Expansion Issues

After a thorough break-even analysis and conducted and the population has been researched for your target group, an educated decision can be made how many tanning units your salon can support and if your financial goals are achievable.

For example, your break-even analysis indicates that you need to tan 900 people each month (30 per day), to cover all your fixed expenses. You find that during the busiest months of the year you can achieve this figure, (or the income represented accordingly), by the 10th day of each month. In fact, most days you operate at two to three times the point of break-even.

Demographic research of a target market further reveals that are 5,000 potential customers in your area and there are currently only 15 tanning units in operation. Given these circumstances, it appears your business could support more than equipment.

To further reinforce the analysis, the next step would be to program in the extra units you intend to add into the break-even formula. This will determine exactly how the addition of the new equipment will affect the existing conditions at your business.

Adding more equipment will increase your maximum capacity for tanning and profitability. It also will increase fixed overhead with regard to the cost of the equipment, building more rooms, renting a larger space, adding additional employees, etc.

It is important to note that in most situations where a salon is adding one or two more units, fixed overhead such as rent, telephone and labor does not dramatically increase. The break-even analysis will verify this and allow salon owners to determine exactly how much sessions must be generated each month to pay for each individual cost center.

While the break-even analysis and demographic research will provide excellent guidelines, other important factors also must be taken into consideration.

Markets where competitive salons are mismanaged or feature outdated equipment always percent prime opportunities for growth. When calculating the number of tannin units a market can support, outdated equipment and mismanaged salons should be discounted accordingly.

Remember that mathematical calculations and evaluations are just part of the overall equation. Your own business instincts regarding conditions in your marketplace are of equal importance. The break-even analysis and demographic research are designed to provide guidelines only. They cannot predict actual market performance.

Finally, regardless of whether you intend to expand, it is advisable to conduct a break-even analysis on your business every month. Salon owners also should have a demographic profile conducted on the target market.

All of this information will guide you in the successful operation of your business, whether you have two tanning units in the back of beauty salon or a full-fledged 30-unit tanning salon.