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If you’re interested in starting a new business, specifically opening a salon, you’re in good company: The beauty industry is worth over $56 billion annually, and hair care is the largest segment with 86,000 locations nationwide. Luckily, there's rarely a shortage of people looking to change or upgrade their hair — even in economic recessions — and there's often a waiting market for anyone interested in opening a salon.
Although salon life might seem glamorous to clients, a salon is like any other small business. It takes long hours, hard work, savvy, research and sometimes even luck. The best way to reduce the variables that can lead to failure is to better understand the economics of opening a salon, from the startup costs to the standards for pricing.
The most common starting point is to have experience as a hairdresser or to otherwise work in the salon industry, which often goes hand-in-hand with a passion for the business. Both Shana Dyer, who co-owns Harlow Salon in Nashville, Tennessee, and Tiffanie Barackman, who owns Aria Salon in Canton, Michigan, worked in the industry for years before striking out on their own. They share their insights below.
How Much Do You Need?
A 6-step guide to opening a salon
Some of the steps to opening a salon are similar to those you'd take when starting any small business, but there are some salon-specific steps you'll have to take as well.
1. Write a business plan
Most good small-business owners start by writing a business plan, and the beauty business is no exception. In fact, Dyer cites this as the most important piece of advice she gives to new business owners.
“You want to have a business plan and a budget,” Dyer says. “If you don’t know what that is, you don’t need to own a business. Take a class. Hire a financial planner. Definitely hire an attorney.”
A well-rounded business plan includes your customer segments, acquisition channels (such as social media), supplier plan, necessary business relationships, revenue streams, cost structure and key resources.
In other words, it involves a lot more than simply designing your salon and getting people in the chair. You'll also want to make sure you do plenty of market research to make sure there's actually a need for another salon in your area and that you'll be able to drum up enough business to sustain it.
Though the business model canvas has been popularized for lean startups in the tech space, it can be applied to opening a variety of business structures, including opening a hair salon.
Opening a Hair Salon Checklist
In your business plan, make sure you include a checklist that you can refer to as you go through the other steps of opening a salon. You want to include the little — and big — things that you might forget while working to open the salon.
You can start off the checklist with something you've already done, writing a business plan:
Write a business plan.
Choose your legal structure.
Register the business and name.
Choose a location.
Get a license to operate.
Purchase all of the equipment you need.
Purchase the salon furniture; remember you'll need sinks and chairs.
Hire your stylists.
Train your new hires.
Start booking and marketing.
2. Determine the costs
A cornerstone of your business plan is figuring out how much money you need to run your business — keeping in mind that between the upfront costs and the operating costs, it might be at least a few months, sometimes more than a year, before you turn a profit.
This could involve visiting a loan officer at a local bank or credit union for a small-business loan, as well as meeting with a business accountant who can help you plan for and file taxes related to your new endeavor.
The major tenets of opening a salon will be operating costs, including rent, training, insurance, inventory and what you’ll charge for your services — which you’ll balance against one another in order to turn a profit. The operating costs are mostly up to you and will depend on the size and scope of your vision, but how you price your products and services is, to some extent, predetermined.
“Product pricing is universal — it's a 50% markup of the wholesale price,” says Dyer. “You can come into my salon or the salon down the street and the same bottle of shampoo will be the same price. That's just standard in the industry of cosmetology.
“Pricing for services is also fairly universal,” she adds. “It depends on the part of town you are in, your city in general, and the surrounding salons that are about the same level as yours. There’s a salon a couple of miles from us that is about the size of ours and they offer similar services, so we pretty much base our prices off of what they and the surrounding salons charge.
"About every six months, we call around to the different businesses and ask for their basic prices. We also make sure and raise our prices about once a year. Usually, about 5% seems to cover all of the inflation that we suffer as a business.”
3. Insure your salon
Insurance is legally required for most businesses — though you’ll often be glad to have it anyway. Dyer cited business insurance as one of the unexpected costs of starting up, if only because of the myriad forms it takes — your employees, your clients, your space, yourself and so on. Dyer and her partner ended up treasuring her insurance plan when she found out her accountant was embezzling funds from the salon.
“We thought we were going to lose our business,” she says. “Luckily, we had a portion of our insurance that was called 'dishonorable employee insurance' and it covered things like theft from your employees. I had no idea we had it but I was so thankful we did.”
There are other bureaucratic hoops to jump through, including:
Getting a business license.
Securing licenses for all personal appearance workers (though exact regulations vary by state; check with the Division of Occupational and Professional Licensing).
Planning for a health and fire marshal inspection.
Paying Common Area Maintenance, or CAM, charges, which is an additional rent paid by tenants to commercial property landlords on top of the base rent.
New business owners should ask fellow business owners or members of their local government in their city or county what’s expected when starting a new business when opening a salon.
4. Choose a location and hire staff
Many salons start as offshoots of other salons, as former employees move on to their own endeavors and take their clients with them, if they can. A major part of choosing the salon location is to make sure it’s centrally located, where lots of foot traffic will pass by or where there’s sufficient parking. Another aspect is remaining close to where old customers will want to get their hair cut or colored.
“A large portion of salon owners are hairdressers, and when they go out on their own they want to maintain all of their clients,” says Barackman, who worked in the salon business for over 20 years before moving on to renting her own suite and then opening her own salon.
Dyer agrees: “We made sure that, once we decided Music Row was going to be our 'spot,' any time we upgraded or moved into larger business locations we stayed within one mile of where we were. One mile seems to be the standard for how far people will follow you if you are near your old location.”
Just as it’s important to hold out for the right space, hiring the right staff can make or break your business — so don’t make a rash decision about who to hire just to fill seats.
“The people you bring on are going to set the tone for what the salon’s reputation will be,” says Barackman. “I put ads on Craigslist and LinkedIn, but you rely a lot on word-of-mouth and friends of friends because hairdressers all know each other — so I wasn’t afraid to tap into that network to find people who fit my vision.
“When I first opened, I worried that I wouldn’t find people to fit my six stations, and now I’m thinking, ‘How am I going to add two more stations?’ because I’ve got more people who want to come. So you have to operate in that gap a little bit between getting people to see your vision and knowing they might not get it until they come aboard — so don’t panic and know that, long term, you have to make the right choices,” she says.
5. Market your salon
Once you have your business plan taken care of, your salon insured and your location set, it's time to get some customers. Start by tapping your old clients to let them know that you've started your own salon, and having your hairdressers do the same. For any clients that choose to move with you, give them extra appreciation and encourage them to refer their friends.
In addition to bringing old clients over, it’s important to find ways to bring in new customers and retain them. In this era, that means creating a website and communicating through social media for marketing.
“Social media is huge — we’ve done a lot with Facebook, a lot with Instagram, a lot with Twitter,” says Barackman. “That’s where people go now. We’re absolutely pulling in new business from Facebook alone, overwhelmingly so. People I know loved seeing the process of what I was doing — I posted photos of building the business online — and they shared that with their friends.”
Local advertising is another cost, but one Barackman considers well spent.
“I have the business in a brochure for an upcoming baseball tournament. I’ve put out advertisements in the months leading up to high school prom that we have specials,” says Barackman. “I’m no marketing genius, and if I had the money I’d hire a marketing specialist, but I’m tapping into things like that.”
6. Scale carefully
If you're opening a salon, you probably have a grand vision for how it will look, operate and feel to customers. Chances are, though, that your vision will have a big price tag — one that you won’t necessarily be able to afford in your first days.
There are some major startup costs to estimate, which namely include rent and equipment.
“Equipment is super expensive,” says Dyer. “You don’t have to have the best of everything when you first start. We bought our equipment off of Craigslist from other salons that were closing and got it for over half price. We upgraded as we needed to, but in the beginning, it's not worth it to spend $10,000 on equipment when you really need to put a sign on the outside of your building.”
That process — start small, become big — works for salon space and products as well.
“We went from a 400-square-foot salon to a 5,000-square-foot space in a repurposed church with 10 employees in a decade. We used to have one or two of each color in stock and order when necessary; now we have 10 of each color we use because we’re busy and need all of those colors rotating in and out,” says Dyer.
There are ways to make your salon inviting and homey without breaking the bank. Try keeping the place tidy, offering hand and scalp massages and playing music throughout the space — most streaming services have low-cost options that will keep your place humming ad-free. A complimentary glass of wine or a cup of coffee might not cost you much, but it can make a big difference to the customer.
Even if you find yourself coming in under budget and are tempted to spend on high-end equipment, don’t forget about some of the hidden costs of a salon.
“A lot of little things that you don’t think about add up,” says Barackman “You have to have service menus printed up because people want to know how much your services cost. And then you have business cards — and when you hire new people, you need to buy them business cards.
"And then there’s upping your inventory for when new clients come in — although one thing I’ve noticed is that since I’ve opened a salon, distributors have made an effort to help get me products or equipment at low cost, or at no cost, now that I place big orders. So once you’re in, you’re in.”
The bottom line
Anyone who's become a return customer at a salon can likely attest to appreciating the sense of community that the salon cultivates, as well as the quality of the haircut they receive.
In order to ensure that both of these important aspects of the business are kept up, be sure to create and follow your business plan, make sure you’re properly licensed and insured, well outfitted and located (without overspending your budget) and marketing yourself to the fullest. The rest — mainly, the quality salon services — is up to you.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.