How to Insulate Your Salon or Spa Against Inflation

Inflation, inflation, inflation. You can’t go through an hour of the day without hearing about it right now. Aside from the dreaded “r” word (I'm talking about recession), it’s something salon and spa owners would prefer not to have to think about. Inflation is defined as a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency. Monetary advisors say that 2% inflation is an ideal target; in Australia, we’re currently at 7-8%.  

In July, supplier prices moderated to the slowest increase since spring of 2021, a good sign. However, first-time mortgage applications were down and unemployment claims are up, which are both negative signs. And yet somehow, we still don’t have enough estheticians, hair stylists, or massage therapists. Higher prices drive consumers to slow their spending, and the cycle becomes a self-fulfilling prophecy.

If we’ve learned anything at all over the past few years, we know we’re in a state of constant change. And our success may depend on our ability to be prepared for change—not surprised by it. The small business owner’s best strategy, for the moment, is to lower expenses and increase revenue. Sounds obvious, but the underlying purpose is to preserve whatever profit margin you have.

Easier said than done, and we know that many of these tasks have been undertaken over the last two years. But here are a few actions to keep top of mind for the next several months:

Revenue growth ideas

Fine-tune your offerings

Review your treatment menu and retail pricing and make sure you’re offering an array of options across price ranges. This will ensure that a wider group of clients can find a service for a price they’re comfortable with.

Growing revenue doesn’t help you if the costs grow at the same time. With your financial professionals, do a deep dive into your financials. Determine the cost of delivering each service, including all aspects of labour and supply, and compare it to the revenue being brought in. You will likely find that a small number of treatments and products are driving a high share of your profit margins. Once you know what those are, focus on promoting these particular options.

Optimise your scheduling

For appointment-based businesses, your schedule is the key to your revenue. Time that’s wasted cannot be recaptured! If you’re not doing this already, assign your front desk staff or your management team members to review the schedule on a continual basis—ensuring that schedules are optimised to maximise capacity. Eliminate unnecessary gaps or turn times in the book, so you can increase capacity and sales without lowering your profit margin. High utilisation is king, especially if you’re paying your technical staff hourly wages.

Focus on retail

Have you considered new ways to drive additional footfall and appointments? An example would be a low-cost option such as a donation-based tea bar or retailing pre-packaged food items; depending on your location this can give clients one more reason to stop in, and perhaps have a service or buy a retail item while they’re there.

Another effective method for driving revenue would be to broaden your retail selection. As consumers are sensitive to increases in petrol prices, making fewer stops is very appealing. You can introduce a new category such as inexpensive and trendy jewellery, bath and body products, or home gifts. This would require an outlay of cash, but these items can carry much higher margins than traditional beauty retail.

Explore unattended treatment options

Further to the margin conversation, can you turn little-used treatment or retail space into revenue-producing space by introducing some unattended treatments? Using PEMF/Infrared mats, music, and meditation with binaural headsets and LED treatments are relatively easy to set up and don’t require a technician. With a promotional pricing strategy, they’re also excellent at filling small gaps in the schedule for guests who may be waiting.

Add variety to the customer experience

Is there a different path for you to reach your customers? If virtual services or interactions are an option (one which you may have explored in 2020), this could be the time to reintroduce them. Or perhaps offering a pop-up booth or experience in conjunction with another business or event, especially if it gives you exposure to new clients.

Supply-side tactics

While you may receive better individual pricing by consolidating orders with a particular beauty supplier, consider creating relationships with alternate suppliers to protect against price increases or supply shortage situations, or both.

However, if you use a ton of any one item (massage oil, 20% clear peroxide), consider stocking up if it raises your margin and if you can find storage without creating additional expense.

Where possible, and again when storage space is not an issue, consider shopping for bulk discounts at stores.

Financial considerations

We learned this lesson at the onset of the pandemic, cash flow is king. What’s your cash position now? Do you have enough to make it through even a short downturn of 3-4 weeks? Do what you can to preserve cash now.

While consumers are price-sensitive, and you have likely raised prices a few times over the last few years, make a herculean effort to avoid discounts and promotions to market your services, especially as that lowers your margin. If you go that route, consider the homework from the revenue section of this blog, and target your higher-margin services for promotional pricing.

You can also work with suppliers to stretch out your payment terms. If you’re operating on a collect-on-delivery (COD) basis, ask for net 30 or 45 terms, so you can keep your cash a little longer.

Reach out to lenders, banks, and credit card companies you’re doing business with and investigate if better terms may be available. Doing so now puts you ahead of a general rush should a downturn happen, and you’ll be surprised what may happen just by asking.

Expense-side options

You’ve probably been down this road, but it may be time to review your monthly expenses and be sure to eliminate unused or underused subscriptions or services. So many businesses are operating on a subscription basis now that you may be spending on a service or item you don’t really need.

Many businesses are citing higher energy costs as a challenge, and salons and spas use plenty of power. Consider motion-detector switches in bathrooms or infrequently used areas to cut energy costs and revisit your guidelines for closing down in the evening, making sure anything electrical is turned off. Some experts say that lowering your temperature even by one degree will save 2-3% on your energy bill. Spas can use heated table pads to keep partially clad guests warm.

When you review your monthly expense use, cut where you can, but be careful not to negatively impact your client experience. There may be less expensive ways to provide fresh flowers and a bowl of nuts, but don’t do away with these niceties entirely. Your guests are coming to you for a slice of pampering as well as for personal maintenance, and we don’t want them to question the value of what is provided.

Overall strategies

We’ve all learned the value of social media; now is the time to leverage the less costly aspects of social media marketing such as shares, referrals, stories, and reels.

Mindbody and Booker, as with other programs, have many digital options for intake forms and agreements that both eliminate paper and save time. Make sure you’re getting the most out of your software capabilities by digitising what you can.

Keep a steady presence at your local beauty and massage schools, hosting them for visits and participating in any job fairs or education they need help with. They’re seeing less enrolment, so you want to be first in line for graduates to keep your appointment supply at a high level.

Owning a business that comes with a plan to minimise risk is the key to success in franchising; if you’ve got a great operating model, now might be the ideal time to consider this route of expansion.

Be sure to continually communicate with your customers both on social media and through email, texts, and whatever methods they have opted-in on. Let them know how much you value them and keep them abreast of your efforts to remain front-and-centre in their lifestyle community.

Meet regularly, as often as weekly, with your management team and keep your finger on the pulse of business trends. Using business creativity and ensuring you have the ability to pivot quickly are always keys to long-term success