From trendy hair salons to corner barber shops, this comprehensive guide will show you how to start the salon or day spa you've always dreamed of.

Editor's note: This article was excerpted from our Salon or Day Spa start-up guide, available from SmallBizBooks.com.

Since the dawn of the new millennium, the stock market has been in a freefall and the economy has been in the doldrums. But it was a good time to start a hair salon and day spa--and it still is today.

According to Modern Salon/Vance Publishing, total salon industry revenue is predicted to be $3.4 billion in 2005, up 11.8 percent from 2002. How is it possible for a service sector like the beauty industry to continue to grow, given the state of the economy? No doubt because many of the services offered by salons simply cannot be duplicated at home--or at least not duplicated well. In addition, in an age where people freely shell out $59.95 a month for unlimited cellular service or hundreds of dollars to lease the latest SUV model with the most bells and whistles, the price of a haircut probably doesn't seem very high considering the lift it can give your spirits. Also, the baby boomers, who now constitute the largest population segment in America, are more than willing and are financially able to spend money on any personal care service they perceive will make them look younger and more attractive.

What all this prosperity means to you is that the prospects for people who own personal care businesses are bright. The 2003 Job Demand Survey, distributed by the National Accrediting Commission of Cosmetology Arts and Sciences, indicated that average total income (including tips) for salon owners was $53,150 in 2002, although it's possible to earn much more depending on where and how you do business.

(And just as a side note: When we say "salon" throughout this article, we mean salon and day spa, as the title of the start-up kit indicates. Since the tools necessary to open both are basically the same, it seemed redundant to say "salon/spa" over and over.)

The Opportunities

There are three ways you can make your mark on the hair industry. You can open a franchise hair salon, in which you pay money upfront for the privilege of opening that salon using someone else's established name (which gives you an instant reputation) and its resources (like advertising campaigns). You can buy an established salon from someone who is retiring from the business, has tired of the business, or has damaged the business and forced it into bankruptcy (all three happen every day). A third option is to establish your own salon using your own money, your own ingenuity and your own optimism that hard work and talent will win out.

There's one more option that bears mentioning here because it's so prevalent in the beauty business. Booth rental salons are owned by a person (or persons) who is basically the landlord for a group of hairstylists and other service providers working under his or her roof. As the landlord, the salon owner/operator collects a flat monthly fee from the service providers, for which they have the privilege of using salon space and nonremovable equipment like a styling station and chair. The renters, in turn, are considered independent contractors who must provide their own supplies (everything from hair dryers to perm rods), set their own hours, book their own appointments and have their own key to the building.

To begin with, you must consider your hours of operation carefully so you can accommodate the maximum number of clients during the business day. You undoubtedly already know that the beauty business isn't a 9-to-5 kind of industry. Salons are now open seven days a week and on some of the traditional holidays, and their hours may be extended around prom time or during peak wedding season. What has driven this demand has been the proliferation of two--income couples who manage the demands of raising a family while juggling careers and managing their own personal business. So while it wasn't so long ago that people wouldn't even consider getting a haircut on Sunday, salon hours on Sunday are now a must (even if on an abbreviated schedule). Even day spas are open on Sundays, since this may be the only time during the week that a busy career mom can get away for some personal pampering.

Typically, hair salons in metropolitan areas are open from 10 a.m. to 9 p.m. six days a week, unless the owners are enlightened and add those Sunday hours mentioned above, and from 10 a.m. to 6 p.m. in smaller communities. By design, Sunday and holiday hours often are the same as those of local retailers like malls and department stores, and they generally run from noon to 5 p.m. Lunch hours and early evening hours tend to be the busiest times for salons. You might also need to have special hours to accommodate special needs. For example, if you do a lot of wedding work, you'll probably have to be open earlier on Saturday mornings, say at 8 a.m., for the brides who have to get to church for a 10 a.m. service.

Pricing

Another important part of your salon development plan is the appropriate pricing of your services. Set prices too high, and you'll limit the number of people who can afford them; set them too low, and you'll limit your profit potential and possibly put the business at risk. Of course, the price the market will bear is very much dependent on the demographics of your service area. If you're in an upscale area with larger homes occupied by people with more disposable income, you can price your services accordingly and even offer high-end spa services. But if the surrounding community is peopled by young working families, you'll have to forego the spa services (or offer no more than the bare minimum) and concentrate instead on basic haircutting and color services that are affordably priced.

When setting prices, you must consider the three factors that will influence your prices: labor and supplies, overhead, and profit. Labor costs for salons include salary and benefits costs for both your stylist/spa staff and administrative people (including your manager, receptionist and other support staff). Your own salary is included as a part of this cost. This cost is generally expressed as a price per hour and can vary depending on the amount of time it takes your employees to cut hair or perform other services.

Next, you need to consider your overhead costs, which consist of all costs required to operate the business other than labor. This includes your mortgage or lease payment, utilities, and so on. It's reasonable to estimate that your overhead will be from 40 to 50 percent of your labor and materials cost. (This figure can be adjusted later as you accumulate financial data.) So let's say when you tally up all your labor and materials costs for the year, you arrive at a figure of $100,000. Your estimated overhead expenses (at 45 percent) would be $45,000. This would give you an overhead rate of 45 percent.

The last part of the pricing equation is profit. Salon owners generally can expect to have a net profit of 11 to 15 percent (although you can certainly make this profit figure higher or lower as you see fit). To arrive at the net profit you want, you have to add a markup percentage factor to your services so you'll arrive at the approximate gross amount you'll earn.

One way to simplify the process of setting prices to the extreme is to figure out how much the salon needs to make for the year and do the math to arrive there. For instance, let's assume you want the salon to make $52,000 per year. Here are the calculations you'd use to figure out your prices:

$52,000/52 weeks = $1,000 per week

$1,000/100 hours the salon is open each week = $10/hr

Add a 10 percent profit margin = $11/hr

On the hair salon side, the most sought-after service is, of course, haircutting and styling. This includes everything from styles created with a blow dryer, curling iron or hand scrunching to tried-and-true roller/dryer sets for the "mature" clientele. Popular color services include highlighting, lowlighting, glazing, corrective coloring, dimensional special effects, and hair and scalp treatments. Texture services include permanent waves, partial or spot perms, spiral perms and anti-curl treatments. Braiding, which has made a strong comeback in many parts of the country, falls into a category of its own. Finally, special occasion hairstyling, for events like proms and weddings, round out the typical hair services menu.

Although technically it's an aesthetic service, nail and foot care is often offered in hair salons. Nail services include:

• Manicures (both traditional and French manicures)
• Pedicures
• Nail wrapping
• Acrylic nail application
• Sculpted nail application
• Nail tipping
• Paraffin treatments
• Skin exfoliation and hand/foot massage are often part of the manicure and pedicure processes.

Whether you offer nail services is entirely dependent on the size of your salon and whether you can afford both the equipment and the salary of a nail technician at the outset. Today's nail client is used to visiting shops devoted only to nail services, so she won't be surprised if you don't offer manicures, acrylic nails and tipping. But you may be able to get her to leave her regular manicurist if she sees that you're offering the same service at your cool new salon. At the very least, you should offer haircuts and styling, basic perms, straightening treatments and highlighting.

Types of Spa Services

As mentioned before, spa services are a rapidly growing segment of the personal care industry. The range of services is truly dazzling, but basically, aesthetic services offered at a day spa fall into three categories: skin and body care, hair removal and makeup. (Technically, there is a fourth category--nail services--but as we just mentioned, nail services have crossed over into the beauty mainstream and are no longer considered just a spa service. However, when offered in a spa setting, nail services tend to be higher priced than in a salon.) Skin and body care spa services include:

• Facials and body exfoliation (which may involve the use of salt glows, body polish, enzyme peels, and body masks like mud or paraffin)
• Massage (full body massage, facial and/or hand/foot massage)
• Wraps and packs (used to combat cellulite and reduce water retention)
• Hydrotherapy treatments (whirlpool baths, Scotch hose--a type of massage that uses a hose to direct streams of water on the client to improve circulation--and hot tub treatments)
• Body tanning (self-tanners and tanning beds)
• Hair-removal services include:
• Electrolysis
• Waxing (face, legs, arms, bikini, back and underarms)
• Eyebrow arching
• Makeup services include:
• Cosmetics application
• Color analysis
• Eyelash tinting
• Eyebrow tinting
• Ear piercing

When determining which of these spa services to offer, it's important to weigh factors like equipment cost against potential profitability. For instance, you may want to offer hydrotherapy in your new day spa. But hydrotherapy services require the greatest outlay of cash for equipment and facility development. So it might be a better idea to limit your spa services initially to massage (which doesn't require as much equipment) and/or facials.

Another important factor to consider when deciding which spa services you'll offer is that many of them require a wet room. This includes the hydrotherapies mentioned above, as well as any body masks, exfoliation treatments and other body treatments that must be rinsed off after application. Even if you decide not to offer hydro services when you first open, you should at least plan to include a wet room in your initial plans or you'll always be limited to "dry" services--unless, of course, you move to new digs or expand your existing location.

Because the concept of a day spa implies a day of pampering similar to what you might enjoy on a spa vacation or a cruise ship, it's common for spa owners to offer packages of services. Generally speaking, packages should consist of at least three complementary services, or in the case of hydrotherapy treatments, one hydro service and up to four "dry" services. Spa industry insiders recommend offering half-day packages that run about three hours and full-day, five-hour packages that include 30 minutes to an hour for a light lunch.

Editor's note: This article was excerpted from Salon or Day Spa start-up guide, available from SmallBizBooks.com.

Continue to Part 2 >>A Day in the Life of a Salon & Spa Owner

Continue to Part 3>> How to Open a Salon or Day Spa – Staff and Resources