How Much Does It Cost to Open a Salon? A Budget Formula

Dream Big, Budget Smart

Ever dreamed of opening your own salon but felt overwhelmed by the numbers? Don’t worry, this guide will help you create a formula-based approach to estimate your startup costs. Whether you’re planning to open in a busy city or a small town, we’ll walk you through exactly what you need to get started.

The Magic Formula: Your Salon Budget Calculator

When it comes to finding your salon budget, it all boils down to a simple formula.

Let’s see it in action:

Fixed Costs: Your Salon Startup Costs

Think of your fixed costs as your “getting started” expenses.

For example, building a salon in a blank space would have a high baseline for expenses, you’re adding plumbing, restructuring the floorplan, and all kinds of other fixtures.

However, buying or renting an existing salon can significantly reduce these initial expenses, offering benefits like an existing client base, potential savings on equipment, and reduced marketing efforts.

These are the big purchases you’ll make once to get your salon up and running.

Salon Location Costs

Your venue is the foundation of your salon. The pricing for this will vary by location, whether it's urban or rural. When choosing a location, it’s important to consider outside factors such as foot traffic, other businesses nearby, parking, and the actual space inside the building that would accommodate your services.

Once you’ve found a space that works for you, here’s how you’d calculate your location costs:

Here's an example:

• Monthly rent: $2,500
• Security deposit: $2,500
• Renovations: $30,000
• Total Location Investment: $35,000

Tip: Always get multiple contractor quotes for renovations. Costs can vary dramatically based on your location and the work needed!

Salon Equipment and Furniture Setup

Investing in the right salon equipment is crucial for providing high-quality services and ensuring the smooth operation of your salon. The costs can vary depending on the type and quality of equipment needed.

When budgeting for salon equipment, it’s essential to consider both the initial purchase price and the long-term durability and functionality of the items. Afterall, investing in high-quality equipment can save money on repairs and replacements in the long run.

Here’s a formula to find the cost of basic equipment:

Example for a 4-station salon:

• 4 styling chairs ($600 each): $2,400
• 2 wash bowls ($1,000 each): $2,000
• 4 styling stations ($500 each): $2,000
• Basic tools and equipment: $2,500
• Total Equipment cost: $8,900

Licensing and Permits

Licenses and permits are essential for any salon business, making sure you operate legally and meet all regulatory requirements. The cost can vary depending on your state and local regulations, but it’s wise to budget around $2,500 a year for these legal expenses.

Some common licenses and permits required for salons include:

• Business license: This is a general license to operate a business in your city or country.
• Cosmetology license: Required for anyone providing beauty services, ensuring they meet professional standards.
• Retail license: Required in certain states to sell retail products to your clients.
• Health department permit: Ensures your salon meets health and safety standards.
• Zoning permit: Confirms that your salon location is zoned for commercial use.
• Sales tax permit: Allows you to collect sales tax on products and services.

It’s always a good idea to seek professional advice regarding the proper licensing in your area so you can make sure your salon business starts its journey on the right foot.

Insurance

Insurance is another critical expense, protecting your salon from various risks. The cost can vary, but you should budget around $500 to $1,000 per year for insurance. Essential types of insurance include:

• Liability insurance: Covers accidents and injuries that may occur on your premises.
• Property insurance: Protects your salon equipment and furniture from damage or theft.
• Workers’ compensation insurance: Required if you have employees covering work-related injuries.
• Business interruption insurance: Covers lost income if your salon has to close temporarily due to unforeseen events.

By planning for these expenses in advance, you can ensure your salon remains protected and operational.

Variable Costs: Your Monthly Operating Expenses

With a deeper understanding of what fixed costs are, let’s move on to the ongoing salon expenses.

Your variable costs are the salon expenses required to keep your business running smoothly. Here’s how to calculate your monthly expenses:

Staff costs for a 4-station salon:

As a salon owner, managing staff costs can be challenging, especially when it comes to filling multiple different positions. Feel free to use the example, below, for a brief look of general salon staff costs.

• 4 stylists (commission-based, 50% commission): Variable
• 1 receptionist ($15/hr, 40 hrs/week): $2,400/month
• Payroll taxes and benefits (approximately 20%) $480/month

*Note: Be sure to check your local average wages when setting up your salon’s budget to ensure you pay your employees a wage that suits their experience and industry standards. *

Inventory and Supplies:

To keep services running smoothly, it’s important to restock your supplies and inventory regularly. With Vagaro’s inventory management, purchase orders are generated based on your average product sales, taking the guesswork out of reordering.

If you’re just starting out, purchasing a starter kit is a great way to stock up on essential retail products while receiving backbar supplies. As your business grows, you’ll want to track usage and sales to maintain the right inventory levels each month. Use this formula to estimate your monthly needs:

For example:

• Color treatments (100 clients x $8 product cost): $800
• Shampoo/Conditioner (100 clients x $15): $1,500
• Styling Products: (100 clients x $12): $1,200
• Retail Starter Kit: $300
• Total Supplies and Inventory: $3,800

By reviewing your sales and product usage reports, you can accurately estimate how much inventory to maintain each month.

Utilities

Utilities are ongoing expenses that are crucial for keeping the lights on in your salon… literally!

Sometimes your utilities can be included in your lease agreement, but if you’re purchasing a space to convert to a salon, this would be out of your pocket. When you’re looking for a location for your salon, make sure you ask about your utilities and how they’re distributed.

Depending on the location and size of your salon, you should budget around $500 to $600 per month for utilities. This includes costs for electricity, water, gas, internet, and phone services.

Marketing and Advertising

Marketing and advertising are crucial for attracting new clients and retaining existing ones. According to Experian, a good rule of thumb for marketing budget as a small business owner is to budget around 7% to 10% of your revenue for marketing and advertising expenses. This is to ensure business growth while justifying your initial investment in this area.

On average, marketing campaigns have a cost ratio of 5:1, that is, $5 generated for every $1 spent. If the average US salon with a revenue of $245k invests 5% into a marketing campaign, they’re spending $12,250 a year solely on advertising. But with a return of 400% on that investment, the salon just raised annual revenue by $49,000, thus resulting in a 15% annual revenue growth year over year. According to Harvard Business Review, most companies should grow at a rate of between 10%-25% per year.

Of course, this depends on the quality of your marketing campaigns as well as how you price your services. Once you understand your business, you can investigate effective strategies like:

• Social media marketing: Engage with potential clients on platforms like Instagram and Facebook
• Email marketing: Keep clients informed about promotions and new services.
• Online Advertising: Use Google Ads or social media ads to reach a broader audience.
• Referral programs: Encourage your existing clientele to refer friends and family.
• Loyalty programs: Reward repeat clients to build long-term relationships.

The salon software you choose can help manage your marketing efforts and track the effectiveness of your campaigns, ensuring you get the best return on your investment. Now let’s dive into areas that will keep your revenue safe.

Unexpected Costs: Your Safety Net

Budgeting for surprises is key. Not everything will go as planned, so having a safety net saved for unexpected times could make your break your business. Some examples of unexpected expenses are:

• Equipment repairs
• Delayed permits or additional licensing fees
• Emergency funds for unforeseen challenges

Always set aside 10-15% of your total budget for unexpected expenses. Once you have your fixed and variable expenses, use this formula to determine your safety net:

Working Capital: Staying Afloat

Your salon requires working capital to stay afloat while building your clientele. Use this formula to calculate your working capital:

Tip: Many new salons take 6-12 months to become profitable, so plan accordingly!

Estimating Costs and Revenue: Planning for Profit

Estimating costs and revenue is essential for creating a successful business plan and making sure your salon is profitable. Start by estimating your startup costs, which include:

• Salon equipment and furniture: Initial investment in high-quality items.
• Rent or mortgage: Costs for your salon space.
• Utilities and insurance: Ongoing operational expenses.
• Marketing and advertising: Budget for attracting and retaining clients.
• Licenses and permits: Legal expenses to operate your salon.

Next, estimate your ongoing expenses, such as:

• Employee salaries and benefits: Compensation for your staff.
• Inventory and supplies: Regular restocking of products.
• Utilities and insurance: Monthly operational costs.
• Marketing and advertising: Continuous efforts to grow your client base.

Finally, estimate your revenue from:

• Service revenue: Income from salon services offered.
• Product sales: Earnings from selling beauty products.
• Membership and loyalty programs: Additional income from client programs.

Based on the examples provided and the average costs throughout the US, opening a salon could cost $68,000 with a monthly recurring expense of $23,000. Based on those numbers, you’ll want to have an emergency fund of $3,500 and a working capital of at least $141,000 to ensure you’re running smoothly for 6 months.

By carefully estimating these costs and revenue, you can create a comprehensive business plan and ensure your salon’s profitability.

Funding your Salon: Exploring Options

Congratulations! You now have the tools to calculate the cost of opening and running your salon. Now, securing the necessary funding is your next critical step in covering salon startup costs. There are several options available to aspiring salon owners:

• Personal savings: Using personal savings to fund the start-up costs of a salon can be a good option for those who have the means. It allows for full control over the business without the need to repay loans or share profits.
• Small business loans: Small business loans can provide the necessary funding for a salon but may require a good credit score and a solid business plan. These loans can be obtained from banks or specialized financial institutions.
• Investors: Investors can provide funding for a salon in exchange for a share of the business. This option can be beneficial for those who need significant capital and are willing to share ownership.
• Crowdfunding: Crowdfunding platforms can be used to raise funds for a salon from a large number of people. This method can also help build a customer base and generate buzz before the salon opens.
• Salon financing companies: Some companies specialize in financing salons and can provide funding for equipment, inventory, and other start-up costs. These companies understand the unique needs of the beauty industry and can offer tailored financial solutions.

If you're looking for a funding option that gives you flexibility without the hassle of traditional loans, Vagaro Capital offers funding from $1,000 to $300,000 to help you cover salon startup costs, invest in new equipment, or expand your business. Funding is based on your sales history with Vagaro, so you can have access to the capital you need without financial roadblocks.

It’s essential to carefully consider the options and choose the one that best fits your needs and financial situation. Each financing method has its pros and cons, and the right choice will depend on your specific circumstances and business goals.

Business Loans and Financing

Business loans and financing are available to salon owners who need funding to start or grow their business. You can apply for loans from banks, credit unions, and online lenders. Common types of loans for salons include:

• Term loans: Lump sum loans repaid over a fixed period.
• Line of credit: Flexible borrowing up to a certain limit.
• Invoice financing: Advances on outstanding invoices.
• Equipment financing: Loans specifically for purchasing salon equipment.

Consider alternative financing options, such as:

• Crowdfunding: Platforms like Kickstarter and Indiegogo.
• Investors: Private investors or venture capitalists.
• Grants: Funding from government agencies or non-profits.

Make sure to carefully review the terms and conditions of any loan or financing option before applying to ensure it fits your business needs.

Insights for Your Salon Business

Opening a salon is a big step, but with the right formula, it’s a manageable one. Remember, the more detailed your salon budget and plan, the higher your chances of success! Use this guide as your roadmap, and don’t hesitate to adjust the numbers based on your unique situation and location.

Want to make managing your new salon easier? Vagaro helps you simplify salon management while letting you focus on what you love—serving your clients!