Performance indicators

Factors affecting ratios

An individual hairdressing business's financial performance may be affected by a number of factors, which may cause it to fluctuate from one year to the next or to differ from that of other businesses. Some of these factors are listed below;

• the pricing policy; in many instances, prices are neither costed accurately nor increased in line with rising costs, but simply reflect local market conditions. Turnover may be boosted by the introduction of a two (or more) tier tariff whereby senior stylists are charged out at a higher rate than less qualified and experienced staff
• the nature of outlet, type of client targeted and the product mix (the latter may be affected by changing fashions. For example, margins may have improved as a result of the trend away from perms towards colour work. As a proportion of the price charged to the customer the cost of colours is lower than the cost of perming products)
• diversifying or expanding the range of services, for example by offering ear piercing, beauty treatments, or salon products for retail sale
• giving discounts and special offers (for example to students) (see Nature of the trade: Customers, terms offered)
• re-doing work free of charge for dissatisfied customers
• losing goods as a result of theft (particularly by staff)
• any wastage of hair styling products which occurs
• using salon products during staff training sessions
• introducing free coffee, tea or other refreshments for clients without increasing prices
• obtaining better terms from suppliers, possibly by purchasing in greater quantities
• 'trading down' to cheaper products as a means of reducing costs
• receiving extra income from a 'rent a chair' scheme
• selling products (possibly own-brand goods) on a wholesale basis to freelance stylists and to other salons
• employing staff (if direct labour costs are included in the gross profit rate calculation)
• paying commission to stylists; part of the total employment cost will then increase with productivity
• any factors which affect the number of productive hours achieved
• other factors; in areas where 'hard' water is prevalent, for example, more shampoo may be required to obtain the same result

Details should be kept of factors which have significantly affected trading results.