What is a Profit Margin?
A Profit Margin is the difference between the total cost to run your business and the total revenue it brings in.
Why is it important?
Profit margins are super important in the beauty industry for several reasons:
1. Competition: As you already know the beauty industry is highly competitive, and understanding profit margins help businesses remain competitive but also profitable.
2. Pricing strategies: High profit margins enable companies to implement competitive pricing strategies such as discounts and promotions, which can attract customers and encourage them to purchase more products. So knowing your margins will help you understand which treatments can be offered as value added, or discounted if this is what you do.
3. Investment: High profit margins enable companies to invest in marketing, advertising that can help grow the business and build brand recognition.
4. Sustainability: Understanding profit margins help businesses remain profitable and sustainable, which is essential for long-term success and growth.
5. Risk management: Profit margins also provide a cushion against unforeseen events such as economic downturns, supplier disruptions, and other crises that can affect our industry. It can also really help with cashflow and managing your business in its quieter months.
To work out the cost of sale and profit margins for a beauty salon, you need to consider the following factors:
1. Cost of Materials: This includes expenses – from couch roll to gel polish, stationery, furniture and fittings, marketing materials, and other consumables.
2. Overheads: This includes rent, electricity and water bills, salaries and benefits for employees, licenses and permits, taxes, insurance, and miscellaneous expenses.
3. Pricing: It is essential to determine the right pricing for all your services to help cover all your expenses and still leave room for profit.
4. Sales Volume: Your sales volume means the number of services you have sold within a particular period. It is important to track your sales volume at each point in time to assess how profitable they are.
To work out your profit margins, subtract the total cost of sales from the total revenue you generate, then divide the result by the total revenue generated.
Profit Margin = (Total Revenue – Total Cost of Sales)/ Total Revenue – then hit the % button on your calculator.
Cost of sale – How much it costs for you to carry out a treatment BEFORE salaries.
Gross Margin – How much profit you make from your money made.
So for every £1 you make, you ideally want to be spending 5-8% on cost of sales, and having a 92-95% margin.
NET Profit – Is how much you are making after salaries, general costs and VAT if you are registered.
The key to maximising your profits is to keep a close eye on your expenses whilst still driving your sales.
Please see an example of Mooeys Profit Margins below for each service we offer.
|Product cost||Cost of Sale %||Margin %|
|FUZZY FACE WAX||£0.51||2.66%||96.01%|
|UPPER LIP WAX||£0.49||3.87%||94.13%|
|FUZZY FACE & BROWS||£0.56||1.99%||96.73%|
|HALF LEG WAX||£1.39||5.91%||92.42%|
|STANDARD BIKINI WAX||£1.63||6.42%||92.06%|
|STANDARD BIKINI & HALF LEG WAX||£1.46||3.99%||94.41%|
|ULTIMATE & HALF LEG WAX||£1.74||2.84%||95.48%|
|G STRING WAX/MINI MOOEY||£1.94||6.00%||92.90%|
|FULL LEG WAX||£1.80||8.48%||89.27%|
|MINI MOOEYS & FULL LEG WAX||£1.91||4.62%||93.70%|
|STANDARD BIKINI & FULL LEG WAX||£1.91||4.98%||93.42%|
|MINI MOOEY & HALF LEG WAX||£2.03||3.29%||95.27%|
|ULTIMATE & FULL LEG WAX||£2.18||4.31%||93.95%|
|FULL MONTY WITH HALF LEG WAX||£3.63||5.18%||93.18%|
|FULL MONTY WITH FULL LEG WAX||£3.68||5.55%||92.42%|
|Average||5.54%||Cost of sale prior to salaries|
You can use this table to work out your own here – https://docs.google.com/spreadsheets/d/121Y5kMUMbanCxwj3jsAfJ9eFNdU0VH8i/edit#gid=2079476420
Simply update your prices on each tab. If you have staff members working with you – pop their salary in the yellow box on the right-hand side on each tab. This will calculate a really clear margin for you before your factor in your running costs.
As you can see our profit margin for waxing is around 95% which is amazing! The reason being, waxing has very little costs attached to it as you don’t use much product and it is also a fairly quick treatment in comparison to say, nails.
The demand for beauty products and services has enabled companies to increase their profit margins considerably over recent years. However, as it’s such a competitive industry we have to balance that somewhat with keeping up with the latest trends and not run the risk of falling behind in order to remain profitable. Customers are also becoming more mindful about the ingredients in their beauty products and are opting for more natural, sustainable options. Therefore, companies must balance their profitability and sustainability in order to succeed long term and this is why making sure your margins are correct is so important.