Revenue models to increase beauty salon profit margins - Belasis

Our world is changing. And are you ready to adapt your business model to this new world to increase your beauty salon's profit margin ?

Traditional businesses are falling behind faster than ever. Taxis are being replaced by Uber. Cinemas are being replaced by Netflix. Retail stores are being replaced by online shops.

But the salon revenue model will remain the same. Or will it?

What all the new industry disruptions have in common is that they come with a new revenue model that replaces the traditional one. And I am sure you have already started to see new revenue models emerging in the beauty sector as well.

To prepare your business for the future, it is more important than ever to understand your salon's revenue model. Only you will be able to identify new ways to shift your business operations to improve your results.

That is why in this article we are going to show you details of the beauty salon revenue model today. What the average beauty salon looks like today and what might change in the future.

The beauty salon will be used as an example, but the same applies to barbershops, spas, clinics, and the like.

Let's start with some basic concepts.

What is a beauty salon revenue model?

A salon revenue model is a framework of how it will generate revenue. This document (yes, it is a document and a very important one!!) includes the different revenue streams a salon has, for example:

services and retail sales
what value the salon offers (for example, coloring service)
how they pay for this value (the price of the color service)
who pays in the end (the beauty salon client).

This is an essential part of the beauty salon's business model. Understanding your revenue model is essential for you to be successful with your business and, ultimately, prepare it for the future.

How do beauty salons make money?

The primary income stream for beauty salons is service revenue. For an average beauty salon in Brazil, this represents about 92% of the income generated. In addition, a small portion of revenue is generated by retail sales (8%), such as product resale.

This is the average image. When you look at the most successful salons, they often have a higher share of retail sales between 14% and 18%, as they have found this to be a profitable addition to their core service offering.

However, the salon revenue model remains similar to most beauty salons, barbershops, and the like.

The more income streams in the salon, the better

If you stop offering the traditional revenue model described above, you will limit your salon's potential. If done well, you can make good money from service revenue and retail sales, but why stop there?

In general, the more income streams you can add to your business, the better. Having different types of income, generated by creating value in different ways and for different consumers, will not only improve your salon's income. It will also limit your business risk. If one revenue source is slow, another can compensate. And so on.

But what could be a new source of income to increase your beauty salon's profit margin? Let's learn how this is done in other industries.

6 revenue models to increase your beauty salon's profit margin that you should explore

There are many types of revenue models and income streams that are frequently adopted in other industries. Not all of them are relevant to beauty businesses, but we have summarized the most applicable ones below.

Service fee beauty salon revenue model

The first model is a model with which you, as a beauty salon owner, must be most familiar, as it is where the business charges for the service provided. Which is the basis of the traditional salon revenue model.

However, you already know that a revenue model consists of more than just the value you create, but also who you are going to provide that value to. Therefore, you should not discount this, as it is not a way to innovate with your revenue model. You must ask yourself if it is possible to provide a service to someone other than your traditional salon client. Well, this can open up new income stream options for you.

For example, let's say you run a hairdressing business. You can provide a service to other hairdressers, for example, by offering courses and workshops on the subjects you master.

Salon Subscription Model

This is when you charge a predetermined fee for a contracted period, rather than per service performed. This is a model used by newspapers and mobile operators. But this method can also be used for beauty salons.

An example is the North American Rouge Make Up Salon. They offer their clients a subscription service of $250/month, which allows clients to walk in at any time for a makeup or waxing service.

Models that offer recurring income like this are good because they guarantee a stable income, even in periods normally with less movement in the traditional, transaction-based salon.

The beauty salon advertising revenue model

Brands and manufacturers are increasingly looking for specialists who can give more credibility to their brands. They are also looking for the right physical locations to promote valuable experiences. As a salon owner, you can offer both. If you also have a good online presence, you can “sell” advertising space on these channels, if you or your salon has a strong following on social media.

The production revenue model

The production model is an old model that has existed for centuries. It is when a business creates value and sells the end products.

The model is already commonly adopted by salons that have managed to build a well-known brand to later launch their own product line, for example. This was considered a higher-risk revenue model in the past, as it was necessary to invest in research and development to create your own product line. Today this is much easier, with many third-party manufacturers available to offer ready-made products. In other words, more beauty salons are entering this space.

Following a production model does not necessarily mean launching physical products. You can also launch digital products – like online training or eBooks. The possibilities are endless.

The salon markup revenue model

The markup model is when you buy products from a manufacturer, add your price to them, and sell them to the consumer. In addition, this is a model you are probably familiar with and likely something you are already doing in your beauty salon.

And there is possibly still room to create more value for your salon here. You can choose to sell other brands complementary to what you already have or start selling the brands on a new channel.

The beauty salon e-commerce revenue model

The fastest-growing channel at the moment is the so-called marketplace, or online sales. You can see this as a threat that takes away your retail sales. Or you see it as an opportunity for you to expand your salon.

The marketplace revenue model encompasses all other revenue models and can contribute to increasing your beauty salon's profit margin. You are probably thinking about using online sales with the markup model and selling more brands on the internet. But there is so much more you can do. With the right salon software, you can, for example, also sell your services online and still allow your own clients to book their appointments.

Shifting from salon products to full service and customer experience

Now, we have shown you a long list of additional revenue models relevant to your salon. In addition, you can also review the services you offer in your salon.

As we look to the future, it is no longer enough to offer just a haircut or a pedicure. These services are increasingly being seen as a commodity, and if you follow this path, you will enter a place where all that matters is price.

You need to move away from selling a commodity to offering a full service that delivers the ultimate value your clients want. In addition, you should look at the complete customer experience that your salon offers. From the first experience of allowing your client to make their own online booking to the experience during the service.

This goes beyond the service you offer in the salon environment, as well as complementary offers that increase the value of your service. Could your salon be combined with a wine bar? Or you can offer snacks, a meditation experience, or other services to your clients as part of the visit.

When you start to see what you offer to your clients as a complete experience, compared to just shorter hair, you are opening up yet another avenue of potential new income streams.

How can I practically use this to grow my beauty salon business?

We are happy to see that you invested time to read this full article. I hope you now feel equipped with the theory behind the revenue models that can increase your beauty salon's profit margin and that the examples from other industries have already sparked some ideas on how to find a new revenue stream to expand your business.

It is already clear that the traditional revenue model to increase beauty salons' profit margin is about to change. They question whether you are ready to take advantage of the new opportunities that come with it.

Let's turn this theory into practice.