How much time and attention do you give to pricing? Do you simply dust off the old price list once in a blue moon and think about whether to increase it or not? According to Andrew Finkelstein, founder of The Beauty Resource (www.thebeautyresource.com), a consulting, coaching and educational company for salon and spa owners, how you price your services and products deserves serious consideration. After all, he notes, pricing directly affects the sales and profits you need to successfully operate your business. Before you make any pricing decisions, consider these four pricing myths. If you cling to these common misconceptions, Finkelstein warns, you likely won't charge what you need—and deserve—for your services and products.
MYTH #1 Price is the client's most important buying criteria. Sure, price matters, but it usually comes up around fourth on the list in shopping surveys when consumers are asked about what's important to them. Yes, there are people who buy based strictly on price. The question you must answer is: Do you want to cater your business to these folks?
MYTH #2 You have to match or even slightly under-price your services or products in a competitive market. With so many different ways to differentiate your salon or day spa, Finkelstein is astounded that people even think this way, especially when some of the options you could instead try include:
- Specializing in a particular niche within the beauty niche (example: haircolor or laser treatments)
- Touting your experience or credentials
- Partnering with top-of-the-line manufacturers
- Limiting accessibility
MYTH #3 Pricing only involves taking the cost of your service or product and marking it up by your desired profit margin. Unfortunately, too many salons and spas don't have a handle on their true costs, so even if they wanted to do cost-plus pricing they couldn't. For that matter, cost-plus pricing may have nothing to do with the value of your services or with the market price. If you don't know it already, Finkelstein's advice is to find out the cost of delivering the service and figure out what gross margin you need to cover all your fixed expenses.
MYTH #4 If your sales are stagnant or falling behind, just drop your price and sales will increase. Remember that although people put a high value on price, they also put a high value on quality. In the service business, perception is reality, so when you lower the price, you chip away at the perception of quality. There are ways to justify lowering prices, if you believe you can retain the clients once you have them in the door and up-sell and cross-sell them with other services. However, if you lower your prices to increase sales, you could very well accelerate your losses.
Need more business information? Don't miss Andrew Finkelstein at IBS New York, April 30-May 2. He joins other top business speakers on topics ranging from pricing to compensation to increasing profits. Visit www.ibsnewyork.com, or call 800-427-2420 to learn more.