How to Start a Hair Salon Franchise Successfully

Introduction

So you want to open up a hair salon franchise. According to IBISWorld, the hair salon industry in the U.S. is worth $47 billion and is expected to grow at an annual rate of 2.7% over the next five years.

About the Industry

The industry, for better or worse, is highly fragmented, with no single company accounting for more than 6% of the market share in the United States. Franchising has been popular for some time in the hair salon space.

Hair Salon Franchise Space

Publicly traded companies like Regis, which owns SuperCuts, and other brands such as Great Clips and Sports Clips, dominate this space with thousands of locations throughout the U.S. We’ll explore Great Clips in-depth, along with up-and-coming brands like Sharkey’s Cuts for Kids and Lemon Tree.

Hair Salon Franchise Review

According to Franchise Business Review, hair salon franchisees have an average satisfaction rating of 76 out of 100, which is higher than most other franchise sectors.

Investment Cost

The initial investment for a hair salon franchise can range from $100,000 to $500,000. However, the cost keeps rising, and the average sales and profits are not keeping pace.

Challenges Post-Pandemic

This industry was hit hard during COVID-19. Many people, including myself, delayed getting haircuts, reducing salon frequency significantly. Currently, sourcing and maintaining talent remains challenging, especially as many stylists have permanently or temporarily left the workforce.

Franchise Options

Great Clips

• Locations: About 4,500 in the U.S., all franchised
• Fees: 6% royalty, 5% marketing fee (slightly high)
• Investment: $150,000 to $300,000
• Franchise Fee: $20,000
• Estimated Revenue: Around $300,000 per location

Lemon Tree

• Locations: 42 (35 franchised, 7 corporate-owned)
• Fees: 6% royalty, $120/week marketing fee
• Investment: $200,000 to $240,000
• Franchise Fee: $35,000
• Revenue Performance:
  • Top 10%: $500,000
  • Top 50%: $378,000
  • Bottom 50%: $189,000 or lower, with minimal profit margins

Sharkey’s Cuts For Kids

• Locations: 70, with 1 corporate location in the U.S.
• Fees: Variable royalty, 3% for marketing
• Investment: $160,000 to $200,000
• Revenue Performance by Tier:
  • 2020: $100,000 to $200,000
  • 2021: $188,000 to $336,000, showing recovery from COVID-19

Recoup Investment

When considering a hair salon franchise, resales can be a better option compared to starting from scratch. The initial build-out costs for a new franchise could take 4-5 years to recover, whereas resales might allow for returns within three years.

Conclusion

If you’re interested in opening a hair salon franchise, talk to existing franchisees of Great Clips, Lemon Tree, or Sharkey’s Cuts for Kids. Get insights on sales, profit, and talent sourcing challenges. Hopefully, talent acquisition becomes easier in the near future.