Pricing For Profit!

By Liz McKeon

“Pricing is the process of determining what a company will receive in exchange for its product or service. Pricing factors are manufacturing cost, market place, competition, market condition, brand and quality of product”.

Definition of Pricing:

A well-chosen price list should do the following three things:

1. Achieve the financial goals of the salon business (profitability)

2. Fit the realities of your market (will clients buy at that price?)

3. Support the product’s market position

Pricing your services correctly involves asking many questions, such as:

• How much to charge for a service

• How do patients value the services and other surrounding intangibles

• What are the pricing objectives?

• How to set the pricing – what are your total operational costs?

• What prices are competitors charging?

• What image do you want the price to convey?

• Do price points already exist for your services?

• How flexible can you be on pricing?

• What are the chances of getting involved in a price war?

Price / Quality Relationship:

The price/quality relationship refers to the perception by most consumers that a relatively high price is a sign of good quality. This is especially true when it comes to hair and barbering services.

Premium Pricing:

This is the strategy of consistently pricing at, or near the high end of the possible price range to help attract status- conscious clients. This high pricing of premium services and products is used to enhance and reinforce a luxury image. Clients will buy a premium priced service or product because:

• They believe the high price is an indication of good quality.

• The believe it to be a sign of self-worth.

• They require a flawless service – the cost of the service going wrong is too high to buy anything but the best.

Setting the right price is one of the most difficult decisions to make when starting a business or introducing a new service. If you hit on the right price, your clients will be happy, your profits will be higher, and your bottom line will be healthy. Many salon owners make the mistake of setting up a flawed pricing structure. As a result, they find themselves working too hard for too little. It requires a basic understanding of both your financial and business goals.

Common Pricing Mistakes in Salon Business:

Weak controls on discounting and special offers

Not tracking competitor selling prices

Price increases carried out poorly

Not factoring in all running expenses

Selling services under cost price

Establishing the right price for your services can feel intimidating, especially when starting off. Retaining clients while still earning profits is crucial, as making pricing decisions can to the wrong way very easily. Pricing your services too low may lead to being shortchanged while overpricing can scare away potential patients.

The challenge is to strike a balance between affordability and profitability. With research, analysis and execution, salon owners can comfortably price their offerings without fear. Proper pricing allows businesses to stay competitive, profitable and sustainably grow over time.

My top tips in setting your prices:

1. Keep your prices realistic:

A realistic price is the price you set after taking into consideration various factors, such as: the direction of your business, your cost structure, resources and financial goals.

2. Cover all costs:

The price of each service should cover the cost associated with it, its contribution to overheads and profit. A successful strategy is one that results in the most dollars after all the costs have been met.

3. Check your prices against inflation:

Your prices must keep up with inflation. Inflation increases your cost of doing business, with the price of your materials, overheads and other costs increasing. If you maintain your prices despite raising inflation, you will erode your profit margin.

4. Include the value of your time in pricing:

Avoid committing the mistake of not including a salary for yourself. Your time is very valuable, and you need to include it when calculating your prices.

5. Remember, clients are not always looking for the lowest price: Price is not always the topmost concern of clients. Many clients are willing to pay premium prices for quality services, speedy delivery, helpful and professional customer service, excellent product knowledge and advice.

6. Use discounts with care:

Offering discounts can be a good strategy for encouraging repeat sales, bundling sales and early payment from clients. You can use discounts to stimulate demand for your products and services during downtimes. Just make sure you don’t give out the wrong signal or give the impression that your business is in difficulty.

Pricing is important for several reasons, not least because it will determine the profit margins for your clinic, and in the end……. your own salary!

@lizmckeonbizliz www.lizmckeon.com