10 Salon KPIs you Should Track and How to Calculate Them

Most salon owners rely on intuition to rate their business instead of analyzing key performance indicators (KPIs). For instance, a business may be in a prime location, and clients constantly flow in and think you are making a profit.

Unfortunately, that might not always be the case. Therefore to understand how your salon business is doing, you need to look at KPIs.

KPIs will help you understand if the business is doing well and where improvement might be necessary.

A KPI acts as a map that creates a path toward your goal: turning profit for your salon business. This article discusses 10 KPIs that can help your salon business and how to calculate them.

1. New customer retention

The rate of new customer retention refers to the proportion of new customers visiting and coming back within a certain period of time (usually 90 days). 

Tracking this KPI helps your business understand how efficient your marketing strategies and service delivery are in retaining new customers. The industry average for this metric is 35%, but it is advisable to set a target of 50%. 

It is calculated by dividing the number of new customers retained by new clients based on the number of new customers that returned for a second visit within the period under consideration. 

For example, if you had 100 customers in a month, of which 30 of them already visited at least once in the past 90 days, new customer retention would be 30%.

Note: New customer retention is different vs. customer retention (which we will see below).

2. Cost per lead 

Cost per lead is an important KPI that you use to determine the performance of your marketing campaigns. The KPI will help your salon measure the effectiveness of advertising campaigns relative to the generation of new leads for the sales team. 

Cost per lead is determined by dividing the cost of a marketing campaign by the total number of leads. 

CPL shows the amount you are spending on leads to determine if it is sensible to continue investing in a marketing campaign. For instance, if your ad on Google results in a CPL of $25 and that on Facebook produces no leads, CPL helps you determine where you should invest. 

CPL = Marketing spend / total number of customers

For example, if you would spend $3,000 in marketing (facebook, instagram) in a month, and get 300 customers, your CPL would be:

CPL = $3,000 / 300 = $10

3. Average annual customer spend 

Another KPI your salon should track is the average customer spending (the amount the customer spends in your salon each year). 

If the average annual customer spend is low, the salon needs to improve, like stocking high-quality products, giving promo codes and coupons, refining your services, or reducing prices. 

You can calculate average customer spending by multiplying the client’s annual average spend per visit by the annual salon visit frequency. 

Average customer spend = Average spend per visit x Annual visit frequency

For example, if the average customers spends $50 in your salon and comes back 3 times a year, your average customer spend is:

Average customer spend = $50 x 3 = $150

4. Customer retention 

Customer retention is the percentage of your clients that come back to your salon (at least once). As such, it’s one of the most important KPIs you must track for your salon.

Don’t focus only on new clients but also ensure existing clients are well taken care of. Always try to retain 50% to 70% of your clients. Also, it’s important to note that repeat clients are likely to spend more on subsequent visits. 

To increase customer retention Try email marketing using audience segments, A/B testing, and personalization to bring more repeat clients back. 

You can calculate the repeat client rate by dividing the total number of repeat customers by the total number of customers.

Customer retention = Repeat customers / Total customers

For example, if you had 100 customers in a month, of which 50 already came in the past, your customer retention rate would be:

Customer retention = 50 / 100 = 50%

5. New customers per month 

If you want to know if your salon business is growing, then the new customers per month metric can help. This is the average number of new customers the salon services every month. 

With this KPI, you don’t have to set a target since it varies depending on the business. To improve these metrics, you should adjust your marketing strategy and expand the methods used in engaging new customers.

 The other thing to do is check reviews and respond to customer concerns to enhance your discoverability to new customers. 

Monthly new clients are calculated by subtracting repeat clients from the total clients for the month.

New customers (per month) = Total customers – Repeat customers

In the example earlier, the number of new customers is 50.

6. Salon productivity 

Productivity is one of the most important KPIs to track for your salon. Your workers should spend 85% of their time at the salon with clients. Mortgage and rent are the most significant expenses a salon incurs, so you should ensure your treatment rooms are always occupied. 

Understanding space usage is a crucial metric in determining the salon’s productivity. You should look at how booked the spaces are and determine if your opening hours are adequate or not. You can determine salon productivity by dividing the number of treatment hours sold by the total available treatment hours. 

Salon productivity = treatments hours sold / total available treatment hours

For example, if you have 2 employees working 40 hours a week (80 works hours total) yet you only sold 50 hours of treatments in that same week, your salon productivity is:

 Salon productivity = 50 / 80 = 62%

7. Average spend per visit

This is the average value of the product or service sold to each customer visiting the salon. Tracking this metric increases your revenue since you will know the average amount a customer will spend for each transaction. 

Setting the goal for this metric varies depending on location, demographics, and services. If you want to improve your average ticket, you can include add-ons and bundle your products and services into categories. 

Interestingly, both strategies effectively drive more revenue for your business. You can calculate this KPI by dividing total sales by the number of clients over a given duration. 

Average spend per visit = Total sales / total customers

For example, assuming you earned $30,000 last month, and received 200 customers, the average spend per visit is:

Average spend per visit = $15,000 / 200 = $75

8. Net promoter score (NPS)

Your business needs to track positive and negative customer experiences and the chances of a customer recommending your services to someone. 

Most importantly, don’t focus on satisfying the customer only so that they can return but also focus on how they can recommend your services to others. 

Net promoters score a loyalty KPI that classifies clients as promoters, neutral, and detractors. You can ask clients how likely they will recommend the salon to family or friends and rank their answers on a scale of 0-10. A 9-10 score means that it is a promoter, a 7-8 is neutral, and a 0-6 will be a detractor. 

NPS is calculated by subtracting the percentage of detractors from the percentage of promoters.

9. Employee retention 

Salon customers tend to be loyal, creating a bond with the stylist rather than the brand. Therefore, employee retention is an important KPI you should monitor if you want to retain customers. If your employees keep leaving, they might go with customers, leading to your downfall. 

The industry standard for employee retention is around 70% which you can achieve by ensuring your employees are happy and have a voice. 

Consider having a weekly 10-minute staff meeting to know what is happening and let your team share ideas. Similarly, think of ways of incentivizing your stylists to enhance productivity. When recruiting new staff, always ensure you cultivate your business culture in them. 

You can calculate the employee retention rate over a given period by dividing the number of staff left by the total employee number at the end of that period. 

For example, let’s assume you calculate employee retention over a period of a year. Now, assuming you hired 5 employees a year ago yet only 3 of them are still working for you now, the employee retention ratio is:

Employee retention = 3 / 5 = 60%

10. Average treatment rate (ATR)

Your salon may appear busy but don’t be fooled that it is a sign of success. In a salon, different services are offered, each taking a varying amount of time. 

Unlike other salon KPIs, the average treatment rate (ATR) gives an overview of the profitability of business, looking at both your employees and services. In other words, how much do you earn per hour of an employee you pay for?

ATR is calculated by dividing the revenue earned by the number of available treatment hours. For instance, a service that costs $180 for two hours is less efficient relative to a service taking one hour at $100. 

Average Treatment Rate (ATR) = Total revenue / Available treatment hours

For example, assuming you earned $6,000 last week, and have 2 employees working 40 hours a week, ATR is:

ATR = $6,000 / 80 = $75