tanTALK - Tanning Salon Business Owners Community - View Single Post

sunsally · 03-07-2006, 12:03 PM

Sun Splash -- I see your thinking, but here is the problem with your logic.....

If my yearly expenses are $100,000 -- and I only provide 1 tan during the year -- the "cost" of the tan was $100K? Of course not. It still only generated it's fair share of electricty, lamp useage and wear & tear on the beds. I just didn't sell NEARLY enough tans!! And of course - I can't charge $100K for the one I DID sell.

At the same time, if my expenses are $100,000 and I tan 1,000,000 people in a year, should I only be charging 10cents per tan? Nope -- It still costs the same amount as for the first example to run the bed. It's just in this case I have a lot of "left over" money that does NOT go to expenses -- it is the profit.

The key is that expenses are, generally, mostly fixed. The only things that vary, a little, are how many lamps you go through and how much electricity. Sure, payroll may bump slightly if you have to double staff. But the bed payment, and rent each month and phone bill and internet charge are the same -- if you are tanning 1 or 1,000,000.

Each salon should know their YEARLY COST OF DOING BUSINESS. The fixed number and the "approximate" on the variable numbers.

In addition, you have calculated a "competitive" rate that you can charge to get the number of tanners you want. It's just like groceries. If I charge $4/gal for milk, I won't sell as many, but I'll make more profit per gallon. If I charge $2/gal, people may stock up and I'll sell a lot more -- at a reduced profit per gallon. Which is actually "better" depends on where the breakeven actually falls.

Sometimes charging a little less, can actually spur them to BUY MORE! When milk is cheap, I not only buy white, but stock up on chocolate. My kids love chocolate - they drink it for snack or dessert. We drink a lot more milk that week than we normally do because "it is such a great deal". And - while I'm there picking up that great deal, I probably do the rest of my shopping too -- "win" for the grocery store offering that promotion.

If your tanning is a bit cheaper, they may actually tan MORE months of the year or more visits (it seems more "affordable"). Do the upgrade beds. Buy some lotion or other accessories. You make MORE by charging less!

But - you have to make sure you are at LEAST covering the variable costs (lamps, electricity). And getting enough traffic that it is covering the fixed costs -- plus some profit.

Bottom line - the key is less in how you price it, but how well you sell it! Anytime your bed sits empty -- that is "lost inventory" that you can never get back! So you have to find that price point that keeps the beds optimally full all the time -- that is the "right" price to charge. Charge more than that --- less demand, and the beds sit empty. Charge less than that and you are losing money.

It all goes back to the supply and demand charts from Econ class that everyone hated!! :-)

03-07-2006, 12:03 PM	#7 (permalink)
sunsally Team TanTalk Join Date: Nov 23 2004 Location: ITA Member & Berman Supporter! Posts: 3,136 Rep Power: 25	Re: Unlimited tanning blues Sun Splash -- I see your thinking, but here is the problem with your logic..... If my yearly expenses are $100,000 -- and I only provide 1 tan during the year -- the "cost" of the tan was $100K? Of course not. It still only generated it's fair share of electricty, lamp useage and wear & tear on the beds. I just didn't sell NEARLY enough tans!! And of course - I can't charge $100K for the one I DID sell. At the same time, if my expenses are $100,000 and I tan 1,000,000 people in a year, should I only be charging 10cents per tan? Nope -- It still costs the same amount as for the first example to run the bed. It's just in this case I have a lot of "left over" money that does NOT go to expenses -- it is the profit. The key is that expenses are, generally, mostly fixed. The only things that vary, a little, are how many lamps you go through and how much electricity. Sure, payroll may bump slightly if you have to double staff. But the bed payment, and rent each month and phone bill and internet charge are the same -- if you are tanning 1 or 1,000,000. Each salon should know their YEARLY COST OF DOING BUSINESS. The fixed number and the "approximate" on the variable numbers. In addition, you have calculated a "competitive" rate that you can charge to get the number of tanners you want. It's just like groceries. If I charge $4/gal for milk, I won't sell as many, but I'll make more profit per gallon. If I charge $2/gal, people may stock up and I'll sell a lot more -- at a reduced profit per gallon. Which is actually "better" depends on where the breakeven actually falls. Sometimes charging a little less, can actually spur them to BUY MORE! When milk is cheap, I not only buy white, but stock up on chocolate. My kids love chocolate - they drink it for snack or dessert. We drink a lot more milk that week than we normally do because "it is such a great deal". And - while I'm there picking up that great deal, I probably do the rest of my shopping too -- "win" for the grocery store offering that promotion. If your tanning is a bit cheaper, they may actually tan MORE months of the year or more visits (it seems more "affordable"). Do the upgrade beds. Buy some lotion or other accessories. You make MORE by charging less! But - you have to make sure you are at LEAST covering the variable costs (lamps, electricity). And getting enough traffic that it is covering the fixed costs -- plus some profit. Bottom line - the key is less in how you price it, but how well you sell it! Anytime your bed sits empty -- that is "lost inventory" that you can never get back! So you have to find that price point that keeps the beds optimally full all the time -- that is the "right" price to charge. Charge more than that --- less demand, and the beds sit empty. Charge less than that and you are losing money. It all goes back to the supply and demand charts from Econ class that everyone hated!! :-)