Know your Costs, Control Your Bottom Line
Fixed And Variable Costs are the two types of costs that your salon incurs through goods and services sold and performed.
Variable costs vary with the number of services that your salon has, meaning your costs increase/ decrease based on your salon’s activity.
While fixed costs stay the same for some time no matter how much your company produces. Therefore, even if you have no activity in your business, you will still incur these costs.
This style of accounting (Managerial Accounting) helps you, the business owner, the correct knowledge to make insightful decisions around your business expenses, which have a direct impact on your profit.
Here are Some Examples:
- Accounting and bookkeeping
- Debt repayment
- Employee salaries
- Loan payments
- Maintenance, cleaning and repairs
- Memberships, dues, subscriptions (ie: ABA, PBA)
- Office supplies
- Salon software
- Telephone and internet sosts
- Utilities (heat, light, water, etc.)
- Color product orders
- Credit card processing
- Goods sold for resale (retail products)
- Loan and credit card interest
- Meals & Entertainment
- Operational expenses (supplies like foils, color products, etc.)
- Supply (Back Bar supply ie: foils)
- Supply (Front Bar ie: retail)
- Training/ Education
Why Should You Know Your Fixed and Variable Costs?
As a business owner, you should know and understand the costs and the changes that occur in your business. When you see your expenses increasing it allows you to adapt your business to changes to ensure you can continue to keep your doors open.
Fixed and Variable expenses are used to help identify your break-even analysis, which helps to identify the number of services needed to be performed before you make a profit. Read our Labour Blog to find your break-even point. By conducting a break-even analysis you can understand the relationship between products you sell, the volume of services performed, and your costs.
The breakdown of your expenses influences the pricing of services at your salon so that you can be profitable. Variable costs should directly influence your pricing. When your color usage varies from session to session, shouldn’t your pricing also vary from session to session? Using hair color management software, like SalonScale, to account for your color costs during appointments.