Direct answer: Build three targets into your first budget before you sign a lease: total payroll at 50% to 53% of sales with your own pay included, net profit of 10% to 15%, and a weekly look at your numbers from the first week. Most salons PIP reviews run payroll at 60% to 65% because nobody set the target.
You are standing in an empty suite with a measuring tape and a Pinterest board, and every dollar in your head is a dollar of rent. I've stood in that spot. What I wish somebody had handed me there was not a paint color. It was three percentages. Everything else on the opening checklist is something you can fix after the doors are open. A payroll structure that eats the profit is much harder to fix once six people depend on it.
Who is this post for?
PIP coaches commission and hourly salon owners who already have a team, usually at $50K to $60K a month with 4 to 8 employees. This post is for the owner before that point: you are opening, or you opened recently, and you plan to employ stylists rather than rent out chairs. You are choosing your numbers now so you arrive at $50K to $60K a month with them already right.
What should I decide before I sign the lease?
Decide how you will pay people and what you will pay yourself. Both feed the payroll percentage, and the payroll percentage decides whether there is any profit left. Write your own pay into the budget as a line item, the way you would write rent. Work out what the salon has to sell in a month to cover rent, front desk, software, product and every paycheck, and only then pick the space.
What payroll percentage should I plan around?
PIP's Library gives two targets. For service providers, aim for 30% to 35% of service sales, counting hourly or commission pay, bonuses and PTO. Employer taxes and benefits are a separate line, usually another 8% to 10%. For the whole salon, aim for total payroll between 50% and 53% of sales, including the owner's pay. Most salons PIP looks at sit at 60% to 65%, which is why so many owners feel nothing is left after payroll, taxes and overhead.
What profit should I plan for?
At least 10% to 15% net profit. PIP's Library points to pricing, productivity and payroll as the three places to look when a salon is not hitting it. Ashley T., owner of Six Ten Hair Studio, closed her first year in Rich Life CEO with service sales up 42%, retail up 118% and a 20%+ profit margin. Put the target in the budget before the first paycheck, not in a note to yourself after the first bad quarter.
How do I keep the salon from depending on my chair forever?
Watch how much of the revenue you produce yourself. Early in my own career my chair was almost 80% of the salon's revenue, and I had to learn that a business you cannot step away from is a job with a lease attached. PIP describes salon growth in three phases. The first, Boot Strap Mode, is where you are the business: you are the top producer, it looks successful, and it leads to burnout. The second, Stabilize and Systematize, is where you build documented, repeatable systems. The third is where you lead and the team runs without you. Plan your first-year hires so that you can move from the first phase to the second.
What should I track from the first week?
Four things. Payroll as a percentage of sales, with your own pay included. Retention, where PIP's targets are 40% or higher for new guests and 65% or higher for existing guests. Prebooking, which PIP asks stylists to recommend at 4 to 7 weeks while the guest is still in the chair. And utilization, with one warning: about 40% of the utilization numbers PIP reviews for salon owners are inaccurate, because lunch, education time and assisting hours were never blocked out. Set up your calendar correctly on day one and you skip that mistake.
FAQ
How do I open a salon and make it profitable? Build three targets into the first budget: total payroll at 50% to 53% of sales with the owner's pay included, net profit of 10% to 15%, and a weekly review of your numbers from the first week.
What should payroll be as a percentage of salon sales? PIP targets 50% to 53% of sales for total payroll including the owner's pay, and 30% to 35% of service sales for service providers. Employer taxes and benefits usually add another 8% to 10%. Most salons PIP reviews sit at 60% to 65%.
What profit margin should a new salon aim for? At least 10% to 15% net profit. If a salon is not reaching it, PIP's Library points to pricing, productivity and payroll as the first places to look.
What should a new salon owner track every week? Payroll as a percentage of sales, retention (PIP targets 40% or higher for new guests and 65% or higher for existing guests), prebooking at 4 to 7 weeks, and utilization with unavailable hours blocked out.