Economic downturns can have an incredibly negative effect on salon businesses. Of course, whether an economic downturn is ‘real’ or ‘manufactured’ is a whole wormhole I don’t want to go down.
But whatever is happening in your business’s micro-economy, with the right strategies in place, you can still make a profit even when times are tough.
In this blog post, we’ll look at some of the ways you can preserve your profit margin and ensure that your business is as successful as possible.
Know your variable and fixed costs
Variable costs are those costs that increase or decrease depending on how much you produce, such as the products we use and the commission element of your wage bill. Fixed costs are those costs that remain the same regardless, such as rent, insurance, utilities and the fixed element of wages. By understanding your variable and fixed costs, you can identify areas in which you can make cost savings to preserve your profit margin.
For example, if you need to tighten your belt, you may consider reducing your variable costs by cutting back on product waste or negotiating with suppliers. Alternatively, you could look at ways to reduce your fixed costs, such as or renegotiating leases or cutting back on utilities.
By being aware of your variable and fixed costs, you can proactively preserve your profit margins and it would be good proactive to make this part of your regular financial review.
Keep in mind that while reducing expenses is important, you still need to ensure that you maintain the quality of your products and services. If customers start to complain about the quality of what they are receiving, they may take their business elsewhere.
Consider ways to increase revenue
In an economic downturn, it is essential to focus on ways to maintain your profit margin. While cutting costs is an important step, it is also important to consider how to increase revenue as well. Here are a few ways that you can increase your income while maintaining your profit margin:
Focus on customer retention - During a downturn, it is especially important to keep your existing customers happy. When customers feel appreciated and valued, they are more likely to continue using your services and products. Invest in customer service, try to re-engage with lost clients, and look for holes to plug in your customer experience.
Introduce new products or services - Economic downturns can get real gloomy, real fast. Developing new services can be an effective way to increase revenue and bring a little ‘buzz’ back to the business. By introducing something new, you can attract new customers and generate more interest with some positive news. Just make sure that the new product or service has enough potential to turn a profit quickly.
Expand your marketing efforts - Social media can turn into an offer-fest when times are tough. One of the most effective ways to increase revenue is by expanding your marketing efforts but take the opportunity to broaden your reach: investing in search engine optimisation, or content marketing can help you reach more potential customers.
Prepare for the worst
Be prepared for worse to come (though it hopefully won’t!) and have a strategy in place to maintain your profits for better sleep at night.
Monitor Cash Flow Closely – Keeping an eye on cash flow is essential to weathering an economic downturn. Put realistic predictions into a spreadsheet and DON’T ignore any hotspots where it looks like you’ll run out of cash. You should have a plan in place to manage cash flow, seeking out additional financing if needed. Beware leaning into voucher sales to prop up cash flow - this can bite you later in the year.
Increase Prices Strategically – If it makes sense for your business, consider raising prices on some of your products or services in order to increase your profit margin. However, make sure you are pricing competitively and that your customers are willing to pay for these increased prices.
Leverage Technology – Using technology can help you become more efficient and reduce staff costs. Consider using automation and technology to replace day-to-day tasks - we outsourced our entire call answering and phone booking system, giving us increased hours for clients to call AND reducing our fixed wage costs.
By following these tips, you can prepare your business for an economic downturn and help ensure that your profit margins remain intact. Taking the time to plan ahead of time will help you better manage your finances and keep your business afloat during difficult times.
You can do this! Everything will change for the better, in time. Use this opportunity to review processes, innovate, and position yourself for success when the economy recovers. With the right strategy and proactive steps, you can come through this challenging time in great shape.