gravesmc

I would like to get some feed back from some of you. Did lowering your prices, in the long run, help your sales?
Our prices are in the medium in our town. For the first month since we opened in March 2011, our sales and tanners have been down, almost 1/2. A new salon opened in a town 10 miles away is definately affecting us too. Some prices cheaper, spray tans more expensive, and EFT commitment of 1 year and a sign on fee (neither of which I have)
I keep running sales adding to value...buy 5, get 3 free, buy 10, get 5 free, thinking people like the FREE idea. I appreciate any input.

House of Tan

Let’s say you are at an average of $4.00 per tan and you lower prices… what will happen?

If you do 10 tans a day with a gross of 4.00 per tan, you actually brought in $3.00 average in Gross Profit. So you made $30 that day to cover overhead.

If you lowered your prices just $1 average across the board, then you are achieving a Gross Profit of $20 that day to cover overhead. But this should and will bring in a few more people… maybe 10-20% more people per day???

Let’s say you instead increased the prices by an average of $1 a tan across the board, then you are achieving a gross profit of $40 that day to cover overhead. But maybe some people will leave you… maybe 10-20% less people per day???

Now in all of these scenarios your general overhead has not changed. So regardless of how many people came in and how much was sold, your fixed expenses are (well…) fixed and have to be covered.

Let’s say the price decrease brings in 20% more business (12ppl/day); you are now bringing in $24 in Gross Profit that day to cover overhead.

Let’s say the price increases causes a loss of 20% of business (8ppl/day); you are now bringing in $32 in Gross Profit that day to cover overhead.

Remember that in this example before any changes in price (+ or -) the day’s Gross Profit was $30

What you your thoughts after reading this?

I used 10 sessions a day for easy math, if you do closer to 20,30,40,50… ppl a day, just multiply by the appropriate factor.

Gross Margins – Throughput – Inventory Reduction
Master these three things in any industry and you will make money.

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kookyguy

Yes you should lower your prices.

parrot head

You must do what you have to do in order to survive. If lowering prices, will get you more customers in the doors, then do it. Only you know, what you can do to remain viable, and how much is needed to pay the bills, including yourself.

SteveO

Tanners will always go to the new salon for the new equipment. Some will eventually get tired of driving 10 miles and come back. Ultimately you need to be competitive in your market: pricing and equipment.

House of Tan

Even if it means you go out of business faster?

I Illustrated above how a $1 price decrease (causing) a 20% increase in clients would actually cause you to lose more money, even faster.

So if lower prices do bring in say 60 people a day vs. 50 people a day, you did more tans but have less money to pay the bills.

In my earlier example, the "salon" averaging $4 a tan actually makes $3 a tan in Gross Profit.

The "salon" would have to do 10 tans to make $30

If prices were decreased by $1 then the “salon” would have to do 15 tans to reach the same Gross Profit to cover overhead.

That would be an unwise choice IMO.

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sunsally

There are only a few price points that people really "compare" on - typically level 1. After that, the beds are different enough that it becomes more apples to oranges - unless you have the same equip as a competitor.

That said -

1. Have your Level 1 be your MOST competitive - and where you run your "crazy specials" - especially right now in slow season!

-Tan till 2013 for $74.99
-Buy 1 month, get one free
-Buy 10 visits, get 3 free
-Sign up for EFT with $x enrollment fee (your normal), get $3x back in credits to use for upgrades. (so if it is $25 to enroll, they get $75 on their account to use to upgrade).

2. Look at what the LOWEST price place is offering - can you "match" any of those offers? For example on your level 1? I wouldn't drop prices - but you COULD offer to "price match any competitor offer"

3. Don't panic It is slow season. LAST year you may still have been on the "up" - because you were new and so building off a small base. This year things are more stable, so it looks down. The key is BODIES. When you are down tanners - you are probably going to follow to be down $$.

So focus on getting tanners --- run a "referral contest" for customers (most referrals in the month of October gets the month of November for FREE). Pass out business cards. Put a sign in your window for a tan till the end of the year special. Or BOGO month. or $75 FREE when you enroll in our tan club. etc etc