Overhead refers to those regular costs and expenses associated with running a business. If you currently own a salon, are considering opening a salon, or are responsible for running and managing a salon, then you already know how much your overhead costs impact your cashflow and profit. But is there anything that you can do to make it more manageable?
Yes! In fact, there are a number of steps that you can take to reduce your salon’s overhead costs so that you can keep more of your hard-earned money in your pocket or reinvest it in your business. Here, we walk through some of the most common overhead costs you’re likely to encounter as a salon owner and also offer tips you can use to get these costs as low as possible.
What makes up your salon’s overhead?
As mentioned above, your overhead costs are any of those regular, often recurring, expenses that go into running your business. For a salon, overhead will typically include things like:
- Rent, if you are renting your space, which is likely to form one of your largest recurring expenses
- Utilities, such as water, heat, and electricity
- Payroll, if you have employees such as commission-based stylists or front-end staff
- Salon inventory, including color, equipment, and supplies used to complete services as well as any retail product that you might sell
- Taxes, related to payroll, sales, property, etc.
- Insurance, such as business, property, and liability insurance
- Software and POS systems, which allow you to manage appointments and process payments
- Marketing expenses, including any website, advertising, and branding costs
- Legal and consulting fees, which are more likely to be one-off expenses used in creating employee contracts, handbooks, and salon policies.
- Training expenses and professional development for your stylists and staff
Depending on your unique business, you may find that other expenses contribute to your overhead as well. Before trying to reduce your costs, sit down and spend 30 minutes to an hour conducting an audit that will allow you to compile a full list of your expenses. The simple act of conducting this audit can help you identify areas to trim.
2 Easy Ways to Reduce Your Salon’s Overhead
1. Think carefully about your salon software or POS systems.
When you’re first getting started opening your salon, there are a lot of exciting things to think about. Choosing your salon software or point-of-sale (POS) systems is not one of those things. This causes many new owners to just settle for whatever system looks like it’ll get the job done, without fully understanding the impact that it can have on their bottom line.
Case-in-point: Many POS systems charge you for each transaction you run (either as a percentage of the sale or as a flat fee). While the number may seem small (anywhere from 0.25% to 2.5%, depending on the system), when you look at how many transactions you complete over any given week or month, it really adds up.
So, when choosing a salon software or POS system it’s important to first understand what you are looking to get out of this software. Split your list into a column of “must haves” and “wants” or “nice-to-haves,” and use this list to evaluate your options.
Keep in mind that today’s salon software and POS systems offer so many options and functionalities. This is great if you truly need all of those things, but the truth is that most salons won’t need every function. Instead of buying a software that does everything “just in case you need it,” choose the one that does only what you absolutely need and want right now. This will help you keep your recurring expenses low. You can always add on to your existing software if something comes up.
2. Think critically about your salon’s inventory.
In purchasing inventory for use in your salon, it can also be tempting to stock up on certain products in order to get lower prices or to capitalize on a sale. But while buying in bulk can be a good idea if you are truly going to use all of that product in a reasonable amount of time, it can also be detrimental to your business for one simple reason: It takes cash out of your wallet and locks it in product. Plus, depending on how much you buy, you might also need to rent space to store all of your supplies, which only adds to your expenses.
That’s why we typically recommend that you only buy what is absolutely necessary for your business to operate. You want to walk the fine line between having way too much product on hand and running out every month. In a world where most companies offer next-day or even same-day delivery, there is simply no need to have a large color room stocked to the ceiling with color or other salon supplies.
For this method to work, it’s critical that you keep track of everything that is being purchased, as well as how long it typically takes for you to use that product. That will give you the data you need to forecast out your product needs accurately and effectively.
Here’s one easy way to keep track of your salon’s inventory:
- Before placing an order, print out a spreadsheet that lists all of the products you need in your salon.
- Highlight everything depending on whether you need to place an order for that specific product this week or not. Use one color for items that need to be ordered, and a different color for those that do not need to be ordered.
- File it away. Repeat this process for 6-8 weeks depending on how often you’re placing orders.
- If in 6-8 weeks you find that an item you had marked as “does not need to be ordered” still doesn’t need to be ordered, then it’s time to reconsider that item. Either it’s time to phase the product out, because it isn’t selling or being used; or it’s time to reduce how much you order, because you clearly have too much on hand.
This process is especially helpful and important for color and retail products, as these eventually expire. Expired products can’t be sold to your customers, and many suppliers will not issue refunds, which means that anything that expires translates into lost money.
Want to learn more about running your salon effectively and profitably? Download our Business Policies Checklist to make sure you’ve got all of your policies ironed out, and consider signing up for our Virtual Salon Ownership Seminar that will provide major tips and education behind business planning, management systems, marketing, and so much more.