Cost Cutters Hair Salon: (Still) a Very Profitable Franchise

Despite a decrease of continued locations over the past few years, Cost Cutters Hair Salon is still one of the leading hair salon franchise in the US today with more than 600 salons, of which the vast majority are franchised-owned.

With a simple and lean business model, in addition to a low investment upfront of $219,000, Cost Cutters can be an attractive franchise opportunity for many franchisees. But is this a profitable business?

In short, it is: we found that Cost Cutters Hair Salon has a revenue per salon of $273,000 and high profit margins on average. This leads to one of the best payback in the salon industry (5 years).

If you’re considering investing in a Cost Cutters Hair Salon franchise, read this article. We’re looking into its latest Franchise Disclosure Document to find out whether you should buy the franchise. Let’s find out!

Key stats

Franchise fee$20,000
Royalty fee6.0%
Marketing fee5.0%
Investment (mid-point)$219,000
Revenue per unit$273,000
Revenue per sq. ft.[franchise_value_revenue_per_sq_ft]
Sales to investment ratio1.2x
Payback period*[franchise_value_investment_payback]
Minimum net worth$1,000,000
Minimum liquid capital$250,000
Source: 2021 FDD

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What is Cost Cutters Family Hair Care?

Cost Cutters Family Hair Care is an American chain of family-oriented hair salons headquartered in Minneapolis, Minnesota.

Cost Cutters Family Hair Care was founded by Joe Francis in 1982. It offers a range of services including convenient haircuts for the whole family, styling, color and perms and haircare products.

The chain began franchising in 1982 and now it has over 700 salons in 37 states. It is owned by the Regis Corporation, one of the largest hair care salon chains in the world, along with Supercuts, City Looks, Roosters, First Choice Hair Cutters, etc.

Cost Cutters franchise pros and cons

Pros

  • Third-party financing: The brand offers its franchisees financing through third-party lenders. Qualified franchisees get funded for the franchise fee, equipment, inventory, development and ongoing costs.
  • Real estate and construction: Cost Cutters Family offers its franchisees real estate experts for establishing and building their salons. It helps them with site selection, site approval, design, construction, development and lease negotiations.
  • Comprehensive Training: The brand has a comprehensive initial 24 hour classroom training program for its franchisees and their staff to equip them with business management skills and best practices. Also, it offers them grand opening training and ongoing training sessions.
  • Marketing and branding: The brand has a dedicated and professional marketing team to help franchisees attract and retain customers. It offers franchisees turnkey marketing tools and resources such as ad templates, web development, national media, loyalty apps and local salon promotional campaigns.
  • Family-focused salon: The brand offers a well-designed, all-family-inclusive setting offering convenience to all members of the family. It helps franchisees stand out from the competition and improve sales.
  • Multiple income streams: These include a range of coloring services, coupons and special deals for attracting new customers.
  • Franchise-focused brand: The brand has qualified and experienced management to help franchisees succeed. It is owned by one of the largest haircare salon franchises, giving franchisees a well-proven business system and rich infrastructure to establish and grow their salons.

Cons

  • Not a home-based business: The franchise cannot be operated from a home or mobile unit. Franchisees must have an office location, a retail facility, or a warehouse.
  • Not a part-time business: The business does not present a part-time or side opportunity. The salons must work as per the brand’s operating hours.
  • No exclusive territory protection Cost Cutters does not allow franchisees to operate their salons in an exclusively protected area. They may face competition from other franchisees licensed by the franchisor or from competing brands it controls.
  • Not a passive business: The franchise does not allow for absentee ownership. Franchisees must take part in the day-to-day operations of their salons.
  • Competition: Supercuts, City Looks, Roosters, First Choice Hair Cutters and Sport Clips, to name a few.

How much does a Cost Cutters franchise cost?

You have to invest around $219,000 to open a Cost Cutters Family Hair Care franchise business.

This is an average; indeed, it varies based on many factors, such as the location of your franchised business, its size, and other factors.

Startup costs

In addition to the initial franchise fee of $20,000, which you must pay to the franchisor, you would also pay for the leasehold improvements, furniture and fixtures, signage, professional fees, etc.

Here’s the full breakdown of costs:

Type of ExpenditureAmount
Initial franchise fee$20,000
Leasehold improvements$60,000 – $120,000
Furniture, equipment and supplies$25,000 – $50,000
Signage$6,000 – $12,000
Professional fees$6,000 – $12,000
Additional Funds- 3-6 months$15,000 – $30,000
Other$20,466 – $41,048
Total$152,466 – $285,058
Source: Franchise Disclosure Document 2021

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How much revenue does a Cost Cutters salon make?

A Cost Cutters Family Hair Care franchise makes $202,000 in revenue per year on average (or $200 in revenue per square foot).

Note that this is the average revenue per franchised salon for those that were open for 12 months during the July 2019 to June 2020 period. Indeed, we chose not to include 2021 numbers (July 2020 to June 2021) as they were lower due to the impact of the COVID-19 pandemic ($202,000 average revenue per salon in 2020).

How profitable is a Cost Cutters franchise?

On average, a Cost Cutters Family Hair Care franchise makes $62,000 in profits per year. This corresponds to a 23% EBITDA margin.

Cost Cutters Family Hair Care is a profitable franchise: the 23% EBITDA margin is in line with the industry. Indeed, we found that salon franchises have an EBITDA margin of ~25% on average.

Note that we estimated EBITDA using the information available in the 2021 Franchise Disclosure Document. Unfortunately, Cost Cutters Family Hair Care has not provided detailed information on the cost of goods sold (COGS) and labour costs. Therefore, we used 3% and 40% of sales, respectively, as per our own benchmarks for salon franchises.

Profit and lossAmount% revenueSource
Revenue$273,000100%as per FDD
COGS$(8,190)3%industry average
Staff$(109,200)40%industry average
Royalties$(16,380)6%as per FDD
Rent$(36,300)13%as per FDD
Marketing$(13,650)5%as per FDD
Other operating costs$(27,300)10%industry average
EBITDA$61,98023%
Source: Franchise Disclosure Document (2021)

Is Cost Cutters a good franchise investment?

So should you invest in a Cost Cutters franchised salon? Are the profits worth investing $219,000 upfront (the estimated initial investment as per the Franchise Disclosure Document)?

Well we think it does. Let us explain:

As per our estimates and the data presented above, we found that Cost Cutters have a 5 years payback which is excellent. Indeed, this means, as the franchisee, you would reimburse all creditors (banks and investors including yourself) within only 5 years on average.

This is a great investment, and this payback period is much better than the industry: salons franchises have a 8 years payback on average.

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Disclaimer

Disclaimer: This content has been made for informational and educational purposes only. We do not make any representation or warranties with respect to the accuracy, applicability, fitness, or completeness of the information presented in the article. You should not construe any such information or other material as legal, tax, investment, financial, or other professional advice. Nothing contained in this article constitutes a solicitation, recommendation, endorsement, advertisement, or offer to buy or sell any franchises, securities, or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the franchise and/or securities laws of such jurisdiction.

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