Cost of Goods Sold for the Hair Salon – Explained

Hair Salon Business Model

A hair salon business model includes the different sources of business that as services and retail sales, a hair salon has, value the hair salon 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 which we discuss later on. Hair salon works on various payment models.

The Fee-For-Service Salon Revenue Model is simply the traditional pay-as-you-get-served, model. Under the salon subscription model, a pre-determined fee is charged for the contracted period rather than per transaction.

This subscription model is used by newspapers, televisions, etc. Under Salon Advertising Revenue Model, the salon charges other businesses for advertising space in their channels.

Under the Production Revenue Model, hair salon creates value by targeting salesmanship through their premises. They create value by manufacturing and selling finished goods.

Cost of Goods Sold for a Hair salon

The cost of goods sold is the carrying value of goods sold during a particular period. As the hair salons are based on the product and service model, COGS also equates to the cost of products and services sold or rendered.

The hair salon that earns the highest sells more products than its services. The products come with high margins. Further, the services hair salon provides also use most of the supplies of the shop. The various costs for hair salon forming COGS are as follows:

Supplies to assist hair cutting

These are the products that 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 the special requirements for clients for various events like interviews, marriage, etc.

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The right products in the hair salon 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 a hair salon.

Cost of labor

This is the type of service that workers of hair salons would provide on the basis of professional expertise. The cost of labor is computed by charging hourly rates for actual hours worked.

The first step in a hair salon for computing labor costs is to make an estimate of how much time its staff requires to complete the service. The staff can be really slow or the one who adds most experience to the simple jobs of manicure, pedicure, and haircutting.

The hair salon 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 a hair salon should do and standardize the cost of providing service as 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 hair salon can alter or modify services that are 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.

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Further, they can use this tactically as a checklist for training employees. The decision to add certain costs would be taken by the senior management of the company.

Statement of Cost of Goods sold

Hair salon

ParticularsAmount ($)Amount ($)
Beginning inventory of suppliesX 
+ Purchases (supplies)X 
-Purchases returnsX 
+ Direct labor (salary, commissions)X 
Cost of goods and services XX
-Ending inventory (X)
Cost of services rendered/ COGS XX