In every small business, knowing your break-even point is imperative for a variety of reasons. From identifying areas where you might be overspending, to knowing exactly where profitability starts.
The problem is, it’s not always easy to calculate your break-even point in your hair salon… Until now.
In the hair salon industry, there are 12 main expenditures, and each of these expenses should not tie up more than a specific percentage of your total sales. For example, your rent should be no higher than 7% of your total sales, and utilities should cost no more than 2.5%.
Our “Break Even” point formula helps in two ways. The first way helps you identify what your “Break Even” point SHOULD be, and the second one being, it can quickly inform you if you’re overspending.
Try this simple calculation.
(Monthly Rent + Monthly Long Term Debt Payment) x 7 = Break Even Point
*Note * Long Term Debt Payment is any/all business loan payments you have. Do not include credit card payments. If you don’t have any long term debt, simply perform the formula as Monthly Rent multiplied by 7.
Here’s a scenario.
Monthly Rent = $1,500
Monthly Loan Payment(s) = $500
($1,500 + $500) x 7 = $14,000
This means, your monthly “Break Even” point should be $14,000. This includes everything needed to run your hair salon, including the wages associated with generating that $14,000 in sales.
Perform this calculation for your business. If the number seems too low, chances are you have a spending problem in your hair salon that is chewing through your profits.
Curious why we use the multiple of 7? Contact us today, and let us show how we break down even the most complicated numbers to simple calculations, to help you better understand your business.