Wednesday, 23 December 2015 08:50

What's your recipe for deciding appropriate service prices?

Written by   Douglas Preston, L.E., president of Preston Beauty Professional

Many skin care professionals have a salon, spa, or private aesthetic practice and want to know the best way to price their services. Some professionals have checked the local competition to find the average rate for facials, massages, and other programs they plan on offering.

These prices, however, can be all over the map, from low to high. No professional wants to price too cheaply or too expensively. Some gravitate toward the idea of being affordable so that they can be within reach of most consumers. While this all seems to make sense, it really does not, not if making money counts for anything. There are really only four things that matter in this decision, including how much money the professional wants to earn from their work, their expenses (what it costs to provide services in the business), their prices (what is charged for services sold), and the sales volume (the sum income total from sales).

Look at it this way: Professionals need a job and have to live on the income they earn from it. In order to survive, how much money would they need to be paid for their work? Here is a simple formula:
If a skin care professional’s monthly personal expenses come to $3,330, and assuming that at least one-third of these earnings will be deducted for taxes, they will need to earn about $5,000 per month to cover everything. If they work a full-time week of 40 hours (40 hours x four weeks = 160 hours per month), they must produce $31.25 hourly, including gratuities and retail commission ($5,000/160 = $31.25) in order to meet their monthly expenses.
Pricing salon or spa services must follow the same basic logic, though this essential strategy is seldom used. That omission results in a money shortfall experienced by many beauty and skin care professionals and entrepreneurs. Concepts like ‘going rate,’ ‘cheap,’ ‘expensive,’ or ‘affordable’ are not applicable when the cost of operations and the leftover money owners need for their living is considered. Understanding this, here is another formula. In this case, a small, independent skin care professional is examined.
The earlier model stated that the professional needed to earn $5,000 monthly for their living expenses. Beyond that, estimate that the monthly costs as an independent renter total $2,375. The combined total expense for the professional comes to $7,375 ($5,000 + $2,375). This means that $1,843.75 must be made weekly ($7,375 monthly/four weeks = $1,843.75). If the skin care professional plans to operate five days per week, $368.75 must be acquired per day ($1,843.75/five = $368.75).
Now, if the professional plans to perform facial services only, and plans to do no more than five daily, then the minimum they should charge for these services, with all appointment times filled, in order to make their daily required minimum is $73.75. This total does not include potential gratuities or retail profits, simply service fees. If a four-day service week is preferable, and with the same five-treatment per day maximum desired, the formula changes. They will need to charge $92.18. Facial treatments will need to be priced in that range for the service fee alone to cover total monthly expenses. Of course, if you want to earn even more income, the calculation can be adjusted accordingly.
It does not seem like fun work to plan service fees this way, but it is the wisest approach.

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