How do you set your prices when you are starting a new business?

Posted on May 5, 2008. Filed under: finance, small business, startup | Tags: , |

When I first went into business for myself I moved from a commission salon to one where I rented a private studio.  The place I started to think about my prices (like most of you, I imagine) was the prices my previous salon had charged for my services.

Oh, yea, and I asked every hairdresser I know what they were charging.

Sure wish I had the internet back then!  It is super easy now to get market comparisons just by looking up the websites of other salon in your area.

Over the years, our pricing strategy evolved.  We tried many different models, but the bottom line always come down to supply and demand.  If the service provider is booked and can’t make more money by doing more clients, the only way to make more money is to raise prices.

When you start a salon, chances are you are moving from a salon where you have clients and an existing menu.  You want these clients to follow you, so it makes sense not to shake things up too much in the finance department.

However, there is nothing wrong with implementing a different pricing strategy that you can transition the existing clients into while new clients jump right in.  (Remember, new clients have no idea how much you used to charge.)

So, maybe the salon you are leaving charged everything al a carte and you want things to be more inclusive.  No worries!  Explain the new philosophy to the existing clients and as long as the end result of their cost is close to what they had been paying, they will be fine.  If you need to charge more, explain to them what added value they will receive for the additional charge.  I think it makes sense to keep them at the same price for the first visit so that they can see why the new is worth more than the old.  (Here’s where your website comes in handy.  It’s the place where you can explain in great detail who you are and what you believe as well as what that will cost!)

Do not think that being cheap will get or keep clients!  Unless your target market is the budget-conscious consumer, do not be the lowest priced option available to your clients!

I know very well which other salons in my area my clients would likely use if they weren’t seeing us.  I never want price to be the reason they choose us over another salon.  I am priced similarly to other salons of my caliber.

There was one salon owner who told me that she just didn’t think our city would pay $50 for a haircut.  She has since changed her mind.

When the people at the top of the price ladder raise their prices, it makes room for everyone on the rungs below to raise theirs.  Are you the third best salon choice in your market?  Price yourself accordingly.  Is no one better educated and has a better salon?  Then you better be the top, baby!  (My salon has some of the best staff in our town, but our salon is not lavish and lush, so we price ourselves slightly under the more lavish salons.  Make sense?)

That’s a lot of back story to get to this point:  I basically charge $100 an hour.  Haircuts are 30 minutes and $50.  A partial foil is an hour and $100.  I still have some prices that don’t quite match up, but I have been working on getting everything more in line with that philosophy.

I have an article here for you to read with further insight on the topic of pricing in small business.

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