If you are planning to open a beauty salon, you need to understand how you can turn revenues into profits. In other words, you must know how much revenue you must generate to reach break-even and make profits.
According to Statista research, the US beauty salon industry jumped back from $42 billion in 2020 to $54 billion in 2022. A study by Style Seat revealed that Americans spend $110 a month on beauty, fitness, and wellness. Of this, $46 goes for beauty, $34 for fitness, and $30 for wellness.
What does that tell you in terms of the profits you can make if you own a beauty salon? You’ll have to consider all the costs to break-even and make profits. Let’s dive in!
What is the average turnover for a beauty salon?
If you provide services to 1,000 clients a month, your gross revenue will be $46,000 per month (assuming that the average spending in $46 per client), which translates into $552,000 in gross revenue per year.
However, according to Startup Opinions, the gross turnover of a salon business is around $245,000.
Of course, the overall turnover will depend on various factors that include:
- The total number of clients you serve
- The type of services you are providing (there may be expensive procedures)
- The location where you operate (in affluent locations revenue can be high)
The take-home salary of a salon owner will vary depending on the type of salon. According to The Salon Business, the average take-home salary of salon owners is $70,000 a year.
What is the average profit margin for beauty salons?
Startup Opinions says that the average profit margin of a beauty salon is around 8.2%. However, depending on the management, the profit margin can vary between 2% and 17%.
How much does it cost to run a beauty salon?
There are certain recurring costs you need to incur to run a beauty salon efficiently and they include:
- COGS: This is cost for acquiring products you will use such as oils, hair colors, shampoo, conditioner, etc.
- Rent: You must pay rent for the commercial property you will use to run your business
- Salaries: You must pay salary to your staff
- Utility Bills: You must pay for electricity, water, etc.
- Cleaning Services: You will require janitorial services to keep the facility clean
- Insurance: You will need business insurance, workers’ compensation insurance, etc.
- Marketing & Advertisements: You must spend on marketing your business. You will also need to spend only on advertising
In general, it costs anywhere between $32,500 – $43,200 per month to run a beauty salon.
We’re including below the revenue to profits breakdown chart of a beauty salon generating over $900,000 turnover per year (17% net profit margin):
For more information on how much it costs to run a beauty salon, read our article here.
How to forecast profits for a beauty salon?
In order to calculate profits for a beauty salon, you must first forecast revenues and expenses.
Profits = Revenue – Expenses
Forecasting beauty salon revenue
Revenue can easily be obtained by multiplying the number of customers by the average price per treatment.
Revenue = Customers x Treatment price
For example, if you receive 300 customers in a month paying on average $120 per treatment, monthly revenue is $36,000.
Forecasting beauty salon expenses
There are 2 types of expenses for a beauty salon:
- Variable expenses: these are the COGS as explained earlier. They grow in line with your revenue: if your turnover increases by 10%, variable expenses grow by 10% as well
- Fixed expenses: most salaries, rental costs and all the other costs listed above
Calculating beauty salon profits
When we refer to profits, we usually refer to EBITDA (Earnings before interests, taxes, depreciation and amortization) as it represents the core profitability of the business, excluding things such as debt interests, non cash expenses and other non-core expenses.
In order to get to EBITDA, we use the following formula:
EBITDA = Revenue – COGS – Operating Expenses
To make it clearer, we’ve included below the profit-and-loss of a beauty salon (from our financial model template for beauty salons).
Whilst gross margin (after variable costs) is very high (~85%), EBITDA margin can go up to 20-25% depending on the salon, and net profit margin up to 10-18%.
What is the break-even point for a beauty salon?
Break-even is the point at which total costs and total revenue are equal. In other words, the breakeven point is the amount of revenue you must generate to turn a profit.
Because you must at least cover all fixed costs (that aren’t a function of revenue) to turn a profit, the break-even point is at least superior to the sum of your fixed costs.
Yet, you also need to spend a certain amount for every $1 of sales to pay for the variable costs. As we just saw, salons typically have very high gross margins (85%). That’s because almost all expenses are fixed costs (mostly salaries, rent and marketing).
The break-even point can easily be obtained by using the following formula:
Break-even point = Fixed costs / Gross margin
Using the same example earlier, let’s assume your salon makes $36,000 in turnover per month and has the following cost structure:
|Operating cost||Variable vs. fixed||Amount (per month)|
|Employee salaries||Fixed cost||$15,000|
The break-even point would then be:
Break-even point = Fixed costs / Gross margin %
= $22,500 / 85% = $26,500
In other words, you need to make at least $26,500 in sales to turn a profit.
How to increase profits for a beauty salon?
It is possible to increase the profits for a beauty salon using various strategies. Here is what you can do:
- Sell Gift Cards & Vouchers: These can open a new revenue stream
- Introduce Frequent Flyer: Provide special offers to clients who come to your salon regularly
- Sell Membership Packages: Introduce membership packages because subscriptions can ensure a steady flow of cash
- Use Referral Program: Using a referral program will help to increase customer loyalty and grab new customers
- Specialize: Specialize in a specific niche. This can help you to find loyal customers
- Social Media: Use social media platforms to increase salon visibility
- Use Online Booking Software: Online booking software can help you to collect payments immediately, reduce no-shows, and prevent blocking-out times
Learn about these strategies in details in our article here.