Liz McKeon: How to increase your profit in six easy steps
Profit is a very important concept for any beauty business. Profit is the financial return or reward that salon and spa owners/entrepreneurs aim to achieve to reflect the risk that they take.
Given that most entrepreneurs invest in order to make a return, the profit earned by a business can be used to measure the success of that investment.
Profit is also an important signal to other service providers of finance to a business. For example, banks, suppliers, leasing companies and other lenders are more likely to provide finance to a business that can demonstrate that it makes a profit (or is very likely to do so in the near future) and that it can pay debts if they fall due.
Profit is also an important source of finance for a business. Profits earned which are kept in the business are known as retained profit. Retained profits are an important source of finance for any business, especially for a start-up or small business. The moment the product or service is sold for more than its cost of product, then the profit is earned which can be reinvested.
Profit can be measured and calculated – formula is: PROFIT = TOTAL SALES – TOTAL COSTS Remember the Phrase: Turnover is sanity, profit is vanity!
Here are my six top tips for increasing your business' profits:
1. Use the best resources: You cannot afford waste with a small company and this rule applies to both resources and employees. Before buying equipment or supplies, consider the direct and indirect impact the investment has on your bottom line. Do not employ anybody without knowing the potential return on investment for the salon.
2. Always look for efficiency gains: The key to maximising profit potential in a small business is to always look for efficiency gains. Really look closely at every aspect of the business. You will be amazed at what savings can be made. Look for ways to save, for example, by reducing banking fees, changing to light efficiency bulbs or bringing laundry in-house.
3. Pricing Strategy: 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. A well-chosen price list should:
A: Achieve the financial goals of the business (profitability)
B: Fit the realities of your market – will the clients buy at that price?
C: Support the product's market position
Evaluate your pricing strategies to enhance profits and make your business more profitable. Never undersell your services. Precise and correct pricing attracts the right buyers who are willing to pay for quality.
4. Increase Revenue: The basic principle to optimising your profits lies in your ability to increase your revenue at a higher ratio than your costs. In the short term, you need to generate the maximum value from each client and upsell them additional services and products to gain more business.
Focusing on your customer experience will lead to word of mouth referrals and repeat business. It's much cheaper to keep a loyal client that to secure a new one.
5. Use monthly, weekly, daily and hourly sales goals: The hard facts of salon business life are that sales affect every waking moment of your day. Basically, high sales = salon success, and low sales = salon failure. Stay focused on your sales' objectives, ensuring that every team member understands that being a financial asset to the salon business is the number one priority.
6. Common pitfalls to avoid on your road to profitability:
- Failing to invest in an effective Sales Training Programme for your team – teach your team and the sky is the limit.
- Not asking for the sale – if a client doesn't ask to buy then you need to ask for the sale.
- Failing to adapt selling style to the style of the buyer – remember people buy from people.
- Trying to oversell to the client – there is no need to do this, as clients don't want to be sold to, but do want to buy.
- Failing to prepare to achieve daily sales targets. Being prepared will give you the knowledge and confidence to tackle each sale in a more professional and detailed manned. Fail to prepare and prepare to fail!
Liz McKeon is a successful Business Coach, Trainer, Author and Mentor, whose expertise lies in growing small businesses from scratch and taking existing companies to profitability.