Why should you separate your parts from labor? 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 What is Labor?
- Parts: The total product used to complete a service (i.e. color, treatments, foils, gloves, etc.)
- Labor: Your time and experience behind the chair
Why should you do Labor Pricing?
- Charge what you’re worth. Your pricing should be based on your time and experience behind the chair!
- 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.
- Color is a Cost of Goods Sold; 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. If you use $10 of the product during a service, you should be charging at least $10 to cover that cost. Most salons even put an additional markup to cover the cost and replace the product.
- You are paying your product charges out on commissions. When you lump in your product costs with service sales, you’re giving a percentage of those sales to your stylists, which in turn take away from covering your color costs accurately.
So How do you start Labor 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:
- Add up all of your expenses. Start with your fixed costs and the average of 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.
- 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 Profitable hourly rate
This is when we determine our stylist’s hourly rate.
- 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.
- 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 expensive stylists. So say your operating rate for a level 1 stylist is $25/hour, plus your hourly breakeven rate of $25/hour. 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!
Pricing Ticket Example
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.
What your Client sees:
|Labour Charge @ $50/ hour||$100|
|Charge to Client||$122|
|Less 50% Commission||$50|
|Total Profit before Taxes and Expenses||$72|
This way you have accounted for all of your color costs, and you are only paying commission on the labor charge ($100). And you’ve also got a total profit before taxes and expenses of $72!
Switch to Parts & Labor
Change can be scary but it is needed to grow. Make the switch to labour pricing as a big step towards a profitable salon. You are not alone and we are here to help. We have many resources and experts available to you. Optimize your backbar to compliment your new labor pricing!