How to Open a Hair Salon

Last Updated on

Quick Reference

When it comes to personal care and appearance, many Americans rely on professional services. Salons offer a wide range of products and services by specialists trained in hair, nails, and more. Growing demand, coupled with high margins, can mean substantial profits for proprietors. If your goal is to open a salon, the present economic climate is optimal. The beauty business is in a state of growth and has a low barrier to entry, making it easy for new service providers to start. With proper planning, a wise business model, and polished skills, today’s beauty maven could become tomorrow’s business mogul. This guide includes industry trends, financial considerations, and tactics to help aspiring salon owners comb through the snags of opening a salon.

Industry Summary

The 1 million-plus salons and spas in the U.S. cater to women and men aiming to look and feel their best, and the need for personal grooming and maintenance is recurrent. This makes the salon industry inherently stable and highly resistant to economic downturns.

As detailed in an IBIS World study, declining unemployment and increased discretionary income have boosted the demand for cosmetology services over five years through 2019. Within the next five years, by 2024, revenue is expected to increase from an estimated $61.4 billion to approximately $65.1 billion. This translates to nearly $7 billion in profits, most of which is pocketed by small salons.

The nation’s 50 largest salon brands earn only 15% of revenues generated from personal care services, according to SBDCNet. Independent salons dominate the beauty arena. The average salon will operate at a comfortable profit margin of nearly 11%, and the most astute owners recognize that 5% to 15% of their revenue comes from product sales – Dunn & Bradstreet. The most profitable shops can surpass the market standard by delivering excellent service while controlling costs.

Industry Trends

In recent years, social media influencers have helped create and steer beauty trends. In fact, Dove revealed that nearly 82% of women believe Instagram, Facebook, and other social media platforms are driving forces behind beauty crazes.

The power of social media is partly responsible for the expanding range of products and services. Likes, shares, and video views popularize trends and promote premium services at higher price points. IBIS World findings show that innovation has continued nonstop over the past five years through 2019, with no sign of slowing.

Basic styles have given way to advanced products and sleek results. Eyelash tinting and extensions, microblade eyebrows, threading, waxing, and facials are popular. When it comes to nail services, which bring in 16% of beauty revenue, basic manicures are often brushed off in favor of new acrylic and gel finishes. Mood changing gels, magnetic polish, caviar nails, and even nail art membership clubs are winning clients over. Traditional haircut and styling services are the most popular and earn over 45% of beauty industry revenue. However, current trending hairstyles have increased demand for niche services. Specifically, blow-dry bars are en vogue, and the Brazilian Blowout reigns supreme.

The safety of Brazilian Blowouts and other keratin treatments has come into question by beauty watchdogs. Some specialty nail treatments have also raised eyebrows regarding health concerns. Health-conscious and eco-friendly movements have prompted salons to offer non-toxic products. Natural products are more expensive than synthetic options, which helps raise revenue.

 

Target Market

Rising professionals, busy parents, senior sophisticates, and millennial trendsetters are a few viable segments of the personal care market. According to IBIS World, the main demographic of beauty salon clients is 35 to 44 and accounts for 27% of industry revenue. Those 55 and older come in at over 25% of revenue, and customers between 45 and 54 make up about 23% of revenue. Patrons 35 and older have established income streams and more discretionary income than millennial consumers, who account for 16.5% of revenue. With hair coloring and tinting services responsible for 17% of sales, we attribute a significant portion of sales to graying baby boomers.

In an investigative piece, the San Francisco Chronicle discovered that consumers between the ages of 35 and 64 with children in the home would spend up to 38% more than the average client. While women make up a greater percentage than male customers, ignoring men could cost you. Studies show that more men are becoming increasingly image-conscious.

Ambitious owners with a deep understanding of the market can effectively identify target consumers, attract those customers, and earn their loyalty.

 

 

Costs to Start a Hair Salon

The costs of opening your own salon can require a large investment of capital. Unless you have significant cash saved, it may be necessary to obtain a small business loan, explore partnerships, or seek investors. Depending on the concept, the initial investment may range from $30,000-$150,000, according to The American Barber Association.

Acquiring the funds to open your salon is just the beginning. Owners must keep meticulous records, maintain strict budgets, and minimize spending where possible. Keeping track of revenue, growth, and appointments can become seamless for owners who utilize accounting and inventory tracking software.

As estimated by Evergreen Beauty Collegestaffing expenses will cost approximately 10% of sales, payroll taxes will come in at 7.6%, maintenance and insurance will cost about 5% combined, and marketing costs will range from 2% to 5%. Provided below are basic breakdowns of typical items a new salon will need to purchase in addition to common ongoing expenses.

  • Equipment and supplies
  • Furniture and décor
  • Inventory such as shampoo, conditioner, dyes, etc.
  • Website
  • Business software
  • Training and certifications
  • Franchise fees, if applicable
  • Working capital to cover the first few months of payroll, lease, utilities, etc.

 

Steps to Starting a Hair Salon

It is important to set the stage for success before opening your salon. Training, preparation, and financial discipline are three pillars of profitability. Additionally, salon owners must hone proficiencies related to interpersonal skills, beauty expertise, inventory management, and marketing prowess.

Some owners opt to build a salon from the ground up, while others purchase an established salon or franchise. Regarding business structure, entrepreneurs must determine whether they prefer a commission-based system or a chair-rental model. These decisions will ultimately impact revenue, costs, and the company’s brand.

Step 1: Write your Business Plan

After coming up with a business idea, the next step in starting any business should be to write a business plan. Not only will a bank require you to have one to get funding, but multiple studies have shown that a business plan helps increase the odds of starting a successful business. A well thought out salon business plan will serve the entrepreneur as the road map for their business, helping them achieve their business goals.

Related:
How to write a business plan
Free sample business plans

Step 2: Form a Business Entity

A business entity refers to how a business is legally organized. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 3: Name the Business

Finding the perfect business name can be challenging. Not only does the salon name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a hair salon

Step 4: Select your Location

It’s generally beneficial for a salon to be located in higher-traffic or high-visibility locations, which typically equates to high rent or purchase price.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

Owners must obtain licenses and permits before opening, and most notably, all working stylists must acquire a state-issued cosmetology license. Depending on the state, training can take up to 15 months, with 600 hours of additional coursework for those who specialize. After passing a written and practical exam, the now licensed professional may begin working.

Some of the common local, state and federal registrations most salon businesses need include a sales tax permit, Employer Identification Number (EIN), and Certificate of Occupancy.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a salon is another. Fortunately, the cost to start a hair salon can be relatively low, with most of the costs going towards remodeling, booths, and equipment. Funding for a new start-up can be difficult as banks are typically going to want the borrower to have good credit and personally invest 15-25% towards the total startup costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 8: Get your Marketing Ready

Now that you are getting close to opening, it’s time to get marketing materials planned and created. It’s important to understand your market and what media they consume so you can effectively reach out and let them know you’re open.

Brand identity is the message consumers will receive from your salon. Visual identity, brand voice, the value of service, and personality set the tone for what clients will expect. Company logo, furnishings, phone manner, and everything customers see, hear, feel, and smell reinforce the brand. Owners must cement the salon’s brand identity and carve out a place in the market.

Monitoring online reviews from Google and Yelp are important as your customer reviews start coming in. Be sure to address any issues right away as there is no way to make everyone happy, but if the reviews go unanswered, potential customers may pass your salon by.

Related: Low-cost ideas to market a new business

Step 9: Hire Employees

You may start out as the only person working in your salon; however, it’s important at some point to bring on employees as retail hours are typically long, and you will need a break or time off if you are sick.

To save on the complexities and cost of hiring additional cosmetologist, many salons will rent booth space. This provides consistent income, however the owner has less control of how the independent contractor does their job.

Related: Hiring your first employee

Step 10: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your small business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

 

How much can a hair salon make?

Once your hair salon is open, smart business practices can lead to long-term financial success. To stay competitive, salons must deliver excellent service and value. These are key to earning referrals and a brand-loyal customer base.

Add-on services such as massage are common for hair salons to generate additional revenue from their existing clientele.

Business structure, location, and other factors determine an owner’s take-home pay. Salaries differ from state to state. For example, the average earnings for a Washington, DC salon owner is $100,000, as quoted by Comparably.com. In contrast, the average salary for an Orlando, Florida proprietor is about $71,000. According to IBIS World, over the next five years, through 2023, revenue is predicted to rise at a rate of 1.5% annually, which could mean higher incomes for proprietors.

 

Things to consider before starting a hair salon

To be successful, salon owners must be financially savvy, client-focused, and motivated. Most importantly, salon owners must have a passion for personal care services. The demands of a blossoming business zap energy and personal time will be undoubtedly sacrificed for the sake of your livelihood. However, passion for your work can make the bad days better and the good days more satisfying.

 

Resources
Salon & Spa Professional Association
American Barber Association

Subscribe Now to the 60-day Startup Challenge!

Subscribe Now to the 60-day Startup Challenge!