Salon Pricing Strategies

Mentor:

John Palmieri

Transcription

John Palmieri: Welcome everybody! Glad to have you back.

Chris Sulimay: Welcome.

John Palmieri: Is it me or you?

Chris Sulimay: Yeah, I was just saying welcome back.

John Palmieri: Okay. He wants me to actually let him talk, what’s he thinking? [chuckle] My name is John Palmieri and I’m here with my great friend-

Chris Sulimay: Mr Chris Sulimay.

John Palmieri: Chris, nice to have you.
Continue Reading

Chris Sulimay: Can you believe I just called myself Mr.?

John Palmieri: I think you did.

Chris Sulimay: That was awesome.

John Palmieri: I think you’ve earned Mr. Status.

Chris Sulimay: Thanks-

John Palmieri: At this point.

[00:00:30] Chris Sulimay: Mr bald head [laughter].

John Palmieri: I’m not going to have my head bald, I’m sorry. What are we going to talk about today? We’re going to talk about pricing. We’re talking about different levels of pricing, how we charge what we charge, how we get there, what the looks like and we’re going to talk about all the pretty rainbow colors that we have on our pricing sheet.

Chris Sulimay: Absolutely. That we will display on this video, so have no fear.

John Palmieri: If you want to borrow it, you’re more than welcome to.

Chris Sulimay: And this is actually, an enormous piece of information an enormous [00:01:00] time spend of yours this year.

John Palmieri: It was a wicked big project.

Chris Sulimay: Why was it a wicked big project? What actually is this that we’re looking at? And-

John Palmieri: What this is, is a level system. And so, you know, at our genesis locations, we have a seven level system for pricing. I’m starting off at level one and going all the way up to level seven. The challenge that we had is that over a period of time – and this happens with all kinds of things -[00:01:30] systems that you create end up getting a little wonky. You do a little something of a  tweak here, you do a little something of a tweak here and the next thing you know, five years goes by and you tweaked the living daylights out of it. And so what we basically did was go through the process and un-tweak the tweaks, for lack of a better way to put it, but also make the steps more consistent, make the steps make sense, have the pricing reflect what the market is now. And then of course, we added three more tiers on the top of it. [00:02:00] Because we believe that, there’s growth opportunity there for our employees and we wanted those extra tiers, for them to reach.

Chris Sulimay: Well, here’s the reality, when Salon 124 Group started 28 years ago, what was a high end haircut price-

John Palmieri: Ain’t what it is now.

Chris Sulimay: Isn’t what it is now.

John Palmieri: Right.

Chris Sulimay: And you know, I think this really speaks to what you just said, a lot of salons, heck, a lot of single stylists, you know, a stylist at the chair started  [00:02:30] off way back when with a price and chipped away, evolved, maybe some people never had any kind of a real honest look at a price level system, and doesn’t make sense anymore, or we just base it on the salon down the street-

John Palmieri: Right. Called them up, said, “Hey, what’s your pricing for a balayage?”

Chris Sulimay: Right. And then that was it, and now-

John Palmieri: And here’s a thing, I have no idea how they come up with their prices and we’re copying them.

Chris Sulimay: Yeah.

John Palmieri: Yeah. That’s weird.

Chris Sulimay: 100%. so kind of take us through this a little bit.

[00:03:00] John Palmieri: All right, so, one of the things that, you know, the tweaking, you know, “Well John, what does that mean?” It means things like, one year we’d raise our haircut prices but not our color prices. One year we would, you know, go through the different levels and we would decide that this level and the previous level would have the same haircut price, but the color would go up because we were always trying to, you know, make sure we weren’t hurting anybody’s feelings. Or we were trying to make sure that we weren’t scaring people away. And then from a math [00:03:30] standpoint, because I liked the math part. It was really hard to predict how price changes would affect us as a company, as a whole. Because with six locations and 130 hairstylists, when you raise the pricing on different levels, it’s going to affect commission rates, it’s going to affect, obviously people’s paychecks. But can we afford to pay those commission rates? And do these levels make sense. So, one of the things we did is we kind of look at the dollar per hour that a service generates.

An [00:04:00] example would be – I’m making numbers up here – if a haircut costs $75 and it takes 45 minutes to do that, that’s $25 every 15 minutes or $100 an hour. If my color, my foil, takes me an hour to do, but I’m charging $75 for it, I’m getting $75 an hour for foiling. I’m getting $100 an hour to cut hair.
[00:04:30] Why the heck would I want to do a foil? You know, or you’re losing money on it.

And I think we don’t think about that when we’re tweaking the levels coming up with price changes is, so step number one was to go through and make sure that all our services we were making a profit of them, you know, are we getting the same, if maybe not a little bit more on color services because of the higher product charge.  Are we making the same amount on color per [00:05:00] hour as we are haircuts per hour, perms, waxing, you know, you go through the list. So number one, we had to make sure that was consistent and that’s math.

Chris Sulimay: Right, and that’s math and that’s not something that every salon owner spends a lot of time looking at. So, since you don’t have the sheet in front of you here, but you will on your screen, I want to walk through the columns of this sheet and just kind of identify what it is we’re actually looking at here, because this is the tool that we use across all salons. And so whenever we have any kind of movement as it relates to price, there’s a large communication that happens. This is across, you know, six salons. I don’t know how many service… Actually support staff members that we have that this affects, I do know we have 130 stylists that his has a direct effect too, and so this is really important stuff logistically, that people don’t really think about. And so column number one is our “Service [00:06:00] Codes,” if you will. And you thought out every single service that a stylist could perform right and broke it down and gave it its own column, its own code, its own price, why? Why are we not bundling these things together? What’s the deal?

John Palmieri: Well, the short version is because that’s the history of our company. Our company has always been an À la carte based service pricing, that’s just who we are.
[00:06:30] Now there are other companies that do package pricing, neither one is right or wrong, but I figured there was enough change going on as it was that I didn’t want to change that structure. So we left it À la carte because the short answer is we inherited it. And secondly, from a stylist standpoint, you know, the culture of our company is it’s easy to understand; A haircut is this, if you want to foil, it’s this much more, you add the two together that’s your price. So, it’s easy for people to figure out.
[00:07:00] The other part is it’s for the sake of our call center, we have a call center that answers the vast majority of our phone calls coming into the building. They need to know how to book these things, you know, because they don’t know that Jane needs 45 minutes for a haircut, and Ken needs an hour, and this person needs a half hour, so time standards are really important. And so each one of these services that we book, À la carte style come with a time standard attached to them.

Chris Sulimay: Yeah. And that’s a beautiful thing. [00:07:30] Now, whether you have a call center or not, you have a call center.

John Palmieri: You have a call center, somebody answering the phone.

Chris Sulimay: Absolutely. And so a big part of this is communication, and really understanding from step one, pricing really starts with our service, and then we start to walk into our level system. And so when we say “our level system,” we mean our level system, the one-

John Palmieri: The one we use-

Chris Sulimay: Our pricing.  And it’s not based around what the salon [00:08:00] down the street charges.

John Palmieri: Nope. Here’s the thing, I don’t even bother ask.

Chris Sulimay: We don’t even know.

John Palmieri: I don’t even care.

Chris Sulimay: We don’t even know. But when a level one stylist at Genesis walks into the door, they start out at a price level. I think we can share that, right?

John Palmieri: Right, sure.

Chris Sulimay: So, a level one stylist walks in the door and it’s $29 is your first initial haircut price. Day one on the floor now, once I hang out, once I hit some of those KPIs- hopefully you watched our KPI
[00:08:30]video- and I’ve grown some clientele and I’ve grown some skill and I’m about to go from a level one to level two, my haircut price price goes from 29 to 32, explain that jump to me. What’s the deal?

John Palmieri: I create, it’s not perfectly consistent, I want to own that. What I’m shooting for is a 10% increase in each level. Now, because our level system has been tweaked all over the place, some of those numbers weren’t exact for us.  Because [00:09:00] some of the price levels were 15% difference between levels and I didn’t want to lower prices- that was silly, but for most practical purposes, each one of these levels, it’s a 10% increase from level one to two or 10% increase from two to three, etc.

Why? Because it adds consistency to the system, each level is a 10% increase. Two, it provides an opportunity for our accounting department to figure out what the heck’s going on because [00:09:30] each level is a 10% increase. And third, you know, we know that when you increase prices by about approximately 10%, you lose about 10% of your clients. And again, it’s a math thing. If I can say to Chris, “Hey Chris, we’re going to increase your prices from level two to level three, that’s about a 10% increase. I also know what a 10% increase. You’re going to lose 10% of your clients.” It’s easy math, and so those are the reasons why.

Chris Sulimay: So, great. So, that’s why we do the 10%. As we walk [00:10:00] through that, we understand a few different things. Number one, the stylist grows, they get to a point where they become ready, to get to an x price level. And I just want to say as I was listening to you, we are being very transparent about something that we think nobody talks about.

John Palmieri: Wicked transparent.

Chris Sulimay: Right. And so what I liked about what you just shared with us was the imperfections, that even a company in this size, as going through growth kind of walked into [00:10:30] the same thing that every- that you’re probably walking into if you’re watching this video, “my pricing has gotten disheveled and we had to have a re-up, we had to really sit down and take a look at it-”

John Palmieri: And say, what the heck’s going on here?

Chris Sulimay: Absolutely. And so, you know, John just gave you really strategic math that you can use, I hope you took away the 10% piece. We have about 10% between each level, and the reason for that is super strategic, it’s if you go up much more [00:11:00] than that, you’re going to over ventilate your clientele and have a chance that maybe you’re going to have an extreme clientele loss-

 

John Palmieri:  Right, we don’t want that.

 

Chris Sulimay: Now, do some people over have that 10% price hike and nothing happens?

John Palmieri: Yeah. I mean it’s, it’s funny because we’ve got some, you know, staff members who always say, “hey, now it’s time for promotion” and I’m like, you know, “when do you want to start that?” And they’re like, “tomorrow,” and I’m like, “are you concerned you’re going to lose clients?” And they’re like, “no, I’ve done this four times in the last three years of having lots of single client.” [00:11:30] Right, but I think that’s because those folks have mastered their fundamentals, you know, which is well beyond just cutting hair.

Chris Sulimay: Yeah. And so let’s, let’s look at that a little bit deeper. So 29 to 32, 10% that’s three bucks. 32 to 35, it’s about three bucks.

John Palmieri: About three bucks, right.

Chris Sulimay: But now we go 35 to 40 so we went from $3, $3, 40, right? So [00:12:00]we’re looking at that $5-

John Palmieri: Yeah and to tell you the truth, that’s one of the glitches. That level was 40, and of course if I’m doing 10% it would have been another $3 and 50 cents, right? Not five. But again, that was a number for that level that already existed. And it’s really hard for me to go back to somebody and say, “Hey Chris, you’re a level four by the way, I dropped your pricing three bucks.” So, I left it there.

Chris Sulimay: I love this discussion because let’s say somebody listening to this, and they take a look at their pricing, they kind of see that, [00:12:30] you know, we believe you could probably see a level that you can fit your salon into. So, now we’re talking specifically about our Genesis level salon, which is our new-

John Palmieri: Our new talent location.

Chris Sulimay: Right, our new talent locations, our onboarding locations, we’ve got this same exact structure at higher pricing at the Salon 124 level, but we’ve really believed this is kind of plug and play, and you could play with this inside of your market. That said, as you start to grow, [00:13:00] now what happens is, is that 10% gets bigger and bigger and bigger. So, as your skill grows, you can take a little bit more risk and have a little bit more fluctuation inside of your growth.

John Palmieri: Yeah. Because 10% of $30 is three bucks, 10% of $60 is six bucks. Those increases get a little bigger, but it’s still 10%.

Chris Sulimay: Besides being inherited, why would somebody do the À la carte thing? Like is this somebody that, is this something that a salon would do? Is it something that we would recommend?

[00:13:30] John Palmieri: I think the reason that we do À la carte and you know, it’s basically just the way we’ve always done it, and I think the other thing is when new services get out of it on, for instance, when we did foil, right? It took x amount of time and then balayage became the thing, and that took a different amount of time and it was just easier to keep things À la carte than it is to all of a sudden, how do I change a package deal? or how do I change package pricing? So I think there’s an [00:14:00] ease that comes to adding new services in or even taking services out if they, you know, when’s the last time anybody did a perm. So, that À la carte system allows for that kind of ease, I think it makes it, again, easy for the call center to address clients on the phone, and it’s real transparent to the client,  “I’m paying for this and I’m paying for that.”

Chris Sulimay: Yeah, we love it, that said, if you’re a package pricer we love the 10% piece, right? So, we love the 10% piece. [00:14:30] And so we’ve kind of talked logistically a little bit about, you know, for the Salon, why you would want to have this, our system’s pretty cut and dry. That said, what does this do for the stylist?

John Palmieri: Well for the stylist, you know, it allows them to understand what the next price jump will look like. It’s really transparent, it’s not weird. Everything goes up 10%, it’s not, you know, why is it this, why do they go up to six and why do they  go up three and how come they go up for, you know, it’s based on [00:15:00] dollars per hour. You know, if a service takes you an hour, it’s going to cost 100 bucks if a service takes a half hour, it’s going to cost 50 bucks. So again, we’re looking at ways to protect the pocketbook of our stylist, right? Because we want to make sure that for every hour they work, no matter what service they’re doing, they’re making a good income from that.

Chris Sulimay: Yeah, it’s fantastic. The other thing that it does is it allows a stylist to career path.

John Palmieri: Exactly.

Chris Sulimay: So, you know, here’s the reality. If you’ve stumbled upon this and your, let’s say you’re working by yourself  [00:15:30] or you’re working in a three chair, it’s just the three of you. You opened up a salon and, you’ve hit the point where you’ve grown a full clientele, and you’re busy. Some people that we know stop taking new clients-

John Palmieri: Silly.

Chris Sulimay: We think it’s silly,

John Palmieri: That’s just me.

Chris Sulimay: But it happens. And what, what we know happens is that you only have so much demand. There’s only so much of you to go around.

John Palmieri: You’ve only got 40, let’s pretend you only got 40 hours in a week.

Chris Sulimay: You’ve only got so much time that you could be behind the chair. [00:16:00] And so how do you, one, two, three, five, 10 years down the road continue to grow your income? If I’ve capped out in my guest count and if I’ve capped out in my pricing, the only strategy that we can take to assure and ensure that you can continue career development down the line is this thing called a price adjustment.

John Palmieri: Price adjustment. Yeah. I mean, one of the things we did with the system, as I told you, we added [00:16:30] three more tiers.

Chris Sulimay: Talk a little bit about that.

John Palmieri: Well, you know, our pricing capped out at $61, a haircut price capped out at 61. Now, I don’t know when that was created, you know that pricing system, but we both looked at it. I know we had this discussion and were like $61, that’s it?

Chris Sulimay: Yeah, and we have a lot of great hairdressers-

John Palmieri: A lot of great hairdressers who do better than a $61 haircut. So, we added three more price tiers, there was a 60 something, a 70 something, I think we cap out at 85, right now. [00:17:00] And here’s what we’ll do is we’ll start dropping ones off the bottom. Our pricing structure, our lowest price haircut used to be 25, now it’s 29. Because we kicked one off the bottom and we added the three at the other end because I want that career growth for our stylists. I want that opportunity for them to continue to grow. And now there are three more tiers for them, you know, to work at, Amanda, one of the women that works in our downstairs location she early jumped up another level, right? Because she’s amazing. [00:17:30] And why should she be capped out? And here’s the thing, she was-

Chris Sulimay: What did Amanda just jump into this what? $75?

John Palmieri: Well, she went from the $61 to the next tier. I think it’s 66, right? Or 67, 10% right? She didn’t lose a soul.

Chris Sulimay: No.

John Palmieri: Because she’s earned it.

Chris Sulimay: Yeah. That’s a beautiful thing, so real cut and dry. You know, we wanted you to have this information, what else do you want to say about a salon price list? Having Whatever your tier level system looks like. Like [00:18:00] what else do you want to say to owners about this?

John Palmieri: So, here’s the challenge, I think, you know, first of all, we did the math and it was a lot of work. The communication part was probably more work than the math; How do you make sure everybody’s on the same page and with 130 stylists, six locations, you know, I’m going to toot my own horn just a little bit. This went pretty flawlessly. There was a couple of hiccups, but when I say a couple, I mean [00:18:30] like four, this went pretty, pretty darn well, and the reason it went so well is we spent a lot of time communicating this. There’s a laminated copy of this price list at each front desk station. There’s a laminated copy of this at our call center in each call center a person has one, on the backside are scripting points. So, what to say to our customer when they ask about the pricing, you know, so you know, they’re prepared. We gave the price list to our staff, you know, [00:19:00] several weeks before we released it so that they can see it ahead of time and if they had any questions we could address them ahead of time. So, all of those communication pieces were done well in advance with our team, with our support staff, with our call center. Well before we launched it. So, when we launched it, it was pretty painless.

Chris Sulimay: Yeah. So this isn’t something that I should like be listening to John and Chris talk about pricing right now and tomorrow go back and-

John Palmieri: Nope, not to say you can’t do the math now because if I was you, I’d build an excel sheet, [00:19:30] you know, instead of watching the Bachelorette.

Chris Sulimay: Or steel ours?

John Palmieri: Or steal ours, that works. You can do the math now, but the biggest challenge is not the pricing. The biggest challenge is not the levels, the biggest challenge is, are you clearly communicating to your team what happens next? How are we going to roll this out? How are we going to communicate this to the clients? How it affects them? Because here’s the thing, they’re a little scared, you’re about to raise pricing.

Chris Sulimay: So glad you said that in my head, I was like, okay, is he going to touch on the fear piece?

[00:20:00] John Palmieri: Yeah, they’re scared. “We don’t know how this is going to affect us” and “my client’s going to leave, are they going to complain?” You know, what do we do with stylists? You know what, “you’re my favorite-

Chris Sulimay: I won’t, up charge you or now I stopped charging for a service.

John Palmieri: Or your friends, or your husband or the lady that lives next door. Just tell him I said, you know, and then you end up shooting yourself in the foot.

Chris Sulimay: Yeah. It’s one of the biggest pain points, before we started this conversation, I had a little mantra [00:20:30] running through my head. I don’t know where it popped in, but I was kind of thinking in my head, I’m so sick of fear. And you know, pricing, we do this so emotionally, which is why we’re having this discussion right now. This is such an emotional topic that without a framework and then an understanding of why it’s important, and a real clear understanding on how this affects your long term career. Now, let’s use Amanda as an example since we just brought her up.[00:21:00] A wildly productive stylist.

John Palmieri: Insane.

Chris Sulimay: Just got interviewed by salon today, for, you know, how she keeps her services per client up so high, what hap-

John Palmieri: Is busy as anything and doesn’t break a sweat.

Chris Sulimay: Doesn’t break a sweat. Now you might be watching this and you’re Amanda Paul, you’re that person, right? You’re at home, you’re super busy. Now I want you to fantasize about what [00:21:30] happens to a stylist that stays at the same price tier and never has a price increase, and now 10 years from now, and the economy has outgrown that pricing. Things have gotten more expensive, and so we believe that strategically, in order to just keep up-

John Palmieri: Keep up with inflation.

Chris Sulimay: Right.

John Palmieri: If nothing else.

[00:22:00] Chris Sulimay: That 10%, you know, benchmark, if you will. And really understanding that if your solidly booked and overflowing with guests, we never cap out, right? So, right now our highest tier, we hit the $85 mark.

John Palmieri: Until enough people hit that and then we’ll add a couple more.

Chris Sulimay: Right, for now.

John Palmieri: Yeah, for now.

Chris Sulimay: For now.

John Palmieri: Or drop a couple off the bottom.

Chris Sulimay: Absolutely.

John Palmieri: Right, I think the part that is important is to figure out when is it time for a price increase, right? Because “why do you want to raise my prices?” [00:22:30] I’ll think about this a little bit. You know, because you hear us saying “don’t be afraid,” and we agree with that. You’ve got to keep pace with inflation and you’re going to have a career path for yourself. But how do you know when it’s time to raise prices? I want to talk about retention for just a moment. Two things, retention and productivity. I look at retention as your quality score, right. That’s what I like to think of it. If your retention rates are not very good, right. [00:23:00] And what is not very good? I think if you’re in the upper levels, if you’re the Amanda Paul’s of the world who got really great retention, it’s got to be at least 50% for new and 90% for base. Because your quality, your relationship with the client has to be that good in order for you to start getting that price levels. It’s just got to be, because if it’s not, you will chase customers away.So, that has to be really clear up front what your quality score, what does [00:23:30] your retention look like, because if retention is low and you raise prices, now we’re going to have a challenge. So, as long as your retention is in a good place, go ahead and raise your prices.

The second thing you want to look at is your productivity. What does productivity mean? Productivity means, if you’re working a 10 hour day, let’s pick 10, and you’re booked eight of those 10 hours, you’re 80% productive. I think you need to be at least 80% productive to have a price increase. Because if you can’t book up [00:24:00] eight out of 10 hours in a day, it’s probably not a time for price increase. But let me turn that around. If you’re booked more than eight out of 10 hours in a day, 80/90. We’ve got some staff that are a 100, 110, 120% productive being, they’ve actually sold more hours than they work because they’re double booking and your retention is really high. It’s time for a price increase, it’s that time, because you’re keeping the clients, your retention shows that and you’re busy as heck [00:24:30] because your productivity shows that. If they’re both low, it’s not the right time, even though you feel it might be.

Chris Sulimay: So, if you’re an owner and you’re watching this, we know this is a delicate topic, we know your team is fearful to do this a lot of times or they’re so ready to do it or maybe not ready, that we know this takes some delicate hands. So, John, what should somebody do if they want a little help on this or want to-

John Palmieri: Well, heck, we’re here. So, you know, reach out to us, send us an email, you know, comment down below [00:25:00] on the video comment section. You know, we’ll be glad to reach out to you and help you however we can. And we’ve kind of, you know, gave you the run about on how we do it, which is 10% per level. Now, if you can’t do 10, make it 5%, make it 7%, whatever works for your company, and the second and probably just as important thing to keep in mind is what are you generating per hour for your services? Sometimes it’s pretty amazing to see just how varied and different they are, which services you’re making money on, which ones you’re losing money on.

[00:25:30] Chris Sulimay: Yeah. That’s beautiful. So we hope you really enjoyed this video. We hope you reach out to us. We’d love to guide you through this process and thanks for watching.

John Palmieri: Yeah. Thanks for being here. We appreciate you.

Chris Sulimay: Bye everybody.