Editor's note: This article was excerpted from our Salon or Day Spa start-up guide, available from Entrepreneur Bookstore.

Since the dawn of the new millennium, the stock market has been in a freefall and the economy has been in the doldrums. But it was a good time to start a hair salon and day spa--and it still is today.

According to Modern Salon/Vance Publishing, total salon industry revenue is predicted to be $3.4 billion in 2005, up 11.8 percent from 2002. How is it possible for a service sector like the beauty industry to continue to grow, given the state of the economy? No doubt because many of the services offered by salons simply cannot be duplicated at home--or at least not duplicated well. In addition, in an age where people freely shell out $59.95 a month for unlimited cellular service or hundreds of dollars to lease the latest SUV model with the most bells and whistles, the price of a haircut probably doesn't seem very high considering the lift it can give your spirits. Also, the baby boomers, who now constitute the largest population segment in America, are more than willing and are financially able to spend money on any personal care service they perceive will make them look younger and more attractive.

What all this prosperity means to you is that the prospects for people who own personal care businesses are bright. The 2003 Job Demand Survey, distributed by the National Accrediting Commission of Cosmetology Arts and Sciences, indicated that average total income (including tips) for salon owners was $53,150 in 2002, although it's possible to earn much more depending on where and how you do business.

(And just as a side note: When we say "salon" throughout this article, we mean salon and day spa, as the title of the start-up kit indicates. Since the tools necessary to open both are basically the same, it seemed redundant to say "salon/spa" over and over.)

The Opportunities
There are three ways you can make your mark on the hair industry. You can open a franchise hair salon, in which you pay money upfront for the privilege of opening that salon using someone else's established name (which gives you an instant reputation) and its resources (like advertising campaigns). You can buy an established salon from someone who is retiring from the business, has tired of the business, or has damaged the business and forced it into bankruptcy (all three happen every day). A third option is to establish your own salon using your own money, your own ingenuity and your own optimism that hard work and talent will win out.

There's one more option that bears mentioning here because it's so prevalent in the beauty business. Booth rental salons are owned by a person (or persons) who is basically the landlord for a group of hairstylists and other service providers working under his or her roof. As the landlord, the salon owner/operator collects a flat monthly fee from the service providers, for which they have the privilege of using salon space and nonremovable equipment like a styling station and chair. The renters, in turn, are considered independent contractors who must provide their own supplies (everything from hair dryers to perm rods), set their own hours, book their own appointments and have their own key to the building.

How to Open a Salon or Day Spa

Operations

To begin with, you must consider your hours of operation carefully so you can accommodate the maximum number of clients during the business day. You undoubtedly already know that the beauty business isn't a 9-to-5 kind of industry. Salons are now open seven days a week and on some of the traditional holidays, and their hours may be extended around prom time or during peak wedding season. What has driven this demand has been the proliferation of two--income couples who manage the demands of raising a family while juggling careers and managing their own personal business. So while it wasn't so long ago that people wouldn't even consider getting a haircut on Sunday, salon hours on Sunday are now a must (even if on an abbreviated schedule). Even day spas are open on Sundays, since this may be the only time during the week that a busy career mom can get away for some personal pampering.

Typically, hair salons in metropolitan areas are open from 10 a.m. to 9 p.m. six days a week, unless the owners are enlightened and add those Sunday hours mentioned above, and from 10 a.m. to 6 p.m. in smaller communities. By design, Sunday and holiday hours often are the same as those of local retailers like malls and department stores, and they generally run from noon to 5 p.m. Lunch hours and early evening hours tend to be the busiest times for salons. You might also need to have special hours to accommodate special needs. For example, if you do a lot of wedding work, you'll probably have to be open earlier on Saturday mornings, say at 8 a.m., for the brides who have to get to church for a 10 a.m. service.

Pricing
Another important part of your salon development plan is the appropriate pricing of your services. Set prices too high, and you'll limit the number of people who can afford them; set them too low, and you'll limit your profit potential and possibly put the business at risk. Of course, the price the market will bear is very much dependent on the demographics of your service area. If you're in an upscale area with larger homes occupied by people with more disposable income, you can price your services accordingly and even offer high-end spa services. But if the surrounding community is peopled by young working families, you'll have to forego the spa services (or offer no more than the bare minimum) and concentrate instead on basic haircutting and color services that are affordably priced.

When setting prices, you must consider the three factors that will influence your prices: labor and supplies, overhead, and profit. Labor costs for salons include salary and benefits costs for both your stylist/spa staff and administrative people (including your manager, receptionist and other support staff). Your own salary is included as a part of this cost. This cost is generally expressed as a price per hour and can vary depending on the amount of time it takes your employees to cut hair or perform other services.

Next, you need to consider your overhead costs, which consist of all costs required to operate the business other than labor. This includes your mortgage or lease payment, utilities, and so on. It's reasonable to estimate that your overhead will be from 40 to 50 percent of your labor and materials cost. (This figure can be adjusted later as you accumulate financial data.) So let's say when you tally up all your labor and materials costs for the year, you arrive at a figure of $100,000. Your estimated overhead expenses (at 45 percent) would be $45,000. This would give you an overhead rate of 45 percent.

The last part of the pricing equation is profit. Salon owners generally can expect to have a net profit of 11 to 15 percent (although you can certainly make this profit figure higher or lower as you see fit). To arrive at the net profit you want, you have to add a markup percentage factor to your services so you'll arrive at the approximate gross amount you'll earn.

One way to simplify the process of setting prices to the extreme is to figure out how much the salon needs to make for the year and do the math to arrive there. For instance, let's assume you want the salon to make $52,000 per year. Here are the calculations you'd use to figure out your prices:

$52,000/52 weeks = $1,000 per week
$1,000/100 hours the salon is open each week = $10/hr
Add a 10 percent profit margin = $11/hr

 

How to Open a Salon or Day Spa

Types of Salon Services

On the hair salon side, the most sought-after service is, of course, haircutting and styling. This includes everything from styles created with a blow dryer, curling iron or hand scrunching to tried-and-true roller/dryer sets for the "mature" clientele. Popular color services include highlighting, lowlighting, glazing, corrective coloring, dimensional special effects, and hair and scalp treatments. Texture services include permanent waves, partial or spot perms, spiral perms and anti-curl treatments. Braiding, which has made a strong comeback in many parts of the country, falls into a category of its own. Finally, special occasion hairstyling, for events like proms and weddings, round out the typical hair services menu.

What's Inside

Although technically it's an aesthetic service, nail and foot care is often offered in hair salons. Nail services include:

  • Manicures (both traditional and French manicures)
  • Pedicures
  • Nail wrapping
  • Acrylic nail application
  • Sculpted nail application
  • Nail tipping
  • Paraffin treatments
  • Skin exfoliation and hand/foot massage are often part of the manicure and pedicure processes.

Whether you offer nail services is entirely dependent on the size of your salon and whether you can afford both the equipment and the salary of a nail technician at the outset. Today's nail client is used to visiting shops devoted only to nail services, so she won't be surprised if you don't offer manicures, acrylic nails and tipping. But you may be able to get her to leave her regular manicurist if she sees that you're offering the same service at your cool new salon. At the very least, you should offer haircuts and styling, basic perms, straightening treatments and highlighting.

Types of Spa Services
As mentioned before, spa services are a rapidly growing segment of the personal care industry. The range of services is truly dazzling, but basically, aesthetic services offered at a day spa fall into three categories: skin and body care, hair removal and makeup. (Technically, there is a fourth category--nail services--but as we just mentioned, nail services have crossed over into the beauty mainstream and are no longer considered just a spa service. However, when offered in a spa setting, nail services tend to be higher priced than in a salon.) Skin- and body-care spa services include:

  • Facials and body exfoliation (which may involve the use of salt glows, body polish, enzyme peels, and body masks like mud or paraffin)
  • Massage (full body massage, facial and/or hand/foot massage)
  • Wraps and packs (used to combat cellulite and reduce water retention)
  • Hydrotherapy treatments (whirlpool baths, Scotch hose--a type of massage that uses a hose to direct streams of water on the client to improve circulation--and hot tub treatments)
  • Body tanning (self-tanners and tanning beds)
  • Hair-removal services include:
  • Electrolysis
  • Waxing (face, legs, arms, bikini, back and underarms)
  • Eyebrow arching
  • Makeup services include:
  • Cosmetics application
  • Color analysis
  • Eyelash tinting
  • Eyebrow tinting
  • Ear piercing

When determining which of these spa services to offer, it's important to weigh factors like equipment cost against potential profitability. For instance, you may want to offer hydrotherapy in your new day spa. But hydrotherapy services require the greatest outlay of cash for equipment and facility development. So it might be a better idea to limit your spa services initially to massage (which doesn't require as much equipment) and/or facials.

Another important factor to consider when deciding which spa services you'll offer is that many of them require a wet room. This includes the hydrotherapies mentioned above, as well as any body masks, exfoliation treatments and other body treatments that must be rinsed off after application. Even if you decide not to offer hydro services when you first open, you should at least plan to include a wet room in your initial plans or you'll always be limited to "dry" services--unless, of course, you move to new digs or expand your existing location.

Because the concept of a day spa implies a day of pampering similar to what you might enjoy on a spa vacation or a cruise ship, it's common for spa owners to offer packages of services. Generally speaking, packages should consist of at least three complementary services, or in the case of hydrotherapy treatments, one hydro service and up to four "dry" services. Spa industry insiders recommend offering half-day packages that run about three hours and full-day, five-hour packages that include 30 minutes to an hour for a light lunch.

A Day in the Life
Even though no two days tend to be alike for salon owners because the needs of their clients (not to mention their employees) vary so widely, there are certain tasks you can expect to perform on a regular basis. To begin with, you'll probably spend a lot of time on the telephone every day, helping to book appointments, ordering supplies, talking to salespeople, arranging for in-shop or offsite training, and so on. You'll also have to make up work schedules (then juggle them to accommodate employees' scheduled time off and personal needs), track receivables, monitor costs, dream up new advertising and marketing strategies, and possibly create daily or weekly specials that can be emailed to your regular customers to lure them in for additional services. On the personnel side, you'll hire new employees, visit beauty schools to troll for hot prospects, conduct performance reviews, mentor young stylists and/or aesthetics technicians with minimal experience, consult with stylists or colorists whose efforts go awry, and mediate when tempers flare between staff members. And of course, if you're also a licensed practicing cosmetologist, you'll be styling hair, applying color and rolling perms.

Sounds like a lot for one person to do, doesn't it? Well, it is--and that's why many salon owners (even those whose salons are quite small) often hire a salon manager to take over some of the administrative duties. This is a particularly good idea if you intend to continue to work behind the chair, since hairstyling chores alone can take up a lot of your time every day. And while it's possible to slip in some administrative work while you're waiting for someone's perm to process or a late client to arrive, it can be difficult to switch gears and give administrative tasks like balancing the books the full concentration they need.

 

How to Open a Salon or Day Spa

Marketing

The main thing that will influence business in your salon will be economics. After all, when the economy is riding high, people are willing and able to spend money on more expensive salon services, services that can easily be done at home, and luxury spa services like full-body massage and body wraps. But when the economy is slumping, those services may be considered a luxury rather than a necessity. As a result, customers may cut back on the frequency of their salon visits, or they may opt only for the basic services provided by one of the budget-conscious national chains.

One way to avoid being caught up a creek without a paddle is to research your target market's economic base carefully. If you've done your market research well so far, you already have some idea of the average income levels in your neighborhood. Now you need to look at data like the percentage of people who are employed full time and the types of jobs they hold. If the local market is driven by a lot of blue-collar, heavy industry jobs, a downturn in the economy could make cash tight and affect your ability to keep customers. Luckily, most people still use salon services, even if it's just for a basic cut, when times are tough, but they may go longer between services. So make a phone call to your city's economic development office now to get a handle on the health of local industry.

Your Salon's Website
Just as you'll access other companies' websites for information about their products and services, you'll want both prospective and repeat clients to be able to find you in cyberspace. Your website will be crucial to your marketing efforts and can be used for everything from posting your hours and driving directions to selling salon services.

Spas come off particularly well in a cyber tour. Well-decorated private treatment rooms can communicate a feeling of soothing relaxation even on screen, while suggesting that a resort-style oasis of serene tranquility is no more than a phone call away.

Because your Website is virtual advertising that's available on demand 24 hours a day, it's important to spend a fair amount of time considering what it should say. (We're assuming that your site will be an "online brochure" with multiple pages rather than an electronic business card.) The best way to determine content is by thinking like a customer and answering the questions you think he or she would have when searching for a new salon or spa. Here are examples of the kinds of questions a prospective salon/spa customer might have:

Salon

  • Do you provide initial consultations? Is there a charge?
  • Can you give me the same hairstyle as (name of celebrity)?
  • What's the latest look?
  • Are your stylists experienced? Where did they study/train?
  • What do your services cost?
  • Do you sell gift certificates?
  • What hair-care product lines do you carry?
  • Which credit/debit cards do you accept?
  • Where are you located?
  • What are your hours?
  • How can I reach you?

Spa

  • Are your spa employees licensed?
  • Are your masseuses male or female?
  • Are hyrdo treatments better than massage?
  • How do you sanitize your equipment?
  • How long will my treatment take?
  • What do you charge?
  • May I take a tour of your facility?

How to Open a Salon or Day Spa

Location

Choosing a location for your salon is one of the most important decisions you'll make in the early stages of establishing your new business. Obviously, you'll want to locate it in an area that's easily accessible by highway or byway, with plenty of traffic (both foot and the four-wheeled variety) and parking. The surrounding area should be attractive, well-lighted and safe. There should also be other retail businesses nearby (as opposed to commercial areas like industrial parks or a regional airport) because they can generate business for you even as they attract customers through their own doors.

Typically, salons operate out of three types of establishments: Free-standing buildings, storefront properties and shopping centers like strip malls. Occasionally, salons are located in malls, but it's actually more common for them to operate out of a free-standing building located on the perimeter or an "outlot" of the mall property because the rent is so high inside the mall. They're also sometimes found on the ground floor of office buildings in large metropolitan areas where there is a significant amount of foot traffic during the business day. However, such locations may not be optimal if they're in an urban area that doesn't have much traffic in the evenings or on weekends.

There's one other type of property that deserves serious consideration when you're looking for a place to set up shop. A facility that once served as a beauty salon may be a good choice for your new location. The good news is, a lot of the infrastructure you'll need, including extra plumbing, special electrical outlets, and maybe even fixtures like salon stations and the reception desk, may already be onsite and available for purchase with the building. The bad news is, there might be a really good reason why the salon closed, like there's too much competition in the area, the location is crummy, or the previous owner had a poor reputation among clients and in the community. The same goes for a salon that's currently in business but is up for sale.

Size of Your Shop
Salons usually range from 1,200 to 2,000 square feet, although small spaces can be considerably smaller (fewer than 1,000 square feet). You'll need four separate areas in your hair salon: Reception and retail, shampoo, cutting/service, and storage. The largest of these, of course, should be your salon services area, which should take up about 50 percent of the floor space. About 20 percent of the space should be allotted for retail/reception, 10 percent for the shampoo area, and the remaining 20 percent for storage and an employee break/lunch room area. The employee/client restroom and your office also should be located in this area. If space permits, you may wish to provide a one-person changing room for customers who are having treatments like color or perms. Otherwise, the restroom can serve as a changing room. Be sure to put a large hamper in the changing room/bathroom for collecting soiled smocks. Any retail products you sell should be displayed in the reception area and placed near the cash register for easy access.

The shampoo area is usually located toward the back of the salon and is equipped with shampoo sinks (either free-standing or affixed to the wall) and chairs. Each station should also have a "back bar," or cabinet, for storing products used in the salon, like shampoos, conditioners and deep-conditioning treatments. Naturally, these should be the same products you sell in the retail area, and your stylists should be trained to discuss each product used with the client as a way to spur sales.

Layout
If you decide to include spa services as part of your salon, then the overall layout of your salon should be created by a professional designer or an architect. That's because unlike a hair salon, which tends to be a large open area with few partitions or walls, a spa needs to be somewhat compartmentalized. However, if you've worked in or visited enough spas in the course of your career, or you have good visualization skills, you may already have a good idea of how you want your spa to look. In that case, it may be possible to work with a draftsperson to draw up plans for the spa, and then hire someone to build the space for you.

Spas are usually divided into a series of rooms that are used as changing and showering facilities, treatment rooms, consultation rooms (for discussing treatment options and post-treatment care), and so on. The consultation room may also be used as an office when not in use by an aesthetician and a client, although we'll assume you will have your main office in the salon area. There also should be a retail area that's separate from the hair salon's retail area (so customers aren't confused or distracted by products that don't relate to spa items). The spa and the salon can share a reception area, however, as long as it's centrally located and easily accessible to both sides of the business. Ideally, the reception area will be in the center, with the salon and the spa radiating out to either side. If possible, incorporate a supply room into your spa area. If that's not possible, spa products can share storage space with salon products, but strive to keep them separate and organized for easy accessibility.

Separate treatment rooms are needed for wet and dry services. While good overhead lighting is needed in treatment rooms both before and after services are rendered, it should be softly diffused. During procedures like massage and hydrotherapy, the overhead lights should be turned off and an alternate, softer light source should be turned on to create an atmosphere of relaxation and peace. Adequate ventilation is also a must, as is hot and cold running water so aestheticians can mix dry products or dampen towels during treatment without leaving the room. Finally, the treatment room should have its own sound system, on which relaxing music or nature's sounds should be played. No rap or heavy metal!

How to Open a Salon or Day Spa

Personnel

One of the more challenging aspects of being a salon owner will be hiring and retaining good employees. This can seem like a daunting task, not just because both of these responsibilities can be very time-consuming, but also because there's so much riding on employees' skills. After all, your employees will be the front-line representatives of the business you have lovingly and painstakingly cobbled out of little more than some loans, some ingenuity and a lot of "shear" determination. Their ability and talent, as well as their attitudes and work ethic, will influence every aspect of the business, from client retention rate to the bottom line.

Here's a rundown of the salon and spa employees you're likely to need for the day-to-day functioning of your new business.

Owner/Operator. You're an employee, too, so you're first on the list. Your day-to-day responsibilities will include overseeing operations, making sure customer service is a top priority, making financial decisions, checking salon product and retail product inventory, handling personnel matters, hiring new staff, and assessing employee performance. All of this is in addition to providing salon services if you're a licensed, practicing cosmetologist.

Salon Manager. While it may be tempting to try to undertake all the management tasks of the new salon yourself rather than hiring a salon manager, try to resist the urge. Unless your salon is extremely small, the price you'll pay for a manager's salary is worth it. The manager can handle myriad tasks like paperwork, record-keeping, employee scheduling and purchasing. He or she will also oversee salon maintenance and handle facility management issues. This person should have the authority to act on your behalf in your absence long-term success."

Hairstylist/Cosmetologist. Your stylists are at the heart of your salon staff. Every state requires stylists to be licensed cosmetologists, so you'll want to check their credentials when they apply for a job. A cosmetology license typically allows the holder to cut and color hair and give manicures and facials. Ordinarily, additional licensing is necessary for services like massage therapy, but it's possible your cosmetologist will be permitted to give hand and foot massages without extra licenses. Check with your state's board of cosmetology to see what the requirements are.

Shampoo/Salon Assistant. This is the person who shampoos clients' hair while the stylist is finishing up another client. He or she may also fold towels, sweep up hair clippings and provide other general assistance around the shop. Often these assistants are newly minted cosmetology graduates who are looking for experience in the industry, or licensed assistants who haven't yet completed enough hours to become a fully licensed stylist.

Receptionist. In addition to greeting customers as they arrive, the receptionist answers the phone, books appointments, gives directions, cashes out customers and performs various other customer service duties like making coffee or even hanging up coats for clients.

Manicurist. As previously noted, the manicurist may be part of either the hair salon or spa staff. This professional provides services like manicures, pedicures and acrylic nail application and tipping and must be a licensed cosmetologist.

Aesthetician. This is one of the most skilled people on your spa staff. Aestheticians hold a special license from the state so they can provide services like facials, waxing, massage and other specialty body-care services like Scotch hose therapy. Quite often this person also does makeup consultations and application, especially if there's not room in the budget to hire a dedicated makeup artist.

Massage Therapist. Although an aesthetician can provide many massage services, a massage therapist has a higher level of training and additional expertise. Most states require these professionals to hold a massage therapist license

Electrologist. This person provides hair removal services and needs an electrologist license in many states.

Independent Contractors. The independent contractor is a person who is not on your payroll but provides certain services in your salon, including hairstyling and manicuring. This type of business arrangement most commonly occurs when a cosmetologist rents space from you (known as booth rental), but is responsible for everything from buying his or her own tools and supplies to paying taxes on earned income.

How to Open a Salon or Day Spa

Resources

For an industry that offers such specialized services, it's amazing how much information there is in print and in cyberspace about both the hair salon and the day spa industries. The Internet is an especially rich source of background information, business tips and marketing know-how, much of which is posted by people who are themselves in the industry. We've presented some useful resources here, but the list is by no means exhaustive. Also, please note that all contact information was current and accurate at the time of publication.

Associations

Beauty Institutes

Publications

Editor's note: This article was excerpted from our Salon or Day Spa start-up guide, available from Entrepreneur Bookstore.

How to Open a Salon or Day Spa