Building a growing salon business in today’s market can be daunting, especially with so many options for the average consumer.

Your ability to stay organized and focused on the most important key performance indicators can be the secret to your success. If your goal is to grow your salon business in the next year, these metrics can help guide you down a clear, concise path.

To ensure success, the first thing you need to do is make sure your employees are happy.

Measuring Employee Happiness

No matter how talented you are at providing salon services and how devoted you are to your clientele, you won’t be able to handle the workload alone.

You need a strong team full of passionate employees.

Richard Branson, the billionaire founder of Virgin ventures, is famous for revealing that at Virgin, they do not put the customer first but rather the employee. That may sound counter to decades-old business wisdom, but it has worked so well for Virgin that Branson says he's surprised more companies haven't adopted an employee-centric management strategy.

This same strategy can be put into place at your salon business. If your employees are happy, they will provide good service. If they provide good service, your business will succeed.

Plain and simple.

Employee NPS

NPS, or Net Promoter Score, is a measure of how likely people are to promote your business. It’s a widely used metric in technology products, but it’s especially useful in the case of measuring how likely your employees are to promote your salon business.

To calculate NPS, first send a simple survey to each of your employees asking one question:

“On a scale from 1-20, how likely are you to recommend this organization as a good place to work?”

Then, using the responses from your survey, calculate your NPS score by subtracting the percentage of employees identifying as detractors (those who respond 6 or lower) from the percentage of employees identifying as promoters (those who respond 9 or higher).

Scores can range from -100 (all detractors) to +100 (all promoters). The plan is to continually improve and increase your score.

With a grasp of your employee happiness, it’s important to monitor how you’re attracting new clientele.

Understanding your Client Acquisition Cost

Your client acquisition cost will tell you how much you’re spending to acquire a new customer. This is helps you to understand your business in simple, single-unit measurements. For example, if I know it costs me $10 to bring a new client in the door, and my average client comes to my salon every 2 months for 1 year. I can estimate I’ll make $340 gross revenue on every new client ($50/visit).

To calculate my client acquisition cost, or CAC:

CAC

( Sum all expenses required to acquire a new customer / New clients )

You can track your acquisition costs through your accounting software, like QuickBooks Online, and your new clients through your booking software, like Booker, then make the calculation with Malartu.

Building and managing a profitable Salon operation

With new clients coming in the door, it’s important to understand what they’re spending in your salon business so that you can optimize for profitability.

The first thing to examine is what your revenue mix is from your different offerings. For example, you may be selling your core service but also have products available for clients to purchase.

Here are a few metrics to aid in this analysis:

Inventory Analysis

Which product lines are best-sellers? What are the margins on those products?

Profit on Service Ratio

(Net Profit From Services - Cost of Providing Services ) / Net Profit From Services

The Profit on Service Ratio will tell you how much you are making overall on the services that you provide as a whole.

Efficiency Ratio

( Expenses / Revenue )

This ratio helps you determine efficiency, and see if your costs are climbing higher than your profits overall

Cash Flow to Debt Ratio

( Cash Flow / Total Debt )

Revenue per Employee

Total employee count / total revenue

Your revenue per employee ratio will tell you how much money you generate for each employee you have. This is important to monitor since a high revenue per employee means you’re running an efficient salon business. You can raise this number by streamlining things like your booking process, training your employees to fit clients in a certain time frame, and specializing on certain salon services (men’s cuts vs full service).

Now with a grasp on how much it costs to acquire a new customer and how much you’re making once they buy your services, you can look at how to grow.

Managing growth with key performance indicators

There are more ways to grow than by just bringing new clients through your door. You can also upsell high-margin products and additional services. We’ll get to measuring upselling, but let’s first knock out how to measure growth in the more traditional sense.

Measuring your web presence

Using data from Google Analytics you can see exactly where traffic is coming from, how much, and how it’s converting to leads on your site. It’s a bit more difficult to track how web traffic converts to walk-ins, but we recommend surveying new clients on how they found you after their first visit to your salon. Using Google Analytics data you can track things like:

Total Web Visits

Web Visits by Channel (social vs organic vs paid)

Web Visits by Geography

Using event tracking and Google Tag Manager, you can also track when people fill out certain forms on your website, or if the option is available, book an appointment.

Less measurable but equally important ways for you to build your brand and gain new clients are to publish press releases for major announcements at your salon and participate in community events.

To differentiate your salon from competitors, it’s important to play a positive role in your community. It’s also important for nurturing your employees and increasing your employee NPS.

Measuring the Upsell

Mastering the art of the upsell is crucial to the success of your salon business because it allows you to grow without the need for more clients. Since it’s easier to keep existing clients than find new ones, upselling is a major opportunity.

To measure upselling, track your average revenue per client.

Average Revenue Per Client (ARPC)

( Revenue / Total Active Client Base )

The easiest way to raise your average revenue per client is to place high-margin products places where your clients may frequent, such as a waiting area or next to your point of sale. Encouraging the “impulse buy” is a simple way to tag a few extra dollars onto every service you offer.

Managing Cashflow

Even the best businesses have cashflow issues from time to time, it’s just the nature of business. Often, a cashflow issue is a matter of matching your business’s growth goals to your personal goals as a business owner. For example, you may need funding to get to your next phase as a business.

Securing funding almost always means working with a bank. If you’re thinking about securing a bank loan, you’re going to need to understand a few ratios:

Debt Ratio

( Total debt / total assets )

The debt ratio is the debt capital divided by the business' total assets. Current and non-current assets and debt are used to calculate the ratio. The ratio is used to determine how much your salon business relies on its debt to finance its assets. The lower the debt to asset ratio, the more likely a business is to be granted a loan.

For example, a salon business that has $100,000 in assets, but only $50,000 in debt is a better risk than a salon business that has $100,000 in assets and $75,000 in debt.

Debt Service Coverage Ratio

Net operating income / total debt

The debt service coverage ratio, or DSCR, measures a salon business' ability to generate adequate revenue to cover your mortgage or lease payments. The ratio is calculated by dividing the net operating income by the total debt. For example, if a business has a total operating income of $100,000 and total debt of $60,000 the debt service ratio would be 1.67. This means the business operates with 66 percent more revenue than it needs to cover its expenses.

Any ratio more than 1 is considered a good risk for a bank.

Find an advisor to track this information

Although this post is a great start, there’s more to a salon business than what can be covered in one blog post.

It’s immensely helpful to work with a trusted business advisor that has experience with your business. Along with an integrated dashboard, we’re all about matching businesses with trusted advisors at Malartu.

Want to learn about more KPIs just like these?

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