Whether you are a seasoned industry veteran exploring new options, planning to open your first salon, or preparing to buy or sell an existing business, a detailed analysis of the location or potential location will provide you with vital information to help you to make sound business decisions.
You can conduct a basic business analysis by gathering the following info:
- Total Monthly Expenses: rent, labor, loan payments, insurance, telephone, Internet, software, utilities, sanitation, advertising, supplies.
- List All Tanning Systems: make, model, quantity of each and maximum exposure times. This will be used to determine the operating cost per session for each unit (lamp use and electrical consumption).
- Hours of Operation: hours open per day, days open per month.
- Average Price Charged Per Session: best deal for the customer.
- While additional costs and factors will come into play as you delve further into your analysis, this will provide a solid foundation to begin the process.
Taking a little time to analyze this vital information can help you to make sound business decisions – even in a challenging economy.
For purposes of this analysis we will use the following assumptions:
- Total Monthly Expenses: $6,000
- Equipment: Eight, 32-lamp units with 15-minute max exposure time
- Average Price Charged per Session: $5
- Operating Cost per Session: $.30 (lamp use and electrical consumption)
The average revenue of $5 per session and operating cost of $.30 per session, provides an adjusted gross profit of $4.70 per session.
Monthly expenses of $6,000/$4.70 = 1,277 sessions per month, or 43 sessions per day to break even.
Package & Membership Sales
Selling by the month or via EFT programs may be a more effective way to achieve your financial goals – as you are not relying on the sale of individual sessions and daily foot traffic to pay the bills. For example: You charge $30 for 30 days of tanning. We then estimate that the average salon guest who purchases this package will tan eight times per month.
Using $0.30 per session for operating cost x 8 sessions per month equals a cost of $2.40 per 30-day package (lamp use and electrical consumption).
$30 – $2.40 = $27.60 adjusted gross profit per session
$6,000/$27.60 = 218 (30-day packages per month) or 7 (30-day packages per day) to break even.
Other factors, such as the sale of lotions and accessories will contribute to the overall sales picture. However, one shouldn’t rely on these to break even. They, along with spray-tanning and other services should be calculated as separate profit centers within the business model.
A detailed, in-depth analysis should include the following:
- Calculation of the number of sessions, packages and memberships you need to sell each month to break even.
- Breakdown of the contributions to total sales from UV-tanning, lotions, accessories and sunless tanning.
- Evaluation of customer spending on all products and services (on both a monthly and annual basis).
- Accurate estimate of the cost to operate each tanning system in your business on a per-session basis. Includes all UV units and sunless systems.
- Study of the salon’s monthly traffic flow, available operating capacity and actual capacity usage.
Your Unique Business Model
A business analysis is a useful tool for identifying and articulating the need for modifications to your organization’s operating system. The above is an over-simplified version of a true business analysis, provided to give you the basic fundamentals of how to begin the process and how to analyze your unique business situation. Plug in your numbers, take a good look and use the information to start working smarter, not harder in 2023!
