December 16, 2021 by Adam Hoeksema
In this article I want to walk you through the process of starting a salon and show you the numbers you need to know. Ultimately I want to show you what it would take to generate a $100,000 in annual profit. We will be using our salon financial projection template to help create and visualize your salon financial forecast. First, let's take a brief look at the salon industry in general.
State of the Salon Industry
There are just under 900,000 salons in the United States in 2021 according to a report from IBISworld. You can clearly see the impact of COVID on the industry in the graph below where nearly 100,000 salons shut down in 2020. You can see the recovery starting in 2021.
Because so many salons were wiped out during the initial wave of COVID, there may be significant opportunities for new salon owners to start a new salon and help fill that gap left by COVID.
Steps to Start a Profitable Salon
In order to launch a salon that will generate six figures in annual profit there are 5 things that you need to do:
- Select the right salon business model for you
- Minimize salon startup costs as much as possible
- Develop an effective customer acquisition strategy
- Understand and monitor your salon operating expenses
- Build a loyal customer base
The rest of this article will go into more detail for each of these steps and will ultimately help you create a set of financial projections for your specific salon business model.
What are the different types of salon business models?
First I just want to describe 6 different popular salon business models and hit on some of the differences and pros and cons of each. The 6 types of salons I want to review are:
- Hair Salons - Stylists are Employees
- Hair Salons - Booth Rent Model
- Hair Salons - Salon Suite Model
- Nail Salons
- Barber Shops
- Mobile Salons
Using our Salon Template Bundle, you can actually create projections for any type of salon or barber shop. Each type of salon has pros and cons, let's dive into some of the differences.
Hair Salons - with employee stylists
The first salon model is where the salon owner hires stylists as employees.
Pros: The salon owner has more control of the quality of the stylists, the open hours, the customer service and can ensure that employees all stay “on brand” with the salon as a whole. This model probably has the highest profit potential of any of the salon models.
Cons: It is more complicated to have employees and be responsible for bringing in customers for those employees. It is also more expensive to start a full service salon compared to some other salon models that we will highlight below.
Here if a video walk through of our employee stylist salon template model:
Hair Salons - with stylists paying booth rent
Pros: The salon owner simply needs to find a stylist that is willing to pay booth rent. The salon owner makes the same amount of booth rent income whether the stylist has 10 customers or 100 customers. The salon owner does not have to deal with the HR issues related to hiring an employee stylist.
Cons: Your income as the salon owner is capped. If the salon is really successful, you will still make roughly the same amount of income - the booth rent. So you have less upside potential. You also can’t control the quality of the stylists or their customer service skills.
You can see a walk through of our booth rent model here - Booth Rent Salon Spreadsheet Template
Hair Salons - with a salon suite model
Pros: Similar pros to the booth rent model. The salon owner doesn’t need to hire employees, and additionally each stylist can have their own suite which allows each stylist to customize the look and feel of their suite and provide a great experience to their individual clients without other stylists getting in the way.
Cons: This model is going to have a much higher startup cost for the salon owner. In this model the salon owner is really just a landlord in many cases.
Our salon suite financial projection template demo can be seen here - Salon Suite Financial Projection Spreadsheet
Pros: A nail salon can have lower startup costs because each booth or work station is likely to cost less for a nail salon when compared to a hair salon.
Cons: Obviously a nail salon provides a different kind of service than a hair salon and probably has a lower profit potential than a well run hair salon.
What is the difference between a hair salon and a barber shop? The primary differences between a barber shop and a hair salon are that barber shops will probably have a lower startup cost because there will be less equipment required. The barber shop customers will likely pay less per customer for a haircut, but will also probably take less time to serve a barber shop customer.
Pros: A barber shop has a lower startup cost than a full service salon and a barber can likely serve more customers in the same amount of time when compared to a salon.
Cons: A barber shop is probably going to miss out on some of the higher margin services that might be available at a salon, so it might be difficult to generate as much gross profit per barber as a stylist can generate.
Pros: With a mobile salon you can go to your customers. This opens up the ultimate convenience for your customers and allows you to reach customers that might not be willing to drive very far to your salon, but would be willing to pay for you to drive to them.
Cons: If you have to drive to each customer you will obviously see less customers in the same amount of time, so you will likely need to charge more for your service.
Now let’s look at the difference in startup costs for the salon between these models.
Salon Startup Costs
The cost to start a salon can vary dramatically depending on a number of factors like the salon model you choose, the location, the size of the salon, whether the building needs work or is ready to move in, etc. It is impossible to predict exactly how much your salon will cost to startup, but I am going to highlight the key startup costs that you should research for your specific business plan.
Startup cost for a hair salon
The costs to start a hair salon may include:
- Construction of a building if you are building a new building
- Purchase of a building
- Leasehold improvements to a building you are renting
- Each booth / station
- Salon furniture
- Front desk
- Hair salon equipment - Evergreen Beauty College provided a list of required equipment
The first few months of salon operating costs include:
- Phone and Internet
- Security system
Startup cost for a nail salon
A nail salon will have similar startup costs as a hair salon does above, but would have manicure and pedicure stations instead. You can find current market prices for manicure and pedicure stations here.
Startup cost for a barber shop
A barber shop will have similar startup costs to a salon above, but may have a lower cost for the booth / stations. Find market prices for barber shop stations here.
Startup cost for mobile salon
A mobile salon won’t have any of the building or leasehold improvement startup expenses, instead you will need to buy or lease a mobile salon truck or van. Find market prices for a mobile salon truck here.
Salon Operating Expenses
Our template allows you to easily add your salon operating expenses to your projections. Some common operating expenses for salons include:
- Salon management software
- Salaries for stylists
- Common area maintenance
- Trash service
Below you can see a screenshot of the operating expenses tab in our salon spreadsheet:
Average Profitability of a Salon
Hair Salon Profitability - According to The Salon Business the industry average profit margin is 8.2% for an employee based salon model.
Hair Salon (booth rent) Profitability - For a booth rent salon model the salon owner is similar to a commercial real estate landlord. According to Mashvisor, the average return on investment for a commercial real estate investor is 9.5% annually.
Hair Salon (salon suites) Profitability - I would treat a Salon Suite in the same way as a booth rent model. The ROI would be expected to be just under 10% if you perform in line with the industry average.
Barber Shop Profitability - According to How to Start an LLC, the average annual profit of a barber shop is approximately $35,000 to $70,000.
Nail Salon Profitability - According to ProfitableVenture, the average nail salon owner can expect to earn $40,000 to $75,000 per year.
Finally, I want to end with some frequently asked questions that we get from salon owners.
How to start a salon with no money?
If you don’t have much cash available to start your salon there are a few options. My suggestion would be to start by renting a booth at another salon and build up a loyal customer base. Once you have a steady stream of customers, start to save some money for a downpayment toward a business loan to help you open your own salon. Find an SBA Microlender in your area and talk about a microloan to help you launch your own salon.
How much rent should I charge for salon booth rent?
There are a couple of approaches to determining how much you should charge for booth rent at your salon.
- Market based approach - simply research what other salons are charging for booth rent in your area and price accordingly.
- Based on financial projections - Although a market based approach is useful, I would strongly recommend that you create a set of booth rental salon projections. Once you project your operating expenses then you can take your monthly expenses and divide by the number of booths you have available to rent. That would help you determine how much you need to charge in booth rent to break even. Of course, I would suggest that you charge enough to make a profit!
What is the average profit margin for a salon?
According to Insight Salon and Spa Software the average profit margin for a salon is approximately 10%. We suggest that you develop financial projections for your unique salon model before you start in order to know what it will take in order to break even and profit with your specific location and salon layout and concept.
As you get started with your salon venture please let us know if you have any questions that you would like us to try to answer for you. Good luck!