Business Proposal

Opening a Beauty Salon

xxxxxxxxxx

ECO 561

xxxxxxxxxx

April 16, 2012

University of Phoenix

Opening a Beauty Salon

In today's economy in a perfect competition market which means there are large number of salons beauty salons are exploding all over the country. With all the competition in this industry there are a few key considerations that could set one salon apart from another. To increase potential success there are factors that need to be considered such as steps to increase revenue, profit-maximizing quantity, pricing and non-pricing strategies, product differentiation and ways to minimize cost.

Before opening a beauty salon there are several major overhead costs that include real estate, payroll, inventory and equipment. Financing a salon takes maintaining a positive cash flow against high operating costs and in most scenarios conventional forms of funding such as bank loans will not work. As a solution must business owners seek other forms of out-side funding. Some options for new or expanding salons is to look for vendor financing, leasing equipment and getting an unsecured business cash advance. Once financing is achieved there are several other things to consider when running a successful salon.

Increase revenue

There are several ways that can potentially increase the revenue in a beauty salon. Location is key to increase salon traffic, for example shopping centers can allow for easier access for walk-ins and great for advertising prospects. Once location is established it is important to increase and maintain the traffic in and out of the salon. With today's financial predicament, sales for beauty salon's has nose-dived and as a result many salon's have taken on the ideas of many money-making strategies such as (what makes a salon or spa successful?):

* Free services (i.e. hairs cuts, color and etc.)

* Email campaign

* Discount coupons

* Social networking

* Local business partnering

Profit-maximization

Profit maximization is the short run or long run procedure by which a business establishes the price and productivity level that returns the greatest revenue. This means profit equals revenue minus cost and focus its attention on decreasing the fact that total profit reaches its highest point where marginal revenue equals marginal cost (www.wikipedia.com). With this in mind beauty salon owners need to focus on maintaining a faithful clientele and recruitment of future clients. To establish a successful salon owners should begin with product marketing within the salon, add-on services, referral and loyalty programs and calendar-based price campaigns. No matter what the beauty salon focuses on, money can be made by offering other services, selling products creating and ambiance in the salon is the key bringing in patrons and keeping patrons coming back while offering value-added options for rising revenue and profits (Acevedo).

Marginal cost and marginal revenue

For a beauty salon to reach its full financial potential management must know about the three basis which are revenue, cost and profit. Marginal cost and marginal revenue are ways that a business owner can determine the effects of running the business. Most companies would like to reach production equilibrium where marginal cost and marginal revenue are equal. Equilibrium between these two economic concepts is so necessary for the success rate of the company. Marginal cost rises when the total cost changes by producing additional units. Businesses can compare the marginal cost and marginal revenue increase as part of a cost benefit analysis (what is the relationship between marginal cost and marginal revenue?)

Pricing and non-pricing strategies

Pricing is one of the most essential components of the marketing mix. Great pricing strategies are in place to generate traffic in the salon that leads to revenue and then profit. The other parts of the strategy include product, production and promotion. Pricing must support these elements of the strategy and must reflect the supply and demand relationship. Pricing should take into account the following factors (Pricing strategies):

1. Fixed