Men and women want to look good physically for multiple reasons whether for personal looks, to look professional for a job interview, or to look their best at a party. Becoming a hair salon owner is a profitable venture in small businesses.
Yes, owning a salon is profitable. According to The Salon Business, the average salon business will have a revenue of about $245,000 annually before expenditures. After you factor out expenditures, an average salon can profit about $19,100 every year, depending on marketing efforts and sales made.
Hence, owning a hair salon is a profitable business. We will discuss:
- How salons make money.
- The popularity of the salon business in the United States and globally.
- The earning potential of a salon.
- Projected income & expenditures for a salon.
There are a variety of options for earnings potential in the business from the range of services that you could offer to the different business models that you can try out.
How Do Salons Make Money?
Salons can make money in one of two simple, usual ways.
- As the salon owner, you can have a brick-and-mortar salon location and employ stylists for an hourly wage.
- You can have stylists “rent” space in your salon for a monthly fee and you can pay them a commission based on the amount of sales revenue they generate.
Which Option Will Make My Salon the Most Money?
So which avenue is the better way to make money for your salon?
The first option would have you operate your salon much like a regular small business with paying your stylists an hourly wage. The hourly wage would be great for novice stylists just starting out working in the salon business.
However, this option would keep your overall salon earnings potential stagnant and you will be paying more labor costs this way. Employing this tactic of hiring your stylists may also create complacency. If your stylists feel they are limited to just a specific hourly wage, they may also feel their earnings potential is threatened in their chosen career path at your salon.
Making money using the second option is a “win-win” for both you as the owner and your “independent contractor” employees.
The stylists would be considered independent contractors because you are not paying them an hourly wage. The salon chair he or she is managing in your business is “their business” because they are providing their styling supplies and tools like small business owners.
Stylists increase their earnings potential by renting booth space. Salon owners will usually pay 1099 stylists an agreed-upon commission for each month based on the amount of revenue they generated from their salon chair. This commission could range anywhere from 30% to 50% commission of the sales that a specific stylist generated.
How Much Should I Charge For Salon Chair Rent?
According to Gloss Genius, booth rent can range anywhere from $250 to $1200 per month. Higher-up booth rent costs in higher-income areas of Manhattan may charge a weekly fee of $1,000. That’s just on the higher end above the average spectrum.
Ultimately, the booth rent you choose to charge hair stylists will depend on:
- The area in which you are operating your salon.
- How many booths rent your competitors charge. You may choose to go a little higher or a little lower depending on your personal preference on how much earnings potential you want your salon to achieve just from this part of the income.
- The amenities you provide at each booth such as if stylists have to purchase their products and tools or if you already have these resources already supplied for them.
The Popularity of the Salon Business in the United States & Globally
The Small Business Chron reported that there are about 80,000 salons in the United States with about 4,500 of them being barbershops and the other 77,000 businesses being beauty salons. The beauty salon industry was valued at $66.16 billion in 2019 which was a $5 billion increase from 2017’s figures.
As for the global figures, the Spas and Beauty Salons industry was valued at $144.48 billion in 2019. According to Global News Wire, the global industry is expected to grow to $217.25 billion by 2026, which is a 6% increase from the last time statistics were gathered.
What is the Salon Industry’s, Target Market?
The salon industry’s target market includes:
- Young clients (ages 15 to 25).
- Professional clients (ages 26 to 55).
- Seniors (ages 56 and older).
However, people who are ages 34 to 45 will spend the most at hair salons. Your best bet is to choose one of these age groups in which to focus your marketing. Serving your chosen age group can be a part of your niche if you are sure to do it positively and uniquely that sets you apart from your competitors.
For example, many salons in your area may already mainly serve the young client’s target market. You can choose to either find a niche in serving this target market that is different from your competitors. You could also choose to serve one of the other two lesser serviced target market sectors in your area.
What is the Earning Potential of a Salon?
As discussed earlier, the average net profit of a salon is about $19,100 per year. This would be the average amount earned after all expenditures and debts have been calculated out of the total revenue.
The overall earnings potential of your salon would depend on:
- How much effort you are putting into marketing.
- The mediums you are using such as social media, radio, newspaper, word-of-mouth.
- How often you are marketing on each medium.
- If your marketing efforts are reaching interested parties.
- How much you charge for your salon services.
- Go by the average amounts charged for each salon service.
- Charge a little more than average or a little less depending on personal preference and how well your stylists can perform the service.
- How often customers come into your salon requesting services.
- Some customers may want weekly touch-ups to their hairdo.
- Some may want their hair done once a month.
- Other customers may only need their hair done for special occasions a few times per year.
Projected Income & Expenditures for a Salon
Let’s go by the averages for calculating the possible salon income and expenditures. Say that we round the annual revenue to $250,000 and round the profit to $20,000. Say that the booth rent you charge to 4 hair stylists will total $24,000 per year. Total income would be $274,000 from revenue and booth rent received
That means that you will be spending $254,000 on building utilities, building rent, commissions paid to salon stylists, salon supplies and tools, and other miscellaneous expenses.
Let’s say that you will charge $500 per month for booth rent to 4 hairstylists renting salon chairs from you. That’s $6,000 per year per hairstylist. Hence, that amounts to $24,000 just in booth rent.
Check out our tips on budgeting HERE.
Say that you pay 30% commission to 4 of your employees on the $250,000 total revenue that you made for the year. Just for the sake of easier calculation, let’s say that each stylist made the same amount of revenue for your salon which would be $62,500.
30% of $62,500 would be a yearly commission payout of $18,750 per stylist. Since you have 4 stylists, you would be paying out $75,000 in total commission per year that you net $250,000 in revenue.
The following are the monthly expenses for other expenditures (license and permit renewal fees and equipment fees would only be a one-time payment as of now; please see below):
- Building rent: $1,500
- Utilities: $600
- Trash pick up
- Salon supplies: $500
- Salon tools: $300
- Salon business insurance: $250
- Marketing/Public Relations: $6,083
Miscellaneous expenses would include:
- Accounting services for tax time.
- Wholesale fees on your salon supplies.
- Janitorial services to clean your salon.
- Payouts for people who may sue your salon (it can happen as scary as it sounds).
- Increases in business insurance policies for whatever reason.
- Any extra money that has to be spent above the projected budget (like if utilities are over $7,200 for the year or if you have to pay out more commission due to more revenue than $250,000 made this year).
Depending on the credit card processor that you use in your hair salon, you may be charged an average of 2.5% per transaction processed using a debit or credit card.
Say that you have about 50 customers per day that spend an average of $100 per transaction. That’s about $125 per day spent on credit card processing fees. If your salon is open 7 days a week with that average spent on credit card processing fees per day, you would be spending about $45,625 per year on processing fees.
Of course, not all your customers are going to spend exactly $100. Let’s ballpark this estimation to a lower amount to accommodate this truth and say that you only spend about $30,000 in credit card processing fees per year.
Net Profit Calculation
$274,000 in income – $254,000 in expenditures= $20,000 profit
How do I develop a long-term relationship with my clients to maintain revenue?
Instead of pushing products on to your clients, try to suggest to them a care program where your salon retail products can be utilized. It won’t make your clients feel pressured into buying retail items from your salon.
Based on the client’s hair type and how it should be cared for, you can give product suggestions for them to use when they are not at your salon. If the client does not purchase anything one visit, do not despair! You have already planted a seed by talking about their hair care program.
Go to Simple Organic Beauty for more information on how to make more money for your salon.
What are free ways to market your hair care salon?
Freeways to market your hair care salon include:
- Social media posts.
- Word-of-mouth marketing by yourself and your stylists.
- Free classifieds posts on certain websites.
Looking to start your own Salon? Get the documents you need to get organized and funded here.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
Shawn Chun is an entrepreneur who has owned several types of businesses from a coffee shop to an import and export business to an online review business plus a few more and now creates online resources for those interested in starting a salon business. It is demanding work he loves to do it. Shawn says “I do it for those passionate about their business and their goals. I know how hard the struggle is to obtain and retain clients, finding good employees all while trying to stay competitive.”
Our mission is to empower you as a strong leader of your client base. We’ll teach you online marketing strategies, smart branding moves, and more that will make your salon business memorable and worth talking about.