Here Is How A Hair Salon That Charges You $3.80 Really Makes Money

Over the past few years, most of us would have known of this hair salon that charges customers a ridiculously low price of $3.80 for a haircut.  The brand that runs it, Snip Avenue, has become a household name among those looking for a quick, fuzz free haircut.

So the question is, how does a salon that charges $3.80 for a haircut make money, or even, stay in business.

It Is NOT About The Quantity Of Customers

The most common misconception that we hear about Snip Avenue is that pricing haircuts at low price would allow them to earn money through the sheer volume of haircuts given. No, that is not how they earn money. Let’s debunk this myth.

Let’s use some logic to understand the business. The average outlet opens for about 10.5 hours each day. Peak period will be between the time of 6pm to 8.30pm. From between the time of 10am to 2pm, there are unlikely to be much customers, cheap haircut or not. From 2pm to 6pm, business may pick up slightly.

Let’s assume the following:

Off-Peak: 10am – 2pm: 2 customers per hour per staff

Normal: 2pm – 6pm: 3 customers per hour per staff

Peak Period: 6pm – 8.30pm: 6 customers per hour per staff

Serving a total of 34 customers each day is a good number in our opinion. Even then, total revenue obtain via haircuts is about $129 per day, which is probably barely enough to cover the salary of the staff and utility bills in operating the outlet, let alone rent, equipment cost and any other miscellaneous costs.

Higher Margin Products

We should see the $3.80 haircuts that they give as a promotional play, rather than a pricing strategy. In other words, think of the $3.80 haircut as a type of promotion meant to help attract walk-in customers to the shops. The additional revenue, however, is earned when a customer purchase a higher margin product.

The salon makes money through the purchase of higher profit margin. These include hair treatment, rebonding, perming and colouring. Prices can range from $50 to $80 or more, depending on what you buy.

Though the prices of these services are still cheaper compared to what is offered by other hair salons, they are not as cheap as the haircuts. These are likely to be the products that help cover the cost of the business and perhaps give some returns back to business owners.

If we assume each staff manages to service two higher margin products each day, with the product costing an average of $50 each, and requiring one hour of time, here is how the daily takehome looks like.

Each staff now serves about 30 customers but earns a total of about $206.  It still isn’t a lot of money, but better than it was before. On average, each customer spends $6.88, compared to $3.80 in our earlier example.

Being In The Heartlands While Keeping Cost Low

Snip Avenue outlets are always situated within the heartlands, near cluster of HDB blocks. This makes it a convenient location for people staying nearby who are looking for a haircut on the way back from work.

Also, the rental that Snip Avenue pays is also likely to be much cheaper, as compared to operating a salon in a shopping mall, or even one of those $10 10-minute haircut outlets. The combination of lower rent and higher foot traffic helps make the business model a sustainable one, so long as they are able to sell some high margin products each day.

Will This Work?

We have some reservations how these strategies could play out. On one hand, having access to a large pool of walk-in traffic is never a bad thing for any business, but only if you are able to monetise from it.

On the other hand, we wonder just how price-sensitive people are for higher margin products. It’s one thing being able to attract customers once a month to your shop for $3.80 haircut compared to $20 elsewhere.

It’s a whole different business attracting people to spend $80 in your shop compared to $100 elsewhere. Services such as hair treatment or rebonding are not required every month, and people tend to be more okay spending on it. Service and ambience tend to rank higher in priority, especially if you are going to spend more than one hour in the salon.

Ultimately, we think that Snip Avenue will be able to be profitable as long as they are able to attract a percentage of their existing customers to buy other products that they offer. It will not work if customers are solely relying on them for cheap haircuts, while going elsewhere to other salon for higher margin products.

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