Barbershop Business Model
A barbershop business model is a framework for how a barbershop generates revenue. It includes the different sources of business that is services and retail sales, a barbershop has, value the barbershop delivers like the coloring of hair, pricing the value, and the type of customer who pays for it. Understanding the business model is vital to understanding the cost model we discuss later.
Various industry reports state that barbershops’ primary income stream is service revenue. The average US hair barbershop accounts for about 92% of the income generated.
A small part of income is generated from retail sales i.e. 8%. However, successful barbershops have a high concentration on retail sales as they have a higher margin. Various models that barbershops apply are as follows:
- The Fee-For-Service Salon Revenue Model: This is what the traditional salon revenue model is based on.
- The Salon Subscription Model: A pre-determined fee is charged for a contracted period rather than per transaction. Under this model, subscription models that are used by newspapers, televisions, etc are applied.
- The Salon Advertising Revenue Model: The advertising model used by salons is that of media companies. The salon charges other businesses for advertising space in their channels
- The Production Revenue Model: This is also a traditional model where barbershop creates value by targeting salesmanship through their premises. They create value by manufacturing and selling finished goods.
Cost of Goods sold for Barbershop
Now that we have understood the basic model of barbershop, we now enter into discussing cost components as well. The cost of goods sold is the carrying value of goods sold during a particular period.
As the barbershops are based on product and service models, COGS also equates to the cost of products and services sold or rendered.
The barbershop that earns the highest sells more products than its services. The products come with high margins. Further, the barbershop services also use most of the shop’s supplies.
The various costs for barbershop forming COGS are as follows:
A) Supplies to assist hair cutting
These products would be needed to perform salon or haircutting services. This would include the following :
- Cost of cotton bands
- Cost of bags and trash bags
- Cost of razors, blades, etc
- Cost of disinfectant wipes
- Cost of spray bottles for sanitization purposes
- Cost of applicator bottles and spa jars
- Cost of essential oils, shampoos, etc
- Cost of gloves
- Cost of various types of bleaches
- Cost of polishes
- Cost of soap, essential perfumes, fragrance powder, etc
All the above supplies can be effectively categorized into essential haircutting supplies and special client requirements for various events like interviews, marriage, etc.
The right products in the barbershop are required for its success. All the above costs are also considered as the cost of supplies or the cost of direct materials for haircutting and other services of the barbershop.
B) Cost of labor
This is a major component of barbershops. This is the type of service that workers of barbershops would provide based on professional expertise. The labor cost is computed by charging hourly rates for actual hours worked.
The first step in barbershop for computing labor costs is to estimate how much time its staff requires to complete the service. The staff can be slow or the one who adds most experience to the simple jobs of manicure, pedicure, and haircutting.
The barbershop shall also estimate how many products the worker is able to provide rather than simply the number of hours worked.
A lot of variables come into play to estimate the cost of labor. This is the first thing barbershops should do and standardize the cost of providing service on a whole.
The final step would be to establish hourly rates. This will depend again on the type of services required by the client and the amount of satisfaction they get
What should the cost of service include?
The barbershop can alter or modify services prepared to provide for customers. This can be mentioned in the brochure of the company. This can be attached to a big board in the office or a simple menu can also be made.
Further, they can use this tactically for a checklist for training employees. The company’s senior management would decide to add certain costs.
Statement of Cost of Goods sold
|Beginning inventory of supplies
|+ Purchases (supplies)
|– Purchases returns
|+ Direct labour (salary, commissions)
|Cost of goods and services
|– Ending inventory
|Cost of services rendered/ COGS