Pricing your services without guessing

Most service businesses set prices by looking at what the place down the road charges and landing slightly under. That is not pricing, it is following someone who may well be guessing too.

Start with your cost per available hour

Add up everything it costs to open for a month. Rent, rates, utilities, insurance, software, wages including your own, stock, accountant, everything. Then work out how many chargeable hours you actually have in a month. Not opening hours. Chargeable hours.

A one-chair salon open 40 hours a week has about 173 hours a month. If realistically 65% of those get booked, that is 112 chargeable hours. Divide monthly costs by 112 and you have the number every hour has to beat before you have made anything.

This number surprises people. Costs of £3,400 a month over 112 chargeable hours is £30 an hour just to stand still.

Utilisation is the lever nobody pulls

Going from 65% to 75% utilisation on that example adds 17 chargeable hours a month without raising a single price. At an average £45 an hour that is £765 of extra revenue against almost no extra cost.

Deposits, reminders and a waitlist move utilisation more reliably than a price rise moves margin, and customers do not complain about them.

Then think about what you are actually selling

Once you know your floor, the question is what the work is worth rather than what it costs. Two things justify charging more than the shop down the road:

• Scarcity. If you are booked three weeks out, your prices are too low. That is the clearest signal there is.
• Specificity. General services compete on price. Specific ones do not. "Haircut" competes with everyone. "Curly hair specialist" competes with almost nobody in your town.

Raising prices without losing everyone

• Raise for new customers first and let existing ones roll over at the next appointment.
• Round sensibly. £45 to £48 is invisible. £45 to £50 gets noticed.
• Never apologise for it in the message. State it, give the date it applies from, move on.
• Expect to lose a few of your least profitable customers. That is the mechanism working, not a failure of it.

An annual review beats a dramatic one every three years. Small, regular, unremarkable.