Understanding your market is an essential part of starting and maintaining a successful business. This includes getting to know both your target customer and your major competitors as well as learning all that you can about the nail salon industry in general.
Who is your target customer?
On the surface, identifying your target customer may seem simple. At the most basic level, a nail salon customer is anyone looking for nail services. However, true success comes from knowing not the target customer of a nail salon, but of your nail salon.
During the first phase of your business planning, you spent some time considering what type of salon you hope to open and who it will cater to. At this phase, it is time to deal with the specifics.
An excellent way to approach this step is to create a profile or persona of your ideal customer. Consider the age, location, gender, income level, and other demographic details about who you think will be frequenting your salon. By doing this you can most effectively craft your design, atmosphere, marketing, prices, products, and services.
Some important questions to answer when establishing your target customer base are:
- How many people in your area fit into this customer base?
- What drives their consumer decisions?
- Do they need your services?
- Can they afford your services?
- How do they consume media and marketing?
Who are your competitors in the market?
Just as important as understanding your customers is understanding who else is trying to attract them. Knowing who your competitors are, and what they offer, can help you make your products, services, and marketing stand out. It will enable you to set your prices competitively and help you respond to rival marketing campaigns with your own initiatives.
It is important to remember that competition can come from a number of places. The first stage of your competitive research should focus on identifying competing nail salons in your area. Look to local business directories, trade organizations and events, advertisements, and basic online research to develop a better understanding of what businesses and products exist in direct competition with what you hope to offer.
Next, take a closer look at how they do business. Compare prices, services, staff size, brand design, and media and marketing. Much of this information can be found by simply visiting your competitors’ websites or following them on social media. To dive even deeper, book a service or two at some of your competing salons. While there, pay close attention to the quality of their customer service, the wait time for an appointment, how busy their salon is at a given hour, how many people are working, and the skill of their technicians.
Throughout this process, make note of what aspects of their services you’d like to adopt and what things you know you can improve on. Consider what marketing tactics appear to be working for them and what falls flat.
Finally, do not forget about less direct or obvious competition. The explosion of multi-level marketing businesses means competing not only with other brick and mortar nail salons, but also a range of online businesses marketing directly to your customers in the comfort of their homes. Research what nail products are available through these companies and how you may be able to offer similar products or services in your salon.
Nail Salon Industry
Understanding your industry as a whole is just as critical as knowing your local market. This information can help you predict your profitability and growth over time as well as how to effectively capitalize on industry trends or innovations.
The nail salon industry is fairly stable, with an annual growth rate of around 7.5% over the past three years. In 2019, industry sales were $5.9 billion dollars, with the average sales per company around $200,000. As a discretionary service business, nail salon profitability will often hinge on the economy at large. During economic downturns, demand for non-essential services such as manicures and pedicures will fall. As the owner of a nail salon, you should be prepared for these economic ebbs and flows.
With an idea of who your ideal customer is and where your salon will fit in the local market, you can begin to consider what services you’d like to offer, any products you hope to sell, and how to price these selections.
What types of services will your nail salon offer?
A nail salon can offer anything from basic manicures and pedicures to a full slate of personally crafted specialty services. To begin, sketch out a list of services you hope to offer based on the type of salon you are opening. Start with the basic categories of manicure, pedicure, and artificial nails and build your list from there. This initial list will look something like this:
- Artificial Nails
- Acrylic Overlay
- Dip Powder
- Gel (with or without UV curing)
The specific services you offer will depend on your salon’s style, atmosphere, and aesthetic, but should also strongly take into account the information you gain during the market research phase of planning. Look closely at who uses salon services in your area, what services are most popular, what your competition offers, and what gaps can be filled.
A nail salon in a small college town will offer services and specialties different from one located in an upscale city center, but that does not mean you can’t put your own personality into your salon. One of the best ways to do that is to focus on both the service and the experience. Consider how you can transform a manicure or pedicure into a unique spa experience for your clients. Services falling under the manicure category can include anything from simple polish or French manicures to paraffin wax treatments and aromatherapy hand massages, while pedicures may include a hot stone massage or callus treatment.
One of the most appealing aspects of opening a nail salon is that changing and adapting your services comes with low overhead costs. As you begin seeing clients and getting a feel for what types of services they are requesting, what style of artificial nails they prefer, and which technicians are most in-demand (and why) you can further tailor your offerings to meet those demands.
Finally, many nail salons offer additional services, such as waxing and false eyelash application. Keep in mind that as you expand your offerings your technicians may need to be specifically licensed to perform these new services.
Will your nail salon offer products for sale?
Offering products for sale in your salon is an excellent way to add to your profits. At the very least, most salons will sell the line of nail polish they use on their clients. Other popular offerings include hand and foot care products, cosmetics, fashion accessories, and gift sets.
Your product offerings should stem directly from your available services. Like your list of services, your selection of products will likely evolve over time as you learn the preferences of your clientele.
Pricing your services right is a critical factor in the success of your salon. At the most basic level, price setting is a product of supply and demand. As with each factor in your planning, your market research should be the first place you look for information on how to properly price your salon services.
If you set your prices too high above the average rate in your area, you risk pricing out your target customer base or driving them to your competitors. If there is a great deal of competition in your area, consumers will have enough options to choose a lower price for comparable services. Even if you are the only salon in town, however, your prices can still only go as high as your customers can reasonably afford and are willing to pay.
On the other hand, pricing your services too low also comes with a number of problems. If your services are priced too far below average you risk inviting a higher demand of clients than you can handle, leading to long wait times for appointments or rushed services, both of which will turn people off to your salon. Additionally, low prices can lead to lost revenue or a price war with other salons in your area that can put you out of business.
Your prices will ultimately need to be high enough to cover your expenses and turn at least a modest profit.
Beyond the supply and demand curve, however, there is a strong psychological factor involved in pricing. It has consistently been shown across industries that consumers use the price of products and services to help determine their quality. For this reason, people will very often respond more favorably to higher-priced items, even when identical products are being compared.
If you consider all of these factors, you should be able to establish reasonable prices for your services that can be tweaked up or down as your business develops until you find your sweet spot.
Finding the proper space for your salon will have a big impact on upfront and ongoing expenses as well as the overall success of your business. Because the location of your salon is one of the most important decisions you will make, be sure to set aside enough time to visit many locations and consider all of the following critical factors before settling on a space.
Buy or rent
The decision to buy or rent your space will have lasting implications for your budget and the future of your business. Buying will typically require a larger upfront investment, while renting offers more flexibility. Commercial rental rates can be anywhere from $10 to $200 per square foot per year, or around $10,000 to $200,000 annually. Real estate prices can vary just as widely depending on your location.
Turnkey or remodel
You will also need to decide if you’d prefer to purchase and take over a functioning salon or start from scratch. Buying out an existing business can be much less of a risk, but will not offer as much flexibility when it comes to executing your own vision. The cost to purchase a fully functional nail salon can range anywhere from $40,000 to well into 6-figures depending on where you live and what you’re looking for. Alternatively, industry experts estimate that the cost to build out a nail salon in a commercial space will range from $75,000 to $125,000 for a 1000 square foot salon.
Choosing the right location for your business is essential and will have a big impact on both cost and success. You will need to balance the benefits of a given location with your budget to find a space that is attractive from a business and financial perspective. Things to consider include the other businesses around your space, the level of foot or vehicle traffic past your location, and the population in the area. If you select a residential area you will need to determine how visible your location is from the road or sidewalk and how busy or deserted the area becomes during the workweek. If you select a space within a larger shopping plaza, the other businesses in the plaza will have a dramatic effect on what type of consumer is walking past your salon.
As a service-based business, hiring the right employees is essential. Although you won’t be doing any hiring at this stage, it’s important to start considering what roles need to be filled and how you may go about filling them.
Day One Employees
Unless you are starting a small at-home salon or a one-person mobile salon, you will need to hire at least a handful of employees ready to work from day one. At a minimum your start-up staff should include one or more technicians to perform salon services, a front desk receptionist to greet clients, answer phones, and make appointments, and someone to manage the day to day business functions of the salon. You may choose to take on one or more of these tasks yourself, but will not be able to handle all of them on your own.
To get a rough idea of who you’ll need to hire, think about how many manicure and pedicure stations you hope to have in your salon, what additional services you plan to offer, and how much you can afford to spend on your staff’s wages. You can also begin a preliminary list of qualifications you will seek in prospective employees and how you hope to conduct the interview process. Read our full guide on the hiring process.
This first core group of employees will be a more integral part of your business’ success than future hires. For this reason, hiring the right people and developing a training program that gets them invested not only in their job but in your business as a whole can make all the difference. Start to think about the key skills you’ll look for in your employees and how you can hone these skills through proper training. Consider also, what type of customer service environment you hope to create and how you can instill your values as a business owner in each person you bring into your venture.
Before you get started, be sure you understand what permits, licenses, and insurance are required to keep your business compliant with state and local regulations.
In general, most states require that businesses be registered. This involves forming your business entity, be it a sole proprietorship, partnership, LLC, or corporation, through the state government where you plan to do business. Learn how to form a business in 6 easy steps.
Business and professional licensing requirements vary by state, but it is common for nail salons to require both a business license and a cosmetology establishment license before beginning operations. All states require that nail technicians complete a certain number of hours in cosmetology school to be eligible for work in a salon. Your state government’s website can direct you to exactly what is required.
Finally, insurance is critical to protect yourself and your business and is required by most states. To start, it is recommended that you purchase at a minimum, general liability, professional liability, worker’s compensation, and property insurance.
At this point, you should feel confident about your business goals, your target customer, and where your business is likely to fit in the overall industry and marketplace. With these things in mind, you should be well equipped to begin considering a marketing strategy. To do so, there are a few things to consider.
How will you position yourself in the market?
With all of the information above in mind you should now be well equipped to understand where your business will fit in the market. Some questions to answer at this phase include:
- Will your nail salon be the premium choice in the area or offer a lower price option to customers currently priced out of local salon services?
- Is your salon a quick and convenient lunch-break stop or does it offer a more luxurious, personally tailored service than your competitors?
- What is the story behind your business and how will this help you connect with your customers?
- What value does your business add to your community?
The answers to these questions should be the jumping-off point to developing a broader marketing strategy to effectively reach your target customer base.
How will you get new customers?
Attracting customers is the most basic goal of a successful marketing strategy. As a direct business-to-consumer industry, your marketing will directly target your customers. To do so you’ll need to know where your customers are and how to reach them.
To start, think about which major marketing devices will work best for your business. These include:
- Social media
Which of these tools you use and how you use them will depend on the results of your market research. Consider some of the following questions:
- Where do your target customers spend time, both on and offline?
- What other local businesses do they frequent?
- What social media platforms are they most likely to use?
- What, if any, print media are they reading?
- Do they listen to traditional radio or stream their music?
- Are they likely to have cable or do they primarily stream their media?
The answers to these questions will depend significantly on the demographics of your target customer. Finding accurate answers will save you a tremendous amount of time and money and get your business off the ground much more quickly.
Although new customer acquisition is an essential part of any business plan, understanding customer retention is absolutely critical to your success. No amount of effective ads can replace the value of building a loyal customer base that will return again and again. Return customers are also likely to provide you with word-of-mouth marketing, giving your business an additional cost-free boost and allowing you to scale back on your overall marketing expenses over time.
Customer retention is often a natural product of doing good business, but that doesn’t mean you should take it for granted. Consider your entire business plan and how each facet of it can help you build effective communication and strong connections with your clients. Staying active on social media, reaching out with new product offerings or promotions, streamlining your appointment system, and simply providing stellar customer service can all keep your clients coming back for more.
Planning ahead is critical to any business, but these plans will not come to fruition unless you have the funds to put them in motion. Before you can begin to fund your business you’ll need to have a clear picture of what you need to get started. Potential lenders and investors will want to see a solid and realistic budget before committing funds to your project.
Although not exhaustive, the list and estimated cost of the items below should serve as a guide to help you write up a financial plan for your business. Speaking with other salon owners and local business owners in your area will help you expand upon this list and more accurately price each item.
The first thing to begin calculating is your start-up costs. This includes everything you’ll need to have before opening your doors on day one.
Equipment and supplies
Your initial purchase of equipment and supplies should include everything you need to set up and stock your salon. This will include:
- Administrative equipment such as a point of sale system, register, phones, and a reception desk.
- Reception furniture such as chairs, couches, tables, lamps, and other furnishings; shelving or cases for retail products; laundering equipment.
- Salon station equipment such as manicure stations, pedicure stations, sanitation stations, nail drying lamps, nail polish racks, and any other manicure and pedicure supplies you want to have on hand.
You will also need to budget for your initial salon inventory. This includes all of the nail polish, lotions, cleaning and sanitation products, and other consumable items you will need on day one.
The cost of these items will depend on both the size of your salon and the style you’re looking to create. Manicure and pedicure stations, for example, can range anywhere from $200 to well over $1000.
Certifications and licenses
If you plan to personally provide salon services, you will need a cosmetology license. This requires completion of a cosmetology program, which typically costs anywhere from $6,500-$10,000
To get the best price on business insurance, shop around for bundle options that include all of the policies you’ll need for your business. While business insurance costs vary significantly based on industry, you should expect to spend a few hundred to a few thousand dollars to get your policies up and running. CW Insurance offers a broad range of business insurance options. Request a quote.
The cost of your marketing will depend on the nature and scope of your strategy and whether you do your marketing in-house or outsource it to a professional marketing service. You will also need to consider the cost of building your salon’s website. If you hire a professional to build your site, you should expect to spend a few thousand dollars to get it up and running. GoDaddy’s free website builder can help you get started on your own.
While not required, many entrepreneurs seek out legal advice when starting a business. If you choose to do so, be sure to include a line in your budget for legal fees. This can be anywhere from a one-time fee of a few hundred dollars to well into the thousands if you retain an attorney at an hourly rate during your start-up phase.
The bottom line
Generally speaking, those looking to build out a commercial space should expect an upfront start-up cost anywhere from $100,000 to $500,000. For those looking to purchase an existing salon, your start-up budget will likely fall between $50,000 and $300,000.
Once you’ve gotten your salon up and running, you will face a number of ongoing expenses. You should not, however, wait until that point to plan for these costs. Your salon’s revenue will ideally cover your expenses moving forward, but you should be prepared to cover at least part of your ongoing costs over the first few months as you get your business off the ground.
Employee wages will be your biggest ongoing expense. The total cost will depend on the size of your staff and the expected wages in your area. On average you can expect to pay a manicurist or pedicurist anywhere from $16,000 to $36,000 per year. A receptionist will typically make around $23,000 per year, and managers or supervisors can make up to $39,000 annually. You should also consider what salary you hope to take for yourself initially and in the long-term.
The taxes you owe will depend, in part, on your business structure, the number and type of employees you hire, and your annual revenue. You will be responsible for both federal and state income taxes on your salon’s profits and payroll taxes for your employees. The federal payroll tax rate is 15.3%. As the employer, you must cover half of this amount, while the other half is deducted from your employees’ paychecks each pay period. You are responsible for paying the full amount to the federal government, often on a quarterly basis. If you own your salon space, you will also owe property taxes. Check out our tax affiliate for more information.
Rent and utility bills
Your electric, gas, and water bills will depend on the scale of your business, the type of equipment you use, and where your business is located. Unless you operate a large-scale salon with the highest-tech equipment, your utility expenses should not exceed a few hundred dollars per month.
After your initial inventory purchase, you will need to restock your supplies on a regular basis. If you are starting your salon from scratch, it may take a few months to determine how quickly you run through your supplies, so it is important to have extra money set aside initially for this expense.
Once open, you’ll need to maintain a budget for continued marketing. This does not need to be a large expense, especially once you’ve established a solid client base and word of mouth advertising. However, it is important to budget anywhere from $500 to a few thousand dollars annually for ongoing marketing expenses.
Although you are only in the planning phase of your business right now, it is important to spend some time putting together the most realistic financial projections you can manage. These projections will be especially important when you begin seeking out funding from investors and lenders. They will also help you understand how your business can meet its financial obligations while maintaining a positive cash flow.
If you have not prepared any financial information at this point, you can start by researching industry statistics to develop estimates of what the profits and costs will be for your company. If you still need assistance you can contact a local Small Business Development Center (SBDC) or SCORE, two of SBA's resource partners, through the SBA.gov Local Assistance tool. They are located across the country and provide free business counseling and answers.
Your financial projections should include the following:
- Prospective profit/loss sheet: This summarizes your revenues, costs, and expenses incurred during a specific period of time. It shows the ability of your business to generate profits by increasing revenue and reducing costs.
- Prospective cash flow/budget: This shows how money will come in and go out of your business. This will indicate when your expenses are too high and help you determine if you should arrange short term investments to deal with cash flow surpluses. It will also highlight how much capital investment your business will need.
- Prospective balance sheet: This indicates the future financial health of your business. Using your profit and loss and cash flow spreadsheets, you can project what your balance sheet will look like at the end of your first year.
- Break even analysis: This indicates when your business will be able to cover all of its expenses and begin making a profit.
Complete your business plan
If you’ve made it this far and are ready to get moving on making your business a reality, keep your momentum going by continuing on to our guide to developing a nail salon business.