In last week’s blog post on Why Salons/Spas Should Raise Prices Now, I delivered this reality check on the need to increase service prices:

“The combination of limited service hours available for sale, high customer demand, high productivity rates, and a tight labor market, means it’s time to raise prices. The industry is experiencing a “perfect storm” period for price increases.”

THE CHALLENGE: The industry suffers from price increase phobia out of fear of losing clients. In the process, too many salons/spas struggle with cash flow and creating profit.

Here is our hit-list of strategies to successfully implement a major price increase:

• The proverbial “What's the best way to raise prices?": The answers are all over the place from put up signs, send email notices, tell clients the price is going to increase on their next visit, to front desk telling them at check out. The most logical solution is to inform clients when booking appointments and have service providers inform clients of the price increase at the beginning of the service.


• The Fix: When it’s time to raise prices … set the date, raise prices, and get it over with. Dragging out the “let’s try to inform everyone so no one complains" is pointless. Guess what? Some clients are going to complain — the majority will not. You need gas and the price at the pump went up overnight … you still buy the gas. You’re a business owner that needs to make business decisions regarding price. Clients know this. If they appreciate the consistent quality you deliver, they’ll pay the new price. If not, it is the client's choice to accept the increase or go elsewhere. There is no need for price increase phobia.


• Will all clients who are not paying the current price please stand up? Maybe one reason you need to raise prices is that there are existing clients that still haven’t been charged the last price increase … or two. That's right, and you know it. There are probably clients with appointments and/or receiving services at your salon/spa that are still paying old prices. This is pure insanity and a 100% compromise of your business. If you and your employees are true professionals, respect the value of your skills, experience, and quality of work, and charge the appropriate prices.
  
  
  
  


• The Fix: I'm just going to say it, "Get a new backbone if the one you have is a rubber band.” Clients are NOT your friends. They buy your time to receive services. When the value of your time and cost of business increases, you raise prices, and they pay the increase that all other clients are required to pay. If a client doesn't want to pay your rate — he or she is not a good client. I bet you'll see better cash flow just by enforcing your existing pricing structure.


• Pricing based on assumptions: You know how much to mark up a retail bottle of shampoo based on its cost. How do you know how much to mark up a service if you don't know what an hour of service costs? The answer is you don’t know … so you guess. It’s downright scary how many salons/spas set service pricing based on WAGS (wild-ass guesses) — or what the competition is charging, that’s also based on a WAGS. Maybe your pricing is based on some level system you installed that has set price ranges for each level, but are those prices based on your company‘s cost per hour or someone else's?
  
  
  
  • The Fix: If you don't know how to calculate your company’s cost per hour, click here to schedule a free strategy session with one of our Certified Strategies Coaches. It’s THAT important and is the only way to properly and accurately set service prices to ensure profitability.
  
  
  
  


• Discounting away profits: Are you driving gift card sales by offering big attractive discounts? It’s great to see all that gift card cash add up, but you may be setting your company up for a cash crisis at redemption time when the cost of fulfilling those pre-paid services is going to exceed their purchase price. The cash crisis is going to be even more painful if the gift card cash was spent and not held in reserve. You'll not only be busy fulfilling gift card services at a loss due to excessive discounting … you won't have the cash to cover the fulfillment costs. Discounting dependency kills cash flow and destroys profit. Groupons, and the like, are about the worst discounting practices any salon/spa can engage in.


• The Fix: There's nothing wrong with occasional and selective discounting promotions. When discounting becomes a crutch to drive sales, your service business is in trouble. Stop the discounts and focus on quality, delivering extraordinary experiences, giving value, pre-booking, and client retention. As for discounted gift cards, stop the practice. It will come back to haunt you at redemption.


• Going for the tip vs. charging the right price: This is extremely common and probably alive and well in your salon/spa. It's when service providers intentionally give away or don't charge correctly for services, to receive a bigger tip. It's also when service providers fail to charge clients a price increase because they think they'll lose clients and miss out on tip income.


• The Fix: You must have a system in place that monitors the price that clients are being charged for services. Some software systems can alert you whenever a price is adjusted. In a service business, educating your team on proper pricing and pricing policies is non-negotiable. Inspect, verify, and correct. Otherwise, the leaks in your pricing system will eventually sink your company.