The question you want to ask yourself is what prices should we be charging? When you think about the answer, please keep your objective clearly in the forefront.
For sure your ultimate objective is to maximize the amount of money your business makes. It’s just that on the road to doing that you can use pricing as a strategy (there’ll be more on pricing as a strategy in a future Finkelstein Report).
However before we can even make pricing decisions it’s important to wipe your mind clean from four big pricing myths. If you hang onto these myths, you’ll be sure to dilute any advantage that a pricing strategy will bring to your salon/day spa.
Myth #1 Price is the client’s most important buying criteria. Sure price is important; however, it usually comes up around #4 in consumer shopping surveys about what’s important to them. Yes, there are people who buy based strictly on price. The question you must answer is do you want to do business with these folks?
Myth #2 You have to match or even slightly under-price your services or product in a competitive or commodity driven market. With so many different ways to differentiate your salon/day spa, I’m astounded people even think this way.
For instance, you could try:
- Specializing in a particular niche within the beauty niche (example: hair color or laser treatments)
- Touting your experience or credentials
- Partnering with top of the line manufacturers
- Limiting accessibility
Myth #3 Pricing only involves taking the cost of your service or product and marking it up by your desired profit margin. Unfortunately, too many salons/day spas don’t have a handle on their true costs so even if they wanted to do cost-plus pricing they couldn’t. For that matter, cost-plus pricing may have nothing to do with the value of your services or with the market price.
However, if you don’t know already, please find out the cost of delivering the service and figure out what gross margin you need to cover all your fixed expenses.
Myth #4 If your sales are stagnant or falling behind, just drop your price and they will increase. Remember that although people put a high value on price, they also put a high value on quality. In the service business, perception is reality, so when you lower the price you chip away at the perception of your quality.
There are ways to justify lowering prices, if you believe you can retain the clients once you have them in the door and up-sell and cross-sell them with other services. However, if you lower your prices to increase sales you could very well be accelerating your losses.
Andrew Finkelstein, President of the Beauty Resource, is a successful New York City-based entrepreneur, author, speaker, and coach who helps professional beauty businesses get more clients. Andrew’s E-zine The Finkelstein Report is the beauty industry’s #1 marketing resource with free articles, marketing tools, and valuable advice for salons and day spas owners. Contact Andrew at http://www.thebeautyresource.com or 212-831-2421 x202