Discounting is n addiction in our industry. It seems to be the go-to any time a salon owner is concerned about cashflow, whenever they are searching for new clients or simply because they feel they ought to be doing something as far as marketing and promotions are concerned.
But the truth is, promotions are not the same as discount. A promotion is simply bringing attention to a product or service.
So why is it that the salon 'gurus' are so dead against discounting. Well, in a nutshell, discounting can seriously harm your salon business - and quickly too.
Imagine a service that we charge $100 for. Let's imagine that $50 goes towards our fixed costs (utilities, rent, business rates, hourly wages, etc.) and a further $20 goes towards our variable costs (product costs) leaving an element of profit - $30. Not bad.
Now let's imagine we discount that service: we take off just 20% so the service is now $80. The problem is our fixed costs (by definition) are fixed. And the amount that we spend on products to carry out that service doesn't change either. The only place we can fund the discount from is our profits - and that 'small' 20% discount has slashes your profit margin by a massive 66%.
Simply put, they are usually discounting because they have fears about cashflow. A discount promotion is seen as a 'quick fix' when the appointment page looks a little empty and the salon owner is sweating about upcoming expenses. The problem is you're just putting the problem off to another day - if cashflow is a problem that is a systemic (and often chronic) problem in the business that needs addressing. Slashing profit margins is not the way out of this.
Sure, a discount promotion might put some quick cash in the till, but the problem reappears a month later, leading to another promotion, another discount and the salon staggers from one cut-price deal to the next.
More than that, by discounting services the customer was going to pay full price for anyway, you're training your customers to never expect to pay full price. Future bookings decline as customers learn to wait for the next promotion, or worse still become the type of customer who shops on price which erodes long-term loyalty.
I'm quite happy to fly in the face of accepted wisdom here and suggest that you shouldn't even be discounting services for new clients. The quicker a new customer gets used to your prices, the better. Plus discounting for new customers is a really quick way top piss off your existing, profitable clientele.
As margins get tighter the problem compounds, because the salon business gets to the stage where it cannot afford deep discounts. The discounts become too small to make a meaningful difference to the customer, or worse still discounts are applied to products and services that the customer isn't even particularly interested in.
That said, I'll happily piss off some 'gurus' by saying that there is a right way to discount, and there are instances where I think a discount is justified.
'Lost' client marketing is a no-brainer, and it's a promotion I run regularly to increase the lifetime value of a customer. Essentially, discounting to 'lost' customers rests on the premise that we have, in some way, failed to make a previous visit feel like value for money. By offering a meaningful discount against a popular service, we can sometimes pitch the service at a price equal to (or lower than) the perceived value and persuade the customer to give us another chance. It doesn't always work, and you'd better make damn sure you're resolved whatever issues were putting the customer off last time around, but often a 'lost' client just needs an excuse to come back on. Or for you to at least acknowledge that they're no longer coming in.
Take heed: during the last financial crisis in 2007/08 we saw average bills remain consistent - it was frequency that fell through the floor, which was the equivalent, in my salon, of losing a third of our customers. We brought in a rebooking discount which rewarded customers for keeping frequency high. Shifting an appointment that was going to happen anyway a week earlier through discounting is not OK. But keeping a customer coming in every 4 weeks instead of 'stretching' appointments to every 5, 6 or even 8 weeks is good business sense.
DO the maths. If you've made a profit on the overall order of a product and you're left with a few discontinued products, you can afford to discount (and discount generously). There's something mildly depressing about cleaning and dusting discontinued products that hang around the salon for too long. Or even worse, seeing old packaging lined up next to new on your retail displays. Get it GONE!
It's fine to discount the first few clients you have for a new product or service - they are taking a bit of a gamble and I think deserve rewarding for that. BUT don't just blindly discount - make these your 'case study' clients and make sure the discount is in exchange for: