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While no one enjoys paying bills, budgeting for expenses is a must. One way to better prepare your business to handle all reoccurring expenses (cost centers) is to calculate how much money you must generate per customer to cover the cost of each expense.
For example, if the rent for your salon is $2,000 per month/$24,000 per year; you would divide $24,000 by the number of active customers in your database to determine how much money you need to generate from each customer every month to cover rent. If you have 800 active customers in your database, then you would need to generate $2.50 per customer per month, or $30 per year to cover the cost of your rent.
You can conduct this exercise for each cost center associated with business operations, as well as your total annual overhead. For example, if your total annual overhead is $100,000 and you have 800 active customers in your data base, then you would need to generate $125 per customer per year ($10.42 per month) to cover all your expenses.
For each tanning session, a salon must allocate funds to cover the cost of lamps and electrical consumption. While this cost varies with the size and features of each tanning unit, a good rule of thumb is .50 -.75 per session for base units, .75-$1 per session for mid-range units; $1 – $2 for the highest-level equipment.
Whether you enjoy lattes, high-octane cappuccino or energy drinks on the company dime, you should also consider how much money you must generate per customer, per month and per year to cover the cost of these treats. For example, if you spend $5 per day on coffee and a bagel, and your salon is open 360 days per year, your annual expense for these items is $1,800.
If you have 800 active customers in your data base, you would need to generate $2.25 per customer per year to cover this expense. While that may not sound like much, when you add cell phones, labor, rent, insurance, etc. into the mix – you begin to understand the importance of budgeting, as well as developing sales and marketing strategies that focus on maximizing your dollars generated per customer per year.
The profits from the sale of lotions and accessories, upgrades, etc., also contribute significantly to the bottom line. For example, let’s estimate that your annual expense for labor is $30,000. If your average profit per bottle of lotion sold is $20, you would need to sell 1,500 bottles of lotion per year (about four bottles per day) to cover your entire cost of labor.
As business owners, we must be aware of the true costs associated with running day to day operations – and we must also prioritize our financial resources accordingly. Yes, perhaps I have over-simplified this to illustrate my point. However, these basic mathematical principals hold true for every business model.
To help you to better understand the costs associated with operating your business, we are offering you an easy-to-use Excel program that auto-calculates the cost to operate every system featured in your business including UV-tanning systems, spray tan systems, red-light systems, wellness pods, etc. There is no obligation to purchase anything. Simply write to me and I will email you the program compliments of Universal Insurance: email@example.com
*NOTE: Information provided is for comparison only. Actual costs, etc., will vary.
Vice President of Universal Insurance Programs, based in Phoenix, AZ. She works with new and existing salon owners to determine and provide insurance coverage for their unique business models. Contact Jenny with any questions regarding your insurance at 800.844.2101 x1480 or email firstname.lastname@example.org.
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