Business Basics: Inflation, Cost of Living Index, and more fun stuff.

It is important to understand that what you charge for nails will be unique to YOU.  We already talked about pricing services and figuring out your own prices, but lets be honest, not everyone in the beauty industry is interested in the hard business skills - how many of you actually have sat down and done the math??  Yep, thought so. Well, I hate to tell you but there is more math in this article :)

Once you have been in the business for awhile, you will find that you will need to raise your prices. Yes, you will.  If you are not raising your prices each year or two, you are effectively taking a pay cut because of inflation. And if you move to a new city your prices need to be adjusted because of the local consumer price index (a.k.a. cost of living index)

When I started doing nails 15+ years ago in Midwest small-town USA, I charged $45 for a full set (of which I made 50% commission - about $15 per hour with an hour and a half full set).  After 15 years of inflation that price should be $62.28 minimum - and actually it should be more because my skills and training would have increased my prices.  (Try this nifty inflation calculator).

Now, taking the fact that if I was still in Midwest Small Town USA I should be charging $62.28 and the fact that I now live in Midwest Big City USA, which has a higher consumer price index, I should be charging a minimum of $69.83 for my full set just to equal the $45 I charged when I was starting out.

If you want to figure this out yourself:
Take the base price ($45)
Use the inflation calculator to get your current price ($62.28)
If you have moved to a new location or are just curious about what people should charge in other parts of the US to get the same buying power as what you charge, you would take the cost of living index (COLI) of your new location, divide by the COLI of your old location and then multiply that by your service price.
111/99 = 112.1
112.1*$62.28 = $79.83

If I was in Manhattan (New York City), I would have to charge $138.21 just to equal the buying power of $62.28 in Midwest small town USA.  Pretty mind boggling when you think about it!




References:
http://www.bls.gov/cpi/
http://www.usinflationcalculator.com/
http://www.bls.gov/data/inflation_calculator.htm
http://money.cnn.com/calculator/pf/cost-of-living/index.html
https://www.coli.org/

Business Basics: Lowering Prices

So you have decided that you want to adopt a low-end competitive pricing strategy, remember that your profit margin per sale is going to be less so you’ll need to focus on reducing your costs.

The Iowa SBDC recommends several best practices for this approach:

• Obtain the best prices possible for products
• Locate the business in an inexpensive location
• Closely control inventory
• Limit retail to fast-moving items
• Design advertising to concentrate on "price specials"
• Offer limited services

Lets take a look at these individually.

 

Obtain the Best Prices Possible for Products

Buy in bulk and stock up during sales.  Find less expensive substitute products - every penny counts when you have a slim profit margin (this is a huge reason so many discount salons turn to MMA! Don't be tempted... there are plenty of inexpensive EMA brands out there). 

 

Locate the business in an inexpensive location

You will need to assess your location and determine if moving your business to a cheaper location is worth it - will it be too out-if-the-way for a lot of walk in clientel?  Is it in too seedy of a location that your regular clients won't like to drive there?  There is a difference between inexpensive and cheap - do your research and figure out where your business might thrive. 

 

Closely control inventory

This one is a bit harder, but determining how much liquid and powder should be used per service and making sure to charge for longer nails that take more product will be very important.  Using only one paper towel and 2 cotton pads per service WILL make a difference.  Remember, every cent counts.

 

Limit retail to fast-moving items

Retail can bring in a lot of money, but don't stock items that will languish on your shelves for months - you will not want to have your cash tied up in retail that is not moving.

 

Design advertising to concentrate on "price specials"

This is a given.  Since your target market will be clients who are looking for the best price, you will need to make sure to entice them.  That also means your services should be priced with a profit margin that allows setting sale prices and still making a profit.  This is why it is so important to know your numbers!

 

Offer limited services

The more services you offer, the more of your money will be tied up in stock.  If your clients never get gel nails, don't offer them - otherwise you will have a lot of money in product and equipment sitting in your desk not being used. Have a limited basic service list so you can have limited stock. 

 

 

 

Negative Aspects of Low Pricing

Remember: cutting prices can have a number of consequences. The SBA (Small Business Association) points out:

• It lowers the perceived value of your brand and product –even the big brands are guilty of this and the effect over time is detrimental. Like everyone else, many mall-based clothing chains are struggling to hang on to their market share in this tough economy, and are literally handing out online coupon codes and deep discount sales on a weekly basis. This in turn leads the customer to know and expect price cuts, and, of course, any informed buyer is going to hold out for the next sale rather than pay full price for a product they have come to see as over-priced.
• Once you cut prices it’s hard to put them up again – anyone who has ever bartered or sold anything can tell you that once you take that price down it’s very hard to justify adjusting those prices up again.
• It attracts customers who only care about price points – a business’s unique value very rarely hinges on price; it’s usually a combination of price, product, reputation, and value that it brings to the market it serves. By changing your market strategy to focus on cutting prices you are essentially undermining all the good work you’ve done to build your brand, and there’s no going back – you’ll find yourself having to cut prices on every service you offer.
• It’s a war you can’t win – cutting prices across the board is never a good idea because when you cut, the competition cuts, until the business willing to tolerate the lowest margins prevails and it’s usually the lower quality competitor. There are no winners here.

Focus on Value Instead
With all this talk about price it’s easily forgotten that most small businesses build their brand and their success on the value they deliver. Value is so much more than price, it embodies the product, your team, your leadership, and customer service – and it can help differentiate you in a crowded and competitive market.

Selling on this value instead of price will consistently differentiate you for the long term despite the temptation to fall into a price war with the competition.

How do you do this? Know your target market, your competition, your product and your advantage.
Remember price is a reflection of your value.



Resources and References
https://www.sba.gov/blogs/how-avoid-falling-price-war-focusing-value
http://www.nailsmag.com/article/90938/the-pricing-problem
https://www.iowasbdc.org/Portals/0/ClientDocuments/How-to-Price-Your-Products-and-Services.pdf

Business Basics: Pricing Services - Doing the Math

When determining your prices, you don't want to price yourself out of the market, but at the same time you want to cover overhead expenses and generate a profit. Therefore, in pricing your services you must consider these two factors: what the market will bear and your profit margins.

First things first, let's determine our target market.

Target Market
You cannot determine your prices if you do not know you you are servicing. Your target market is not something I can tell you , you will need to think about it in relation to your own area.
There are four main pieces to your target market:

• Region (Determining the types of jobs that people in the salon's region hold may give you a clue as to the prices you can charge and the services you should offer)
• Gender (do you cater to men or women exclusively? Or both?)
• Style (are your clients on the cutting edge offashion or more conservative? Are they young mothers who want natural looking nails or are they teenagers who just want to look "cool"?)
• Socioeconomic Status (Pricing is going to be very different if you service affluent young professionals in a large city versus people in an economically challenged rural area)

Of course not everyone in your area will get their nails done here are some questions to ask yourself to help narrow down your potential market:

• Who has the need for my products or services, the financial ability to purchase my services, and the ability to find my services?
• How many of these people or businesses exist in my general area today?
• How much money does each person or business currently spend every year solving the problem that my service also solves?
• Who else do I share this market with? (how many other nail salons are in my general vicinity?)

Service Pricing Categories
“Within our industry there are three categories with which you can choose to align yourself: budget/economy, intermediate/midsection, and luxury/top end,” says salon consultant Maxim Titter. There is no right or wrong category, she emphasizes, only the danger of not knowing which category you belong to.

Each category varies, once again, with your location - in my area anything under $40 for a full set is a budget salon but in other areas the mid-range price is $25 and $40 is getting expensive. What your online friend charges has nothing to do with how much you should charge(unless you work across the street from each other).

Your Service Offerings
Next, you want to figure out what prices your market will bear - ask yourself this question: Is my service unique? Now, yes, there are a million places offering acrylic nails, but your service can be unique in that you guarantee your work and offer free hand massages and basic nail art. If your service is unique--meaning there's little in the way of direct and indirect competition--then you're a market leader and you have more leeway in setting the prices.

If you are a market follower--meaning your service is not necessarily unique and you're not the only outlet--then setting prices is easy. Your prices simply can't be higher than that of your closest competitor. The question you should then ask is this: Should I be offering this service? (or should I make my services more unique) The answer lies in your profit margin for this product.


Profit Margins
All right, get our your calculators and spreadsheets. We are going to crunch some numbers!

Keep this in mind: The purpose of business is to make a profit. Every service you offer must must cover your fixed costs and generate a profit--otherwise, you're just trading dollars.

One more thing, I am looking at these number as an independent tech. If you are paying employees your costs would include their salary and employer taxes, which would make them much higher.

Terminology:

• Fixed costs:costs that do not fluctuate with sales volume such as rent, utilities, depreciation, licensing, insurance, advertising, laundry, maintenance, postage, bank service charges, computer programs related to your business and so on.
• Depreciation:loss of value over time and with use - you likely use a range of equipment that has a limited lifetime (brushes, electric files, tables, lamps, chairs, etc.) and the decrease in value of these items should be considered an expense. You should figure out depreciable items and their life expectancy and work in the monthly cost of these items into your fixed costs. For tax purposes, the IRS considers items subject to depreciation to be "fixtures" (like table and chairs) but for our purposes anything that we need to buy periodically (brushes and UV bulbs) will go in this category.
• Direct Costs: Costs that are directly associated with the service being sold such as product cost.

Step 1: Make a list of all of your fixed costs, not including depreciable items. For items you pay annually, take the annual amount and divide by 12 to get the monthly cost.

Fixed Costs:	Monthly
Rent	$500.00
Utilities	$60.00
Insurance	$8.25
Licensing	$2.92
Advertising	$16.67

Total Monthly Cost: $664.71

Step 2: Make a list of all of your depreciable items and their cost and life expectancy. Here is a good list of examples on depreciable items and their life expediencies. Here is another good reference. Obviously things like acrylic brushes are not on the list so with that you just figure how often you buy that item. Take the cost and divide by the life expectancy to get the annual cost. Then take the annual cost and divide by 12 to get the monthly cost.

Depreciable Items	Cost	Life Expectancy (years)	Annual Cost	Monthly Cost
Manicure table	279.00	7.00	39.86	3.32
Tech Chair	99.00	7.00	14.14	1.18
Client chair	99.00	7.00	14.14	1.18
Pedicure station	2,395.00	7.00	342.14	28.51
Electric file	350.00	5.00	70.00	5.83
Bits	150.00	1.00	150.00	12.50
UV lamp	150.00	5.00	30.00	2.50
UV bulbs	45.00	0.25	180.00	15.00
Desk lamp	79.00	7.00	11.29	0.94
Acrylic brush	28.00	0.50	56.00	4.67
Gel brush	15.00	1.00	15.00	1.25

Total monthly cost: $76.88

Step 3: Make a list of all of your direct costs (product cost per service)

This step can be a bit harder since cost could vary. Many manufacturers have broken this out for you. For my example I am using the CND product cost per service chart. Remember, buying larger sizes will lower the cost per service and increase the profit margin

	Product/ Service	Other Costs/ Service*
Acrylic Full Set/Fill	1.87	3.00
Gel Full Set/Fill	3.28	3.00
Shellac Manicure	3.21	3.00
Spa Manicure	2.56	3.00
Spa Pedicure	2.89	3.00

*other costs include disposables like files, cotton, toe separators, etc. I just used the same number for all services here but you should figure out your specifics.


Next determine how many of each service you perform each month

Service	Average # Per Month
Acrylic Full Set/Fill	25
Gel Full Set/Fill	30
Shellac Manicure	20
Spa Manicure	15
Spa Pedicure	25

Total Services per Month (average): 115

Take the total number of services (115) and divide your fixed costs and depreciable costs by that number

Fixed costs per month: $664.71/115 = $5.11 per service
Depreciable costs per month: $76.88/115 = $0.67 per service

For a total of $5.78 - Now add those costs to your product costs

Service	Product/ Service	Other Costs/ Service*	Fixed Costs/ Service	Total Cost Per Service
Acrylic Full Set/Fill	$ 1.87	$ 3.00	$ 5.78	$ 10.65
Gel Full Set/Fill	$ 3.28	$ 3.00	$ 5.78	$ 12.06
Shellac Manicure	$ 3.21	$ 3.00	$ 5.78	$ 11.99
Spa Manicure	$ 2.56	$ 3.00	$ 5.78	$ 11.34
Spa Pedicure	$ 2.89	$ 3.00	$ 5.78	$ 11.67

Your total cost per service is your break even point. Setting the price at the break-even price will give you a profit of 0. Essentially you would be doing the service for free if you charge that amount.

Figuring Out Your Pricing Structure

Now we need to determine what we need to charge to make a living.

Lets say my goal is to make $15 an hour.
For the sake of this exercise I am going to assume that I am booked completely solid - meaning every hour I work I am booked with no gaps. If you are not booked solid (and honestly, who is?) then you need to figure out how much you need to make during the hours you are working to cover the hours you do not work. I will be writing a post on that soon (and yes it involves more math!).

Service	Total Cost per Service	Service Timing (hours)	Salary	Minimum Price to Charge
Acrylic Full Set	$10.65	1.50	$22.50	$ 33.15
Gel Full Set	$ 12.06	1.50	$22.50	$ 34.56
Acrylic Fill	$ 10.65	1.00	$15.00	$ 25.65
Gel Fill	$ 12.06	1.00	$15.00	$ 27.06
Shellac Manicure	$ 11.99	0.75	$11.25	$ 23.24
Spa Manicure	$ 11.34	0.75	$11.25	$ 22.59
Spa Pedicure	$ 11.67	1.00	$15.00	$ 26.67

So now you have a price that will make you a profit and a living wage (assuming you are booked solid!). Ask yourself this: Can I sell my services at this price and still be competitive? If the answer is no, then you have the following alternatives:

• lower your direct costs, fixed costs or desired profit
• make your service unique and market it as such
• reduce your timing or salary expectations
• Get in more clients to spread out your fixed costs further
• consider not selling this service and focus your attention instead on services that have a better profit margin or less competition.

Resources & References
http://smallbusiness.chron.com/target-market-salon-industry-21637.html
http://www.entrepreneur.com/article/53786
http://www.nailsmag.com/article/81998/determine-your-target-market
http://articles.bplans.com/how-to-determine-your-tam-total-addressable-market/
http://www.inc.com/guides/2010/06/defining-your-target-market.html
http://www.nailsmag.com/article/108396/figure-it-out
http://smallbusiness.chron.com/depreciate-beauty-salon-taxes-33545.html

Business Basics: Pricing Services

I think that the question that is most asked in online nail tech groups and forums is "What do you charge for xyz?" and frankly I am always amazed at the question. For one, what I charge is not likely the same as what you would (or should) charge - unless you have the exact same training as I do with the exact same quality of work and work across the street from me. There are so many factors in figuring out your pricing that it can be mind boggling. So let's break it down.

 

[I should mention I have a degree in Business Administration. I am not a CEO or anything but I do "get" how business works and I believe it is something that nail technicians needs to understand and luckily I am also a nail technician and can speak "business" without putting you to sleep (I hope).]

 

Factors

What factors affect how you should price your services?

• Location
• Overhead costs
• Service timing
• Competition ("supply and demand")
• Technician qualifications (more training = higher prices)
• Customer Service & "extras"   

Location

In business, as in real estate, it's all about location, location, location!  You will not be able to charge the same prices in an inner city, lower middle class neighborhood as you can in a high-end day spa in an expensive suburb.  But that doesn't mean that because the area doesn't warrant charging $100 for a full set of nails that you cannot charge what you are worth.  Just take into account where you are located - you do not want to price yourself out of business!

   

Overhead

Even if you don't own a full fledged salon with employees and you work out of your home salon, there are still many costs associated with doing business besides just the cost of your products!

 

Taxes, rent, utilities, insurance, marketing, licensure and transportation are all overhead. Part of the overhead costs must be allocated to each service performed and must be adjusted annually.

 

Service Timing

Time equals money, its true.  Setting your prices based solely on what someone else charges and not based on your time is setting yourself up for failure.

Decide how much money you need to make per hour.  Lets say you need to pay yourself $20 per hour.  This does not mean you price your 1 hour pedicure at $20!  You need to make $20 after all of your other costs are taken into account. 

Take your product cost - lets say $3 - and your overhead costs - lets say we figured out $12 per service for overhead - then the absolute minimum you can charge for a 1 hour pedicure is $35.  Now if you think about the fact that being self employed means you pay extra in self-employment taxes, you might want to adjust your prices to account for that as well.  If you do discounts or coupons you may want to pad your starting prices to help offset those.  If you offer "free" extras then you need to add in a bit for that as well. Lets say we determine that we need to charge $40 for a 1 hour pedicure just to make $20 commission.  So that means our 1 1/2 hour full set needs to be at least $60 and a half hour basic manicure needs to be $20.  Make sense?  Good because in my next post we are going to do some more math <evil grin>

**all numbers here are off the top of my head and not representative of anything other than an example**

 

Competition
The goal of business is to make a profit. If the salon down the street is charging $15 for a full set of nails, that doesn't mean that you need to lower your prices to compete with them, especially if it means that you will not make a profit on that service.  High volume salons make very little profit on each service - their strength is in quantity, not necessarily quality. Do not try to compete with them (unless that is your business plan).  Instead, highlight other factors, like customer service.

 

 

Tech Qualifications

In every industry, people with more training get more money. My sister is an auto mechanic - every time she goes to training and gets a certification - boom - she gets a $1 an hour raise. In the business world, people with Masters degrees make more money.

 

As a nail technician, any additional training, including trade shows, or certifications you obtain absolutely justify a higher cost for your services because you are more qualified at doing them.  Have you set foot into the competition arena?  If you have won or even placed second or third in a competition you are justified in raising your prices.  Anything you do to raise your status and skills in the industry justifies charging more! 

 

 

Customer Service & "Extras"

Not charging enough is a common problem for small businesses simply because  they frequently find that their costs are higher than they anticipated or they are competing with much lower priced (and lower value) businesses. Many techs do have one advantage, though, and it’s one that justifies charging a higher price – service!

"I’d rather add on an upgrade to spoil my client than have to rush and fit in more people because I am not making enough. That’s not fair to anyone." ~ JESSICA MAHLER, Painted Red Nails, Osterville, Mass.

Clients must feel that they are getting “value” for their dollars spent.  If a client has money to spend and could get a basic service or a service with "extras" included, they will opt for getting the "extras" every time.  Who doesn't like "free"?

I know of people who offered free paraffin dips (product cost is minimal and clients can dip themselves) and one tech I know offers free basic French nails (white tips airbrushed - it literally took her less than a minute, she did not include pink or anything other than white airbrushed tips for free).  Free nail art on one finger, guaranteed work for one week after a service,  etc, etc.  My point here is if you are offering "free" things then your prices should be set to cover those amenities (so they aren't really free, just built into the price).  Its like a hotel - you get free soap and shampoo but do you really think they are free?  Nope, they are built into the price of the room.  Same concept. 

The important thing here is you need to MARKET these things to make yourself stand out from the competition and justify your prices.  One easy way to market your service is when someone asks the price of a full set of nails you answer, "My full sets are $60 and that includes a hand massage, free paraffin dip and free optional French upgrade and they are guaranteed for one week." 

Some other things that can help you justify higher prices or selling above your competition. include:

• Satisfaction in handling customer complaints
• Knowledge of product or service
• Helpful and friendly staff (even if it's just you!)
• A convenient or exclusive location
• Exclusive merchandise (if you sell retail)

I hope this helped you think a bit more about pricing your services.  Stay tuned for more posts on pricing coming soon...

 

Resources: 

http://www.nailsmag.com/article/90938/the-pricing-problem

http://www.nailsmag.com/article/91245/how-to-raise-your-prices
http://www.nailsmag.com/qa/93942/how-do-you-announce-service-price-increases

https://www.sba.gov/blogs/how-price-your-small-business-products-and-services 

https://www.sba.gov/blogs/how-avoid-falling-price-war-focusing-value