can be a significant differentiator. By investing in online booking systems and digital marketing, salons can streamline operations and reach potential clients more effectively.

This allocation can vary depending on the salon's size, target market, and specific business goals.

For instance, a high-end salon targeting affluent clients might spend more on luxury branding and personalized marketing strategies, while a smaller salon might focus on cost-effective social media campaigns. Ultimately, the percentage of revenue spent on these platforms is a strategic decision that reflects the salon's unique needs and market position.

Digital marketing should take up about 5-7% of revenue, especially for new or growing salons

Digital marketing should take up about 5-7% of revenue, especially for new or growing salons, because it helps establish a strong online presence and attract new clients.

For a hair salon, investing in digital marketing is crucial as it allows you to reach a wider audience and showcase your unique services. This percentage of revenue ensures that you have enough resources to create engaging content, run effective ad campaigns, and maintain a professional website.

New or growing salons often need to build brand awareness and customer loyalty, which can be effectively achieved through targeted digital marketing strategies.

However, the exact percentage can vary depending on specific factors such as the salon's location, competition, and target audience. For instance, a salon in a highly competitive urban area might need to allocate more than 7% to stand out, while a salon in a smaller town with less competition might find 5% sufficient.

Seasonal promotions can increase sales by up to 20% by attracting repeat customers

Seasonal promotions can boost sales by up to 20% in a hair salon by enticing customers to return more frequently.

These promotions often create a sense of urgency and excitement, encouraging clients to book appointments they might otherwise delay. For instance, offering a discount on hair coloring during the fall can attract clients looking to change their look for the new season.

Moreover, repeat customers are more likely to try additional services, such as a deep conditioning treatment or a new haircut style, when they feel they are getting a good deal.

However, the effectiveness of these promotions can vary based on factors like location and clientele. In areas with a high concentration of salons, unique and well-targeted promotions are crucial to stand out, while in less competitive areas, even simple discounts can be effective.

Establishing a product cost variance below 3% month-to-month is a sign of strong management and control.

Establishing a product cost variance below 3% month-to-month in a hair salon business is a sign of strong management and control because it indicates that the salon is effectively managing its resources and maintaining consistent pricing strategies.

In a hair salon, product costs can fluctuate due to factors like supplier price changes or seasonal demand for certain products. By keeping the variance below 3%, the salon demonstrates its ability to adapt to these changes without significantly impacting its overall financial health.

This level of control suggests that the salon has implemented efficient inventory management practices and has a good understanding of its product usage patterns.

However, the acceptable variance can vary depending on specific cases, such as the size of the salon or the range of services offered. For instance, a larger salon with a more extensive product line might experience slightly higher variances due to complex supply chains, while a smaller salon with fewer services might maintain a tighter control over costs.