How to Calculate Your Salon’s Return on Investment

Investing in a salon and generating profit from it requires a good strategy and, most likely, a significant amount of money.

Maximizing your return on investment (ROI) is an important part of building ongoing success.

But how can you invest in your business the smart way? There are many things to consider when running your salon, and making sure your team and clients are happy can easily fill up your whole day. So, you need to know where you’re at right now and a few ways to increase your salon’s profit margin while keeping your business afloat.

Let’s see how to calculate your salon’s return on investment and how to improve ROI in your salon.

What Is ROI for Salons?

“ROI” is short for “Return on Investment”. It’s a way to see if an investment was worth it. If the ROI is positive, you made more money than you spent, so you made a profit. But if the ROI is negative, you spent more money than you made and lost money.

How to Calculate ROI for Your Salon?

The formula to calculate your salon’s ROI is:

In this formula, the:

• Net profit from investment = Revenue generated from the investment minus the cost of the investment (more specifically, the amount you gained minus the amount you spent).
• Cost of investment = The total amount of money invested (the amount you spent).

You can use a calculator to check your salon’s ROI, but you can also go for Goldie’s Reports feature to track your business’ performance. The downloadable salon reports will help you:

✅ Review your year broken down by service or client to identify significant trends.

✅ Streamline your tax filing process with key financial data for your business.

✅ See how your team has performed.

✅ Each staff member can see how many tips they’ve earned individually.

See more about the feature

What to Measure When Calculating Your Salon Return on Investment?

So, you know now that if you want to calculate your salon’s profit margin, you have to divide the net profits by the total investment.

Here’s a step-by-step breakdown of what you need to include in your calculation:

1. Total revenue

We’ll start with this one since you have to subtract everything from here. Add up all the money your salon earns. This includes income from services like haircuts, styling, coloring, spa treatments, product sales, etc.

From the total revenue, you’ll subtract your total salon expenses to find your net profit.

2. Operating expenses

These are the costs of running your salon, such as rent, utilities, salaries, marketing, supplies, or insurance.

These expenses include hiring new employees, too. Tracking the return on investment of each employee is the best way to evaluate adding staff. To see if hiring a new employee is a good idea, understand their capacity to serve clients and how that might affect the overall profit.

If you don’t have employees and all the staff members rent chairs in your salon, they’ll have to pay you rent. 

This means you’ll add that money to your total revenue. But how much should you charge a renter to cover your lease and your operating expenses? 

Here’s a pretty detailed breakdown of how you should charge your renters:

• Adding new equipment

Purchasing new equipment to keep your high-quality services is a must in every salon. You can’t use the same old equipment forever. Or maybe you hired new staff, and they need equipment to be able to work. 

Also, you must regularly check if your equipment is in good condition. This will extend the life of the equipment and save you from any unforeseen accidents. These check-ups depend a lot on how frequently you use your equipment. As a general rule, they should be checked every 12 months, but you should do it earlier if they’re used frequently.

That’s why investing in good equipment is a good idea for your salon’s return on investment. If you do that, you won’t have to worry about changing it very often. 

Facts:

• Hair salon chairs could last from five to 10 years or even more.
• Hair dryers and styling tools could last between three to five years. 
• Manicure and pedicure stations could last between five to seven years.
• Spa equipment like massage tables or steamers could last five to 10 years.

When it comes to how much it costs to replace your equipment, you might have to spend a few hundred dollars on small items like hairdryers or other tools, but it could cost a few thousand dollars for salon chairs or bigger special spa equipment.

• Marketing tactics

If you’ve just opened the salon or you’ve been in the market for a while but want to promote something, you need a few marketing strategies to help people find out about you or your promotions. 

While some of the tactics may be free (such as posting on social media), sometimes you need to create paid promotions. This means you’ll have to use money from your total revenue.

But make sure to measure those promotions and adjust the things that didn’t work out for you. Understanding what makes things work will help you stay on course and do more of what’s effective.

• Business software

We live in a busy world, which means we need all the help we can get to keep up with everything. When it comes to a salon, investing in business software that helps you automate some of the tasks just makes sense. Spending money on the right app will bring you a positive return on your investment (as we’ll see next.)

How to Improve ROI in Your Salon (or keep a positive ROI)

1. Invest in software

Optimize your salon’s workflow by investing in an app that streamlines everything from scheduling to business reports that help you analyze your salon’s performance. 

This is probably one of the most essential expenses you can have in your salon that directly impacts your salon’s return on investment. Goldie is a scheduling app that can help you.

Here’s why.

Goldie is a one-stop tool for your salon because it has all you need to run everything smoothly:

• Scheduling: Keep everything organized using a booking app.
• Reminders: Reduce no-shows by sending appointment confirmations. This has a huge impact on your salon’s return on investment.
• Online booking: Help your clients book appointments based on your schedule using the same app. This saves you time to handle your other appointments.
• Payments: Take deposits at booking and offer an easy checkout experience. In this way, you can be sure you won’t lose all the money in case of a no-show.
• Services: List all your services in the app and make it easier for your customers to know what you offer.
• Client management: Take notes on each client and appointment so that you remember important details for their next one. You can turn customers into loyal clients by showing interest.
• Marketing: Send marketing messages to your clients to run seasonal or service-specific promotions
• Reports: Analyze your business and maximize your income based on what works for your salon.

💡See how to create your online booking system in just a few steps.

2. Buy quality products & equipment

This is probably a no-brainer. To keep your clients coming back, you need to offer quality services using quality products. Even if this can turn out to be expensive in the beginning, your salon’s return on investment will be positive in the long run.

It goes the same for high-quality equipment. If you invest in more expensive gear, you can be sure you won’t experience malfunctions one month after you buy it. On the other hand, if you buy something cheap, you might have to change it more often, resulting in more spending.

Purchasing only the best for your clients makes a big difference in your salon’s return on investment through acquiring repeat business. Clients value salon owners who take pride in their business. And if you’re spending that extra money to provide them with the best services, you can rest assured they’re willing to pay for those services.

3. Purchase wholesale salon supplies 

Buying wholesale supplies is another way to get a good salon profit margin. This means you can buy high-quality supplies in bulk at a reduced price. Plus, most wholesalers can get you brand-name products at a lower cost. 

The more you purchase, the lower the cost of the products. When you pay a reduced price per unit, you increase your salon profit margin when you re-sell the product to a client or use the product in your services.

Buying high-quality products in bulk at a low price is a good way to cut down on how much money you spend on operating costs. 

Besides, buying in bulk means you can have peace of mind that you’ll have enough quantity for all the services you’re providing until the next purchase. 

Even if some products can’t be purchased in bulk, you can still get them at a wholesale price.

4. Price your services competitively

The right service prices have a huge impact on attracting new clients, keeping the ones you have, and ensuring that your salon has a positive return on investment.

When pricing your services, you must take into account the prices of other services in the area and your general salon expenses. You don’t want to overcharge and lose potential clients, but you shouldn’t undercharge and end up with a negative return on your salon’s investment. Low prices can also scare potential clients because they will not perceive you as a professional in your industry. 

Here’s another aspect to think about.

If your reputation has been growing and the demand for your salon is high because your clients are satisfied with the services they receive, have the confidence to raise your prices to increase your profit.

Your business expenses can vary from month to month. That’s why it’s important to keep track of everything with easy-to-understand reports like the ones Goldie can offer for your business.

5. Sell retail products in your salon

One way to improve your salon’s profit margin is to sell products to your clients. These can be shampoos or aftercare products. Clients appreciate it when you recommend them good quality products. 

Plus, this is a good conversation starter about your client’s next visit. 

Here’s a useful blog post to read if you want to know more about how to start selling products in your salon.

6. Include add-ons 

Your salon’s profit margin could increase with each appointment. Try upselling some services, such as nourishing hair treatment at the backwash or a moisturizing hand massage during a manicure.

7. Host training sessions 

Offering training sessions or workshops to professionals from other salons can be a fantastic idea. It’s not only great for networking and getting yourself known as an industry expert, but it’s also a great way to generate revenue.

Charging a fee for these sessions can bring in extra income for your business.

When setting up these sessions, think about creating a solid plan that covers different topics or techniques that people might find helpful. Ensure your crew is ready and can deliver top-notch training worth people’s time.

Get the word out about these sessions through your industry connections, social media, and local salon groups to pull in pros from other salons. Plus, giving out certificates or official recognition when people finish the training can make your program look even better.

8. Include express services

Another way to keep a positive ROI is to add express services to your list. 

Some services, such as hair coloring, take up a lot of your time. These also imply a lot of waiting. You can turn it into a profitable situation by scheduling express services such as a blow-dry, an up-do, or other under-30-minute services.

9. Offer a referral program

We know word-of-mouth marketing is probably the most effective way to gain new clients. A good recommendation from someone you trust can have a more significant impact than any review you read on the internet.

That’s why an effective way to increase sales in your salon is to offer a referral program. This can be something like: “Refer one client and get 30% off your next service.” It’s great for your current clients, and you can get new ones without spending too much money on advertising.

10. Focus on your loyal clients 

To go one step further, you can reward your loyal clients with discounts on your services without them using the referral program. 

Loyal clients mean steady business. Make sure to keep them coming back by rewarding them with discounts or special offers.

For example, you can give your clients 10% off any service for every third visit. You can also start a loyalty program. This is nothing new or innovative, but it always proved to be effective.

Wrapping Up

As you can see, there are ways to improve your salon’s profit margin.

Understanding the financial health of a salon and using a few strategies to improve or keep a steady return on investment translates into business success.

To figure out how your salon is performing, you need comprehensive salon reports of your monthly or yearly income, but also of your salon’s clients.

Goldie is here to help you with everything from scheduling appointments to complex salon reports made easy to understand.