Rent, Product Cost, and Whether to Raise the Price
A solo esthetician charges $95 for a signature facial and averages 4 clients per day over 22 working days per month. Product cost per service averages 15% of the ticket. Card processing costs 2.9% plus $0.30 per transaction. Monthly fixed costs: $1,450 rent, $120 liability insurance, $45 booking software, and $85 for utilities and supplies she treats as fixed. Her rent is increasing by $250 next month, and her main product line just announced a 6% increase. She is considering raising the facial to $110, but she estimates 15% of her clients would leave. She is also thinking about bringing in a second esthetician as a booth renter instead of an employee.
1. Calculate her current net profit per service, her monthly break-even client count, and her current monthly profit before tax.
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Per service ($95):
- Product: 0.15 x 95 = $14.25
- Processing: 0.029 x 95 = $2.76, plus $0.30 = $3.06
- Net per service: 95 - 14.25 - 3.06 = $77.69
Fixed monthly costs: 1,450 + 120 + 45 + 85 = $1,700
Break-even: 1,700 / 77.69 = 21.9, so 22 clients per month (about one per working day).
Current profit: 4 clients/day x 22 days = 88 clients. 88 x 77.69 = $6,836.72. Minus $1,700 = $5,136.72 per month before tax.
Why this matters: her margin is thin enough per service that fixed costs dominate; the analysis should drive the decision, not the rent increase by itself. Note also she is treating supplies as fixed - that is an assumption worth checking, since supplies often scale with volume.
2. Model the $110 price at 15% attrition, at the new rent and with the 6% product increase. Is it a good decision?
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New per-service economics at $110:
- Product: 0.15 x 110 x 1.06 = $17.49
- Processing: 0.029 x 110 = $3.19 + $0.30 = $3.49
- Net: 110 - 17.49 - 3.49 = $89.02
Volume at 15% attrition: 88 x 0.85 = 74.8, so 75 clients.
New fixed costs: 1,700 + 250 = $1,950
Profit: 75 x 89.02 = $6,676.50 - 1,950 = $4,726.50
Compare: against the old $5,137, this is roughly $410 less per month, so the price increase as modeled loses money. Break-even volume at $110: 1,950 / 89.02 = 21.9, so still about 22 clients - meaning the increase only wins if she retains more than roughly 75 clients.
Judgment: the math is sensitive to the attrition estimate, which is a guess. A defensible move is a smaller increase (e.g., $100-105), a tiered menu so price-sensitive clients have a lower option, retail or add-on revenue to lift the ticket without raising the core price, and tracking retention for 60-90 days before any second increase. Raising price while adding value (longer service, better product) is more likely to hold clients than a bare increase.
3. What factors determine whether the second esthetician should be a booth renter or an employee, and what should she verify before deciding?
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The question is control, not preference. Booth rental is generally defensible when the renter sets her own hours, prices, and clients, provides her own tools and products, controls her own schedule and technique, and is paid by her own clients - a flat rent arrangement with real independence. It looks like employment when the salon sets the schedule, assigns clients, sets prices, requires specific protocols or uniforms, trains and disciplines, and pays a commission or hourly wage.
Why misclassification is a business risk: payroll taxes, workers' compensation and unemployment exposure, back assessments, and penalties can land on the salon; a written lease does not override actual practice.
Verify before signing:
- Current licenses for the establishment and for any renter.
- The salon's liability policy and whether the renter carries her own coverage.
- A written rental agreement with rent, term, and space, not a commission split.
- The establishment's rules on shared disinfection, laundry, and reception.
- Consult a CPA or attorney on Michigan-specific classification rules before implementing.
Bottom line: the paperwork must match the day-to-day reality, or the label is worthless.