The Barber Shop Challenge
I was sat in my barbershop this weekend, having a long chat with my barber as we do every Saturday morning.
The usual topics of boxing, cars and football were discussed. ‘How’s business?’ I asked, as we moved onto the next subject of the morning.
‘It’s doing okay, but we don’t seem to be making as much as we used to. I seem to be working harder, and taking home the same amount each week’, replied my barber.
Being a business consultant and accountant, it was natural to ask more about the issues that my barber (and confidante) was facing. After all, this is my area of expertise and was certain that I could help to identify strategies that could address these issues.
‘Business is steady – we have a loyal customer base, which provides us with a steady flow of customers. We tend to have quiet periods during the week (between 9–5, as most people are at work), however this has always been the case. Costs seem to have risen as well – gas and electricity is through the roof, and general supplies have increased over the past few years (probably due to something pandemic related).’
Later that night, we agreed to meet up and run through the details of how the business was operating. Over Shisha and mint tea, we carried on discussing the business.
‘As the shop owner, I rent out 3 chairs to other barbers, which generates £150 per week per chair. I then take all income from my chair. On an average weekday I take £200 from 10 haircuts, and on a weekend day I take £260 from 13 haircuts.’
The net income for the shop is therefore £1,070 as per the below:
‘We have kept our prices the same for the last 5 years, however there has been a number of new barber shops open in the area, which makes me nervous about increasing the prices. I’ve checked some of these barbershops out online, and they have these social media pages which seem to be very popular. Our business has been built purely on word of mouth, and a very basic website.’
After I had received this overview I made a bit of a bullish and bold claim. ‘I’m going to devise a strategy that will boost your profits by 20%, and will mean that you won’t have to work longer hours’.
Having worked as a accountant for multiple early stage start ups, a challenge that is commonly faced is how to scale your business in a sustainable way. Early stage Founders often end up doing everything, and ultimately the growth of their business is funded by increased investment of their time. To address this, I look at solutions whereby Founders can build the right team who can do the work for them, which reduces strain on them but also fosters profitable growth. Furthermore, we look at what I call ‘lazy scaling’, which is where we develop the product or service offerings in a way that requires minimal incremental human input for each new unit sold e.g. I provide training courses, however E-books and pre recorded courses can be sold without extra effort (aside from the marketing efforts)
This business was no different. I was determined to devise a realistic yet sustainable plan. And here it is….
The Plan
1) Pricing – at present, your average price per haircut is £20. You include wet shaves, hot towels and head massages for that price. Furthermore, you have a reputation as the most skilled barber in the area. There is a lot of competition in the area, so I don’t think that you should change your basic haircut price, however adding on £3 for the hot towel, head massage and wet shave will still keep you competitive and will charge a premium for your expertise, which is widely recognised. Having looked at the competition, they are charging up to £25 per haircut (depending on the extras), so do not see this as potentially impacting customer volumes. Let’s assume that half of customers choose these extras.
Total profit impact: 28 haircuts x £3 = £84
2) Accessibility: At present you open for 3 days a week during weekdays and both weekend days. You shut at 6pm on every day. You have mentioned that weekdays do have a slight lull which is normal in this business. I suggest that you change your opening hours slightly. You open at 12 noon and close at 8pm on Wednesday-Friday. This was, you should be able to secure more business from those that are at work during the day. Let’s assume you do 2 extra haircuts per day. That is £20 x 6 new haircuts. If half of them use the new pricing of £23 per haircut then this amounts to £129 additional revenue/profit.
3) I also noticed that you have a spare chair that isn’t used. By simply renting this chair out you can earn another £150
4) To make the above work, you will need to ensure that there is a sufficient flow of customers coming through the door. To do this, investing in your social media platforms will help. The reason I come here is because of the high quality of haircut, the ritual of having a traditional Turkish haircut and also the Turkish tea that you guys give to anyone who is waiting. There is a real atmosphere here, which should be used to market the business. By simply taking some pictures every day, posting them on Facebook and Instagram, you will convey that atmosphere. This should help to create a buzz, which in turn will drive custom.
5) Having looked at the utility bills, it is clear that you are not on a contract with your supplier. Their out of contract rates are significantly higher, therefore a c.20% saving can be made here.
6) You have some really great products that you put onto your customers’ beards and hair. Why not sell these to them? If you can increase the volume that you order from your supplier you may well be able to negotiate more favourable terms. As this is hard to predict, we will view this as an opportunity rather than something that can be easily implemented.
If all of these deliver the predicted benefits, the profits should be affected in the following way:
Impact of new pricing: £84
Impact of new opening hours: £129
Revenue from new chair: £150
Reduced utility bills: £10
Total impact on profits: £373 per week (A 35% increase)
Potentially the business will be generating a £72k net profit (before tax) per annum which is respectable for a business of this nature. Furthermore, there is scope to expand the business further by opening up other shops.
Whilst the barber shop isn’t the typical type of company I work with (tech or E-com businesses), the usual business principles apply i.e. maximise value from customers (without being excessive), capitalise on every revenue opportunity and market the business (in a cost effective way), all whilst identifying cost saving mechanisms.
If you feel your business isn’t reaching its full potential, then have a think about these principles.
If you would like help with maximising the profitability of your business, or have questions about the complex world of finance and accountancy please drop me an email on info@mcquade-consulting.co.uk
