How to Effectively Track Salon Expenses and Boost Profitability

Most salon owners enter the beauty industry out of passion. And it’s normal because you can’t do it without loving this industry. However, they also have to keep an eye on the financial side of things and on all those not-so-fun but absolutely essential aspects of a business.

It’s on you to look at the numbers and track all salon expenses in order to decide what needs to be done for profitability. 

Since this part of the business can be a bit challenging, we put together a salon expenses list and a few ways to keep your business profitable.

Get a grip on your salon’s cash flow

Cash flow is the money moving in and out of your salon. You want more money coming in than going out to make a profit. Keeping a positive cash flow can be tough. Many small businesses fail because they don’t manage it well. A common mistake is only looking at income. Just tracking revenue can give a false sense of security. 

To manage cash flow, you need to understand where your money goes. Tracking salon expenses shows you the real financial picture of your salon.

Let’s start by looking at a salon expenses list and then explore ways to cut costs and increase profits.

What salon expenses you need to track?

If you want to know how to boost profitability, you first need to identify and track your salon expenses. Only in this way you’ll know if there’s room for change and cut down some expenses.

Salon expenses can be divided into two categories: monthly and occasional. The occasional expenses are not always predictable; that’s why you need to operate on profit, not loss.

Monthly salon expenses are the costs you can expect to pay regularly, and they’re easier to budget for, especially if you use an app to track salon expenses.

1. Monthly expenses in a salon

Here are the most common costs you need to pay attention to:

• Staff salaries

One of the biggest expenses in running a salon is paying your staff. According to the U.S. Bureau of Labor and Statistics, the median salary is $16.81/ hour and $34,970/ year. The median wage represents the wage estimate at the 50th percentile, where half of the workers earn less than the median, and the other half earn more than the median.

If you have several employees, this adds up fast. Keep a close eye on your payroll costs.

• Taxes

Tax costs vary based on your location. Federal tax rates can range from 10% to 37%; state rates also vary. Research what you need to pay in your area and set aside money to cover these expenses.

• Rent or lease

Another necessary monthly salon expense is rent. Rent prices differ greatly depending on the location. Business rents are often higher than residential ones, so be informed and budget accordingly because saving on rent can significantly increase your revenue.

• Licenses and permissions

Your business can’t operate without a few necessary licenses, and these depend on the city, state, or province you’re in. But as a general rule, you’ll need health and safety inspections and certificates. In some locations, you will also need a permit to sell retail products.

• Utilities

Utilities like water, electricity, or heat are essential for every business. The average electricity bill for a beauty salon starts at around $150 per month, and water bills can cost from $45 to over $150 for the largest and busiest hair salons.

• Salon software 

The cost of these systems varies. Decide on the metrics you need to track (appointments, inventory, revenue) and find a system that fits. You also need to consider a POS system, which means additional equipment and costs.

💡Tip: With Goldie, you can manage everything in one place: scheduling, deposits, payments, and earning reports. 

• Salon supplies

Each month, you need to stock up on beauty supplies and tools for your employees. Include these costs in your monthly budget. This includes shampoos, conditioners, styling products, and any chemicals used during services. For nail salons, budget for specialty polishes and manicure products.

• Salon retail products

If you’re planning to sell retail products, you need to consider the costs as well. You might need to purchase more products in advance to have enough inventory ready for your employees to make sales and recommendations.

• Salon equipment leasing

Leasing is a popular way to get equipment. Instead of paying in full, you make fixed monthly payments. At the end of the lease, you can often choose to buy the equipment or renew the lease for the latest models.

• Online and credit card processing fees

It may not seem much, but maybe you should consider these fees as well, especially if you see a lot of salon expenses that you need to cut. Credit card fees vary, usually between 1.5% to 2.7%. Research providers to find the best rates, as high fees can eat into your revenue.

• Marketing 

Your salon’s monthly expenses will most probably include marketing as well. These can vary a lot, depending on the strategies you want to implement and the apps you want to use. For example, you may not pay anything for posting on social media, but if you use a social media app like Metricool, you already have a small expense when paying a subscription. If you want to do social media and Google ads, that’s also an extra cost that depends on how much you want to invest in them.

• Cleaning supplies

Every professional salon thrives in a hygienic environment. There’s no other way. So, make sure to have plenty of cleaning supplies to keep your salon nice and shiny all the time.

• Insurance costs

A necessary salon expense is business insurance. Costs can range from $500 to $700 a month, depending on your services and location. You can also consider health insurance for employees to attract and retain talent.

• Internet

You also need to consider the cost of internet service because you need it to process payments and do online marketing, like posting on social media.

2. Occasional salon expenses

Now that we’ve seen a few of the most important monthly salon expenses in a salon, let’s go through the occasional costs.

• Opening costs

Starting a salon includes hiring staff, setting up your location, and advertising. A welcoming, well-designed salon can attract more clients, so budget for decor and design.

You can check out this video made by a salon owner who opened her own space and see how much she spent on opening it ($30,000) and then the monthly cost ($2400):

• Salon website

A website is crucial for modern salons. It doesn’t have to be expensive; you can start with a simple online template or invest in a professional design for added appeal. In this way, you can list your services and create an online booking system.

How to reduce your salon’s expenses?

Be careful with your spending

Compare your expenses to your income to see if your salon is overspending. Understanding your monthly salon expenses makes you more financially aware, allowing you to identify and cut unnecessary costs. This knowledge helps you make informed budgeting decisions and save money.

Save money during tax season

The IRS calculates taxes based on income, but tracking your expenses is crucial. Under Section 162 of the Internal Revenue Code, business expenses are tax-deductible if they are “ordinary” and “necessary.” This means they must be common or helpful in the beauty trade. Examples include:

• Rental payments
• Business loan interest and fees
• Wages and other labor expenses
• Telephone, internet, and utility bills
• Business insurance premiums
• Salon supplies
• Equipment purchases and maintenance costs
• Education and training expenses
• Advertising and promotion costs
• Customer/employee entertainment costs
• Charitable contributions
• Business meals and meetings
• Business-related gifts

You can track these salon expenses for significant tax savings and refunds.

Use an app to track salon expenses

You don’t have to track your salon expenses in Excel sheets. It’s also better and easier not to. There are apps for that.

Goldie’s financial reports for salons make it easy to keep an eye on your business’s performance, identify new opportunities, and simplify tax season. With detailed breakdowns by service or client, you can spot important trends and maximize your income. The app provides simple graphics to highlight revenue and appointment trends and lets staff see their individual tips, helping you better understand your business and streamline your tax filing process.

Teaser: Goldie will soon launch expense tracking in the reports. This means that besides revenue, clients, team, appointments, and products, Goldie will also be an app to track salon expenses.

Use salon management software and POS system

Since we mentioned Goldie…

Salon software and a POS system track transactions, process online and credit card payments, and save you time. These tools help you manage schedules, bookings, stock, and employee performance, reducing daily stress and improving business operations.

And yes, you can do all of these by using one single app.

Understand where all your expenses come from

Meet with your staff to discuss expenses and address any issues. Employees often notice unproductive expenses first. Show that you value their input and develop plans to tackle the biggest costs.

Manage your retail inventory

While it’s important to have plenty of products to sell, you don’t want to end up with unsold or expired products. 

You can use salon software to track your inventory and set up stock alerts to maintain an optimal inventory level, maximizing profit and minimizing waste.

Make smart use of downtime

As I mentioned, scheduling software is the best way to organize and keep track of all your bookings. This also helps you avoid gaps between bookings and fill downtime. During downtime, your staff can clean the place, place stock orders, or post on social media.

Keep a positive work environment 

You need to keep your employees happy, and for this, communication is key. Make sure to meet with them regularly and listen to their needs. It’s super important to keep your top stylists to retain their clients and revenue.

Use smart salon marketing

Effective and affordable marketing strategies like email campaigns, mass messaging, loyalty programs, social media, and client reviews can boost your profit margins without spending too much money. 

Raise profit margins

Understanding your salon expenses reveals opportunities to cut costs and increase profits. For example, you can adjust service prices, move to a more renter-friendly location, or switch to affordable suppliers.

Conclusion

Running a salon is a labor of love, but you also have to keep an eye on the financial side of things. You can ensure your business remains profitable and sustainable by tracking your salon expenses and making informed decisions.

Remember, a well-managed salon not only boosts profitability but also creates a positive environment for both your staff and clients.