A Guide to Labour Pricing
Why should you separate your parts from Labour? It’s a pricing model we see in so many other industries. Think about the work you get done by plumbers, construction workers, and mechanics. You’re paying for the time it takes for them to complete the project, their experience level, and the materials used to complete the product or service.
What are Parts and Labour
Parts: The product it takes to do your service (i.e. color, bonders, treatments, etc.)
Labour: Your time and experience behind the chair.
Why should you do Labour Pricing?
1. Charge what you’re worth.Charge what you’re worth. Your pricing should be based on your time and experience behind the chair!
2. Backbar expenses are not correctly being accounted for. Backbar expenses are not correctly being accounted for. By charging for what is actually being used during each session, you’re ensuring that all of your expenses are covered.
4. You’re Paying for Product Charges Out on Commissions. When you lump in your product costs with service sales, you’re giving a percentage of those sales to those your stylists, which in turn take away from covering your color costs accurately.
3. Color is a Cost of Goods Sold Charge what you’re worth. Any material relating to a service should be put in this category, it is a necessity to the service; therefore it’s not a business expense. Retail products are also separated into Cost of Good Sold but under a retail line. If a product costs $10; you should be charging at least an extra $10 to make sure your color costs are covered.
So How do you start Labour Pricing?
First, you need to find your break-even point. And you might be asking yourself what’s that? Your break-even point is the number of services you will need to perform before you start to make a profit. By conducting a break-even analysis you can understand the relationship between products you sell, the volume of services performed, and your costs.
How to find your break-even point:
1. Add up all of your expenses. Start with your Fixed Costs and the average in your variable costs. These are the costs that are necessary to keep your business open, you can’t control these ones. We recommend getting the average of your variable costs from the last few months, from your bookkeeper or accountant. This way you can get a better estimate.
2. Once you have these numbers divide it by the total number of operating hours worked in a month. Then by how many chairs you have in your salon, this is to determine the minimum charge per hour so that you can keep your doors open.
You have $50,000 in expenses each month, not including commission payouts. You have 10 chairs and are open for 200 hours a month.
$50,000/ 200 hours = $250/hour
Therefore, $250 is the amount that your salon should be making every hour to keep your doors open.
Next, we will determine the minimum each chair should charge for your salon to reach your break-even point.
$250/ 10 = $25/hour/chair
How to find your hourly rate so that your salon is profitable!
This is when we determine our stylist hourly rate.
1. Get a breakdown of your revenues from retail and service sales by each of your stylists over the last 3 months and average it out by each stylist.
2. Divide the average revenue from stylists by the number of hours each of the stylists’ works.
This number gives you an idea of what your rate stylists should be operating at. Next we will add our break-even point on top of that!
You likely also want to compensate your more expenses stylists. So say your operating rate for a level 1 stylist is $25/hour, plus your hourly breakeven rate of $25/ hours. Totals to $50/ hour. Then incrementally you would increase your rate for each level. For example, you may choose to increase the rate for each level by $10, making your Level 2 rate $60/ hour, Level 3 rate $70/ hour, and so on. This way your high-performing and experienced stylists are being compensated and you’re covering the expenses to keep your doors open.
Next, we just have to include our parts, also known as our color product charge!
Here is what your charge to your client will look like:
Labour rate for a Level 1 stylist is $50/ hour, the time to complete a color service is 2 hours and your product cost is $22.